Dow – Sell the Resistance

The Dow Jones Industrial Average , or US 30, has recaptured all of the losses associated with the Japanese crisis (red arrow on the chart below). With a wealth of potentially market moving data due this week, there is a short term risk/reward set-up to sell the US 30.

 This week, there is a wealth of data due – from housing prices to manufacturing activity to non-farm payrolls. Market expectations are elevated, with consensus estimates looking for growth in these key measures at or above the previous month’s levels. In my opinion, there is room for disappointment.

While markets appear to be pricing a stable globe, there is also room for rapid deterioration of the various situations in the Middle East, possibly leading to higher oil prices and lower share markets.

US 30 Daily

DJIA Daily

Source: Bloomberg

In a stunning 8 day move, the US 30 is up 600 points, and has hit resistance levels established before the earthquake. The market action has been positive, despite the potential “big picture” risks. The indicator at the bottom of the chart shows that momentum has turned downward, touching its moving average, and potentially crossing below.

The beauty of this trade is the clearly defined stop and target levels. While each trader will use their preferred indicators to determine if this is the right trade for them, for me the possible trading levels are:

1)      Sell at current levels (12,177), stop loss at 12,290, target 11,990

2)      Sell at current levels (12,177), stop loss at 12,290, 1st target 11,990,

          2nd target 11,790

3)      Sell at current levels (12,177), stop loss at 12,290, 1st target 11,990,

            2nd target 11,790,     3rd target 11,610

About michaelmccarthycmc

Chief Market Strategist - CMC Markets and Stockbroking Regular on ABC, BBC, Bloomberg, Channel TEN, CNBC, SBS and SKY
This entry was posted in Market, Shares, Stocks, Trading and tagged , , , , , , , , . Bookmark the permalink.

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