Dow 50% Fibonacci Resistance
The Dow Jones Industrial Average(DJI) closed Friday at $23,775 with a gain of $260(+1.11%) on the day, but loss of $320(1.33%) on the week with a Monday open of $24,095 and a Friday close of $23,775. Monday saw price fall back below the 50% Fibonacci retracement level after briefly trading and closing above it on Friday(17April) and then was unable to move back above the 50% level this past week. Price has essentially been finding resistance at the 50% Fibonacci level for the past 12 trading sessions and the longer price fails to move above this level the more likely it is to be rejected from it. The 50% Fibonacci level represents the halfway point between the all-time high of $29,568(100% Fib) made in February and the coronavirus selloff low of $18,213.7(0% Fib) made in March and defines whether price is in a bullish or bearish trend. Price trading below the 50% level indicates a bearish bias for price, while trending above the 50% level indicates a bullish bias.
Price broke below the rising wedge pattern on Tuesday(21 April) which was expected coming into the trading week based on resistance at the 50% Fibonacci level last week. With price breaking below the rising wedge pattern a measured move could then be made to find a lower price target. The lower target of $18,983.9 is calculated by taking the difference in price at the base of the rising wedge pattern which are points A and B($22,595.1 - $18,213.7 = $4,381.4) and then subtracting that difference from the opening price of the first candle to open below the lower line of the rising wedge pattern. The difference between points A and B is $4,381.4 which is the low of candle A and the high of candle B. This is then subtracted from the opening price of $23,365.3 on 21 April which was the first candle to open below the lower line of the rising wedge and gives a lower price target of $18,983.9. ($23,365.3 - $4,381.4 = $18,983.9)
With price breaking below the rising wedge pattern after finding resistance at the 50% Fibonacci level a short trade could be entered with the expectation that price will continue to have a bearish bias and ultimately test the lower target of $18,983 which could be viewed as a take-profit level on the short trade. The stop-loss for the short trade is shown in blue and is set at $24,300 which is just above the local high of $24,264 made on 17 April. As long as price doesn’t move above that local high the short trade can be held with the stop-loss level eventually being moved lower as price moves lower.
The main levels to watch this week are the 38.2% and 50% Fibonacci levels. I’m expecting the 50% Fibonacci level to continue acting as resistance while the 38.2% level is the first level of support that I would like to see be broken to the downside as a move below that level would put price back into a bearish trend.
The Relative Strength Index(RSI) shows the green RSI line trending just above the 50 level which is the midpoint of the total RSI range(0-100). An RSI reading above 50 indicates short-term bullish price momentum while a reading below 50 indicates short-term bearish price momentum. The purple RSI signal line has leveled out after recently moving higher which indicates that intermediate-term momentum is losing strength.
The Price Percent Oscillator(PPO) shows the green PPO line has leveled off after recently crossing back above the 0 level. A PPO reading above 0 indicates bullish price momentum while a PPO reading below 0 indicates bearish price momentum. The purple signal line hasn’t moved above the 0 level which means that the short-term momentum behind price has yet to turn completely bullish. The green PPO line rising above the purple signal line indicates that there is short-term bullish momentum, but in generally you want to see both of these lines rising together as a sign of strength behind price, right now both are leveling out.
The current view on price remains neutral with a bearish bias due to the recent breakdown of the rising wedge pattern, combined with the gray/neutral price candles and the failing of price to move above the 50% Fibonacci retracement level. The expected move going forward is a move lower down to the target area shown in red.
Price broke below the rising wedge pattern on Tuesday(21 April) which was expected coming into the trading week based on resistance at the 50% Fibonacci level last week. With price breaking below the rising wedge pattern a measured move could then be made to find a lower price target. The lower target of $18,983.9 is calculated by taking the difference in price at the base of the rising wedge pattern which are points A and B($22,595.1 - $18,213.7 = $4,381.4) and then subtracting that difference from the opening price of the first candle to open below the lower line of the rising wedge pattern. The difference between points A and B is $4,381.4 which is the low of candle A and the high of candle B. This is then subtracted from the opening price of $23,365.3 on 21 April which was the first candle to open below the lower line of the rising wedge and gives a lower price target of $18,983.9. ($23,365.3 - $4,381.4 = $18,983.9)
With price breaking below the rising wedge pattern after finding resistance at the 50% Fibonacci level a short trade could be entered with the expectation that price will continue to have a bearish bias and ultimately test the lower target of $18,983 which could be viewed as a take-profit level on the short trade. The stop-loss for the short trade is shown in blue and is set at $24,300 which is just above the local high of $24,264 made on 17 April. As long as price doesn’t move above that local high the short trade can be held with the stop-loss level eventually being moved lower as price moves lower.
The main levels to watch this week are the 38.2% and 50% Fibonacci levels. I’m expecting the 50% Fibonacci level to continue acting as resistance while the 38.2% level is the first level of support that I would like to see be broken to the downside as a move below that level would put price back into a bearish trend.
The Relative Strength Index(RSI) shows the green RSI line trending just above the 50 level which is the midpoint of the total RSI range(0-100). An RSI reading above 50 indicates short-term bullish price momentum while a reading below 50 indicates short-term bearish price momentum. The purple RSI signal line has leveled out after recently moving higher which indicates that intermediate-term momentum is losing strength.
The Price Percent Oscillator(PPO) shows the green PPO line has leveled off after recently crossing back above the 0 level. A PPO reading above 0 indicates bullish price momentum while a PPO reading below 0 indicates bearish price momentum. The purple signal line hasn’t moved above the 0 level which means that the short-term momentum behind price has yet to turn completely bullish. The green PPO line rising above the purple signal line indicates that there is short-term bullish momentum, but in generally you want to see both of these lines rising together as a sign of strength behind price, right now both are leveling out.
The current view on price remains neutral with a bearish bias due to the recent breakdown of the rising wedge pattern, combined with the gray/neutral price candles and the failing of price to move above the 50% Fibonacci retracement level. The expected move going forward is a move lower down to the target area shown in red.
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