Preparing for a Pullback in the Dow Jones at All Time Highs

Aug 3, 2017: 9:27 AM CST

With the Dow Jones Index surging seven days in a row straight up, we’d be totally crazy to plan for a pullback instead of buying, buying, buying a rally that’s never going to end… right?

Right?

Let’s at least PLAN for the potential (likely/inevitable?) pullback yet to come in the Dow and it could start today.

Here’s the Dow Jones Daily Chart breaking above 22,000 for the first time ever:

Dow Jones Daily

We have a “Perfect Pullback” in a rising market to the 20 day EMA (green) in late July.

From there, buyers surged the market higher day after day all the way to the current high.

Tuesday and Wednesday’s sessions gave us doji reversal candles ABOVE the upper Bollinger Band which – in normal times – is a sign of caution.

Before we step inside the current price action, let’s take a look at February 2017.

We saw a similar pullback to the rising 20 day EMA ignite a bullish fire that sent the Dow surging toward – then above – 21,000 in a roughly 14 day straight-up rally (we’re only at seven now).

When all looked bleak with similar reversal candles into 21,000, we saw a HUGE bullish gap-up into 21,200 before price spent the next two full months pulling back in a retracement phase.

Draw comparisons from this period to what we’re seeing now.

Let’s step INSIDE the price action to the 30-min intraday chart:

Dow Jones Intraday Reversal

We see the end-of-July non-stop bullishly gapping, stable rally from 21,500 to 22,000.

Momentum (and volume) were strong in the beginning of the rally which confirmed the bullish price action, suggesting even higher prices likely yet to come (and they did).

As those new price highs toward 22,000 developed, momentum began declining (diverging) on both Tuesday and Wednesday.

We’re seeing low/flat momentum readings right now into the critical 22,000 pivot.

Simply stated, you should at least PLAN for a Pullback/Retracement and be ready to take profits or (aggressively) short-sell it to trade a departure from 22,000.

If February is our guide, then we could be in store for one more bullish burst ABOVE 22,000 before the proper pullback occurs.

Either way, get ready to adjust your positions and plan your next move away from 22,000.

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Corey Rosenbloom, CMT

Afraid to Trade.com

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