Now that the United States has a new President Elect – Barack Obama – let’s take a current look at the Dow Jones average and take note of the current counter-trend retracement rally up into potential resistance areas ahead… and view an interesting triangle pattern that occurred early last night in the futures market.

First, the Dow Jones Daily Chart:

The Dow is completing an impressive counter-rally to the upside, taking price from a closing low near 8,250 to yesterday’s high near 9,750 for a remarkable 1,500 or 18% rally!  That is welcome news to long-term investors.

However, let’s continue to look from a trader’s perspective, and ask the question, “Where might this rally hit resistance… or will it?”

Using the current structure, we see a confluence of resistance about the 9,800 – 9,900 level, which is a confluence zone of the 50% Fibonacci retracement with the falling (stabilizing) 50 day EMA.  Price is now above the 20 day EMA which provided minimal resistance.  Look closely to see price formed a doji (indecision – small range) candle at the 38.2% Fibonacci retracement level, as this brought in minimal selling, but buyers were able to overcome that zone with confidence on Election day.

Update:  Currently (as of this writing), the Dow is down roughly 200 points at the open, trading at 9,425.

One note of caution is that volume is trending lower as price is trending higher, setting up a significant non-confirmation of higher prices (which is to be expected on counter-swing rallies).  Keep a watch on this closely.

A positive momentum divergence preceded this rally, which could be construed as a possible Elliott fractal wave 4 counter-advance.  Let’s continue to watch these developments closely as they develop.

From an educational standpoint, I wanted to highlight a rising triangle formation that set-up on the Dow-Mini futures (@YM) around 2:00am that led to a quick and sudden – expected range expansion – sell-off.  It’s an example in pattern recognition.

Price often breaks out of triangles 66% to 75% of the way to the Apex – the point at which the triangle trendlines converge.  This case is no exception, and the rising and horizontal trendlines were exceptionally clear.  The target – the height of the triangle – was met quickly with a large expansion move out of consolidation.

Guard your capital until the volatility settles down, unless you’re a trader who thrives on volatility.