DOW Wedge Break and 50% Fib Cross
The Dow Jones Industrial Average(DJI) closed Friday at $23,723.7 with a loss of $622(-2.55%) to start off the new month of May. With Friday’s decline price also closed below the lower line of the rising wedge pattern after finding support at, and trending just above it, for the previous 8 trading sessions. This is the second wedge break since highlighting the pattern, but after the previous wedge break failed to materialize in a new downtrend and instead saw a move to new local highs, the lower line of the wedge pattern was redrawn to its current position. Now that we have a break of the lower wedge line again a new lower price target can be found by making a measured move from Friday’s opening price below the wedge line. This target is calculated by taking the difference between points A and B at the base of the wedge pattern and subtracting that difference from the opening price of the first candle to trade below the rising wedge pattern, which is Fridays candle since it opened and closed below the lower line of the wedge. By taking the low of candle A($18,213.7) and subtracting it from the high of candle B($22,595.1) we get $4,381.1. This value is then subtracted from the opening price of Fridays candle which was $24,120.8. $24,120.8 - $4,381.4 = $19,739.4.
With the push to new local highs last week above the 50% Fibonacci level, as well as the candles switching from gray to green indicating bullish price momentum, a long trade was entered as the short-term trend shifted to bullish with a stop-loss level for the trade being placed at the last low to be made prior to price pushing higher which is shown in blue and rests at $22,941.9. As long as price is trading above the stop-loss level the long trade can be held. While price has broken below the wedge pattern and a new lower target has been calculated, we need to see a breach below the stop-loss level before placing conviction in the lower target being reached and switching back to a bearish view.
The Relative Strength Index(RSI) shows the green RSI line rolling over and back down to the 50 level after hitting a high just above the 60 level last week. In general, an RSI reading above 50 indicates short-term bullish price momentum while a reading below 50 indicates short-term bearish price momentum. The purple RSI signal line continues to rise which indicates bullish momentum in the intermediate-term.
The Price Percent Oscillator(PPO) shows the green PPO line rolling over after recently crossing above the 0 level, and the purple signal line has flattened out after recently crossing above 0 as well which both indicate a loss in upward price momentum. A PPO reading above 0 indicates bullish price momentum while a PPO reading below 0 indicates bearish price momentum. The green PPO line trending above the purple signal line indicate short-term bullish momentum while the green line trending below the purple line indicates short-term bearish momentum.
The Average Directional Index(ADX) shows the green +DI line rolling over and close to crossing below the purple -DI line. When the green line is above the purple line it indicates that price is moving up and has a positive trend, while the green line trending below the purple line would indicate that price is in a negative trend. The histogram in the background shows trend strength i.e. when the green line is above the purple line and the histogram is rising it indicates a bullish trend that is increasing in strength. When the purple line is above the green line and the histogram is rising it indicates a bearish trend that is increasing in strength. What we’ve seen during the recent period of the green line trending above the purple line(bullish trend) is a declining histogram which indicates a weakening trend, or in this case a bullish trend without strength behind the move.
For now the trend in price remains bullish since we have a series of higher highs and higher lows being made, with the blue stop-loss level being the line in the sand which would shift the trend to bearish should that level be taken out. Bearish indications I am now watching are the break of the rising wedge pattern and the move back below the 50% Fibonacci level. The indicators below the chart are showing that the recent move higher is losing steam, but haven’t flipped bearish yet. This upcoming week should give us a better idea as to where price is heading going forward.
With the push to new local highs last week above the 50% Fibonacci level, as well as the candles switching from gray to green indicating bullish price momentum, a long trade was entered as the short-term trend shifted to bullish with a stop-loss level for the trade being placed at the last low to be made prior to price pushing higher which is shown in blue and rests at $22,941.9. As long as price is trading above the stop-loss level the long trade can be held. While price has broken below the wedge pattern and a new lower target has been calculated, we need to see a breach below the stop-loss level before placing conviction in the lower target being reached and switching back to a bearish view.
The Relative Strength Index(RSI) shows the green RSI line rolling over and back down to the 50 level after hitting a high just above the 60 level last week. In general, an RSI reading above 50 indicates short-term bullish price momentum while a reading below 50 indicates short-term bearish price momentum. The purple RSI signal line continues to rise which indicates bullish momentum in the intermediate-term.
The Price Percent Oscillator(PPO) shows the green PPO line rolling over after recently crossing above the 0 level, and the purple signal line has flattened out after recently crossing above 0 as well which both indicate a loss in upward price momentum. A PPO reading above 0 indicates bullish price momentum while a PPO reading below 0 indicates bearish price momentum. The green PPO line trending above the purple signal line indicate short-term bullish momentum while the green line trending below the purple line indicates short-term bearish momentum.
The Average Directional Index(ADX) shows the green +DI line rolling over and close to crossing below the purple -DI line. When the green line is above the purple line it indicates that price is moving up and has a positive trend, while the green line trending below the purple line would indicate that price is in a negative trend. The histogram in the background shows trend strength i.e. when the green line is above the purple line and the histogram is rising it indicates a bullish trend that is increasing in strength. When the purple line is above the green line and the histogram is rising it indicates a bearish trend that is increasing in strength. What we’ve seen during the recent period of the green line trending above the purple line(bullish trend) is a declining histogram which indicates a weakening trend, or in this case a bullish trend without strength behind the move.
For now the trend in price remains bullish since we have a series of higher highs and higher lows being made, with the blue stop-loss level being the line in the sand which would shift the trend to bearish should that level be taken out. Bearish indications I am now watching are the break of the rising wedge pattern and the move back below the 50% Fibonacci level. The indicators below the chart are showing that the recent move higher is losing steam, but haven’t flipped bearish yet. This upcoming week should give us a better idea as to where price is heading going forward.