Instability Points to an Uncertain Market
Monday, the Dow solidly broke the Resistance Level at 26,300; and catapulted skyward. But then, in a rare V-Top formation, it fell back through the same level on solid, long red bars. This is a rare kind of exhaustion pattern that indicates extreme instability. Up to now, we have seen a very orderly market that has honored multiple Support and Resistance Levels in recent weeks. So the fact that it could be so bullish AND bearish in the same session is a bit unnerving.
The Daily Chart continues to show the wide range, with Long Term Support at 25,000. We have the sub-range marked (25,500 to 26,300). Given today’s volatile swings, we are reminded of this generally bearish pattern on the Index. The smaller trading range is at the base of the wider one, which is bearish until the market can break solidly above the smaller range – and HOLD. While it looked like a breakout today, the rally failed which leaves us expecting more downside action as the instability continues.
“…this could be a head fake. We need to get above the lower consolidation (top at 26,300) for an indication that the market is indeed going to power higher. Watch resistance at 26,100 early Monday.” The real “head fake” happened mid-day as the market made a rare V-Top formation. The only thing I can point to is earnings news becoming reality, and investors deciding they don’t want a seat at the table until the news is out and the dust settles.
The real question is – are we seeing the start of a new bear market? I think tomorrow will tell us a lot. If the market fails to hold above 25,500 we probably are – or at least a period of very volatile swings which could produce massive trades intra-day. I suggest watching the 3 levels marked in the 39 Minute Chart with an eye towards trading the breaks.