Don’t look now, but the Dow Jones index is inching close to its channel top!
Will sellers jump back in and force the downtrend to resume?
Here are the short-term levels I’m watching.
Dow Jones Industrial Average (DJIA) 1-hour
This equity index has been cruising inside a descending channel with its lower highs and lower lows.
Can the selloff carry on?
Another test of resistance seems to be underway, and it’s shaping up to be a good short opportunity. After all, this channel has been holding for nearly a month already, and I’m seeing a confluence of inflection points at the top.
Not only does the channel resistance line up with the 61.8% Fibonacci retracement level, but it also coincides neatly with the 100 SMA dynamic inflection point!
At the same time, technical indicators are in agreement that the downtrend could gain traction from here.
The 100 SMA is below the 200 SMA to signal that the path of least resistance is to the downside or that the ceiling is more likely to hold than to break. To top it off, the gap between the moving averages is widening to indicate strengthening selling pressure.
Also, Stochastic is reflecting overbought conditions or exhaustion among buyers. Turning lower would confirm that sellers are stepping up their game and could take the index back down to the swing low or the channel support.
A return in risk-off flows might be enough to keep this stock index on the decline. Still, better stay on the lookout for headlines that might revive investors’ risk appetite since this could spur a reversal from the slide.
