Dow Breakout of Range

Apr 3, 2007: 10:44 PM CST

We finally got the range expansion as expected in the major market indices, and the market has broken (again) to the upside as was also forecast, especially in light of the rampant negativity on the general state of the market. Is it surprising that, with all the negative sentiment around, the market rose yet again today?



From a technician’s standpoint, we are still in a confirmed uptrend, and thus higher probability plays come from trading the upside, especially given the recent pullback into “support”.

Viewing a swing chart of the Dow and S&P 500, we see the market may be making a new swing higher, as confirmed by the recent new momentum high in the oscillator. This would hint that new price highs are yet to come. I can see the market testing the upper limit on the Keltner Channels (about 12,650 on the Dow and 1,455 on the S&P). The “Impulse Buy” setup has already achieved its objective, with entry near moving average support and first target being the most recent swing high).

dow-swing-ap3.jpg spx-apr3-swing.jpg

When the fundamentals or the news/commentators are telling you one thing (that the market will go down and the economy is heading into a recession) yet price and chart analysis tells you another, a dichotomy exists, and it is difficult to anticipate the next move with confidence, given so many conflicting signals. StockBee recently posted a timely post regarding “Methods Trump Markets” that addresses the issue of headlines/conventional wisdom already being reflected in the price of stocks.

A great quote from the post: “While majority are busy waiting for the doom to take the market down, the market acts contrary to expectations and offers bullish opportunities.”

Also analyze the Swing Chart of the S&P on the weekly time frame (notice the momentum divergence as price creeped higher and the eventual correction):


This is where trading your own system and not being influenced by others becomes crucial to success as a trader.

Despite the volatility that occurred at the beginning of the month, price still is making reliable swings and allowing for opportunity, provided you have a system and emotional stability (confidence) to take advantage of the movement and not get carried away with outside analysis or second opinions of your own analysis.



1 Comment

One Response to “Dow Breakout of Range”

  1. Pradeep Bonde Says:

    I am glad you liked that entry.