The recent stock market correction was one of the biggest and fiercest corrections in the history of American capitalism (point-wise), with its selling climax last Monday. Yet the recovery rally seems equally strong. Tuesday’s and Wednesday’s price already negated half of the sharp decline. What’s next?
I don’t have a crystal ball and neither do I believe anybody else has one. (If you do, please get in touch!) As I mentioned before, the best we can do is find situations in which the probabilities are tilted in our favor. Let’s take a look at what the charts show us and if we can potentially take advantage or protect from further losses.
It’s clear that the market correction has damaged the trend on faster timeframes. But make no mistake, we have intact bullish trends in the DJIA charts on the weekly and monthly timeframe. The weekly actually presented a beautiful long setup to buy the dip which paid off handsomely. Hence it is not at all clear that the selloff marks the end of the multi-year bull market.
On the other hand I notice the recovery rally does not nearly show the same strength as the previous selloff. We are slowly grinding higher.
Level To Watch
What particularly catches my eye is the 4 hour chart. As painted on the image above, I expect at least a temporary resistance at about the 25460 level.
If you think the selloff has meaning and continued downside then pay attention at that level. I will be taking profits on longs and possibly enter a short if we get there.
Let me know in the comments what you see happening.
Please always remember, I am not a financial professional and give no financial or trading advice. I present my opinion, that’s it. Do your own analysis and take responsibility!