Short Term DOW Analysis; 9th October 2012

Short Term DOW Analysis; 9th October 2012

Still trying to work out where Indices are heading next so here’s a couple of charts from today showing levels I’m keeping an eye on in the short term.

Excuse the mess on the chart, this is my “working” chart so it’s constantly evolving with key levels that I’m watching at any particular time.

First of all starting at the top of the Hourly chart, an old channel line that was previously resistance is now acting as a neck line against a possible Head and Shoulders Top. Having broken down through the neck line, price is now at the 61.8% Fib level from the previous Hourly swing low. Bulls should be fighting this level so I wouldn’t start betting on the downside just yet.

If Bulls can hold this level, the initial upside target would be a test of the neck line which I’ve circled on the chart. The next high probability direction will probably be determined by an upside break back through that neck line, or, a Downside move through the 61.8% fib level.

Here’s the chart:

If the break is to the downside, then I’d probably look to target a retest of the 200 MA on the 4 hourly time frame as shown in the chart below. This 200 MA happens to coincide with a long term channel line, so again, this is a key level for bulls. If it fails to offer support, chances are this correction will be deeper and we can start looking at numbers in the 13,200’s

My personal view is fairly neutral. My trading system remains long on the Daily time frame with no signs of a sell signal just yet. Meanwhile, there are a number of technical stats that tend to point towards further downside.

Cobra mentioned on his blog that “when SPX down 3 days in a row, there will be a lower close ahead”.

So I checked; In the last 3 Years there have been 29 occurrences of 3 consecutive down days.

Of those 29, 25 of them were followed by a lower close, Virtually all of them within the following couple of days.

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