Dow Jones Crosses 50% Fib Level Within Bearish Rising Wedge
The Dow Jones Industrial Average(DJI) gained $704(+2.9%) on Friday and saw price move above the 50% Fibonacci retracement level which is the midpoint of the total Fibonacci range from the all-time high made in February and the coronavirus selloff low made in March. Price moving above the 50% Fibonacci level represents price regaining half of the losses seen during the selloff. While a move above the 50% retracement is bullish, price is still trading within a rising wedge pattern which is a type of bearish chart pattern that tend to see price ultimately break below the lower line of the wedge and move lower. Friday also saw a change in color candle from a recent trend of gray to green. Gray candles indicate that price is neutral, or has no identifiable trend. The shift to green indicates that price shifted to short-term bullish momentum in my price candle algorithm.
Going forward we need to see price move above the upper line of the wedge pattern to keep the current uptrend intact, and then above the 61.8% Fibonacci level as a sign of uptrend continuation. Price needs to move above the 61.8% Fibonacci level in order for a “return to normal” in the Dow. Should price find resistance at the upper wedge line and move back below the 50% Fibonacci level it would likely indicate that the recent rally off of the March low was a bear market rally rather than a shift to a bullish trend. A breach below the lower wedge line would likely mean that a re-test of the March low is ahead.
Now that price has made a new high and a push above the 50% retracement level, my stop-loss level for long trades has been moved higher from the 38.2% Fibonacci level to just below the local lows made last week. This level represents the last base, or area of support, prior to the new high and is the last level of price demand by traders prior to the recent price advance above the 50% Fibonacci level. This stop-loss level is also just below the lower wedge line and is the last level we want to be long stocks should price reverse and fall out of the wedge. A move below this level would also signal that traders no longer see value at that level as they did last week, whether due to a shift in trend or fundamentals in the market.
The Relative Strength Index(RSI) shows the green RSI line holding above the 50 level which indicates short-term bullish momentum behind price. An RSI reading above 50 indicates bullish price momentum while a reading below 50 indicates bearish price momentum. The purple RSI signal line has also turned up which indicates that intermediate price momentum is gaining strength, this line also needs to move above the 50 level in order for the intermediate price momentum to be considered bullish.
The Price Percent Oscillator(PPO) shows the green PPO line rising above the purple signal line which indicates short-term bullish momentum for price. The green PPO line is also beginning to cross above the 0 level which indicates that the intermediate momentum behind price is also beginning to turn bullish. A true bullish PPO reading is when both the green PPO line and purple signal line are above the 0 level.
The overall view on the Dow Jones remains neutral, even with price crossing above the 50% Fibonacci level which has put price back in a bullish trend. The reason for remaining neutral is the bearish rising wedge that has formed in the chart. Until price makes a decisive move above the wedge the risk of a reversal remains in play.
Going forward we need to see price move above the upper line of the wedge pattern to keep the current uptrend intact, and then above the 61.8% Fibonacci level as a sign of uptrend continuation. Price needs to move above the 61.8% Fibonacci level in order for a “return to normal” in the Dow. Should price find resistance at the upper wedge line and move back below the 50% Fibonacci level it would likely indicate that the recent rally off of the March low was a bear market rally rather than a shift to a bullish trend. A breach below the lower wedge line would likely mean that a re-test of the March low is ahead.
Now that price has made a new high and a push above the 50% retracement level, my stop-loss level for long trades has been moved higher from the 38.2% Fibonacci level to just below the local lows made last week. This level represents the last base, or area of support, prior to the new high and is the last level of price demand by traders prior to the recent price advance above the 50% Fibonacci level. This stop-loss level is also just below the lower wedge line and is the last level we want to be long stocks should price reverse and fall out of the wedge. A move below this level would also signal that traders no longer see value at that level as they did last week, whether due to a shift in trend or fundamentals in the market.
The Relative Strength Index(RSI) shows the green RSI line holding above the 50 level which indicates short-term bullish momentum behind price. An RSI reading above 50 indicates bullish price momentum while a reading below 50 indicates bearish price momentum. The purple RSI signal line has also turned up which indicates that intermediate price momentum is gaining strength, this line also needs to move above the 50 level in order for the intermediate price momentum to be considered bullish.
The Price Percent Oscillator(PPO) shows the green PPO line rising above the purple signal line which indicates short-term bullish momentum for price. The green PPO line is also beginning to cross above the 0 level which indicates that the intermediate momentum behind price is also beginning to turn bullish. A true bullish PPO reading is when both the green PPO line and purple signal line are above the 0 level.
The overall view on the Dow Jones remains neutral, even with price crossing above the 50% Fibonacci level which has put price back in a bullish trend. The reason for remaining neutral is the bearish rising wedge that has formed in the chart. Until price makes a decisive move above the wedge the risk of a reversal remains in play.
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