Downside Break
Dow breaks consolidation to downside, gets overall decline.
From prior commentary, "...given the Dow's clear weakness yesterday, a downside break from the consolidation, followed by another 100 decline, would not be surprising...Watch 10,425 for signs of a downside continuation tomorrow..." The Dow opened the session with a solid downside break from the bearish consolidation at 10,435 this morning, which ultimately sparked weakness throughout much of the day. The index rallied from the lows late in the day, but eventually sold off yet again just before the Close to end the day lower by 53 points.
The fact that the consolidation was broken to the downside implies continued weakness toward a target of about 10,340, according to consolidation theory. If the index holds beneath 10,450, look for this target to be reached. Otherwise, an upside push through 10,450 could spark quite a reaction rally Monday.
From a longer term perspective, the Dow continues to hold beneath the 10,500 level, which is the lower boundary of the wide trading range that was broken earlier in the week. Continued overall weakness should be seen beneath this level in the medium-to-long term. We may see another continuation pattern form beneath 10,500 before another meaningful decline occurs.
Short Term Dow
The Dow traded around the 10,440 fulcrum the entire session, establishing this level as a clear 'line in the sand'. Watch this level closely Monday morning for direction at the Open.
Medium Term Dow
In the medium term, we are still Short the Dow from 10,484 and will move stops down to 10,450 for Monday's market. We will want to stay Short below 10,375, but will hold off on Longs, unless 10,450 is crossed to the upside; using 20 point stops.
NASDAQ & S&P
The NASDAQ and S&P each broke their respective consolidations to the downside, but traded lower in a lackadaisical fashion. Continued overall weakness should be seen, but watch out for a potential intraday reaction rally Monday.
Summary
The Dow closed the day lower after beginning the session with a downside break from the sloping consolidation. The index continues to trend steadily lower after breaking the large trading range to the downside. Look for continued overall weakness in the medium term, but keep an eye on 10,450 for near-term strength.
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