Market Hits Potential Resistance

Feb 27, 2008: 5:58 PM CST

The Dow Jones Index has hit an area of supply today which may serve as an area of resistance. Let’s look:

The 12,800 index level has served both as support and resistance during the last few months, and this area of supply is being tested currently. Notice the doji candlestick that has formed at this area of potential resistance.

Dojis signify potential reversal points in the market, as they represent areas of indecision (where the Japanese might say “the market is tired) and potential loss of momentum.

Notice the declining volume on today’s trading action. This is a further non-confirmation of higher prices. Barring some major news or fundamental development soon, the weight of the prevailing trend could pull prices lower in time.

The intraday price action was interesting to me as well:

Today was a near perfect example of the classic “Fade the Gap” technique that has become so common in recent trading history.

Notice how the market gapped down and then immediately ‘faded’ the gap right into yesterday’s close. This was your profit target, and signal to “play the gap” in the direction of the original impulse, which almost worked (which target’s the morning’s intraday lows), had Bernanke not spoken and energized markets with hopes of an upcoming rate cut.

Bernanke didn’t have the power to hold the markets up all day, as price hit key resistance from the daily charts and then developed a momentum divergence before slicing through key support from the daily 20 and 50 period moving averages.

While today was quite a choppy and volatile day, the market ended not too far from where it closed (hence the daily ‘doji’ candle pattern).

If you ever wanted to look ‘under the hood’ of a doji, today was a near perfect example.

2 Comments

2 Responses to “Market Hits Potential Resistance”

  1. Anything_Goes Says:

    I faded the gap but got caught up in the turn around right after the fade..lost half of the mulla.

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