The Dow Jones Industrial Average cash index surged on Monday, breaking above the resistance (now turned into support) barrier of 25850. However, the advance fell short of reaching our next obstacle of 26300, and on Tuesday and Wednesday, the index oscillated around the 26100 mark. The price structure on the daily chart continues to be of higher peaks and higher troughs and thus, we would expect the index to resume its recovery soon.
We would expect the bulls to aim for a test near the 26300 zone, the break of which could open the path towards the record high or the cash index, at around 26700. However, before the bulls decide to seize control again, we believe that there is a decent chance for a small correction to the downside, perhaps for the price to test the 25850 area as a support this time.
Both our daily oscillators support the notion for a small retreat. The RSI topped within its above-70 zone and just crossed below 70, while the MACD, although above both its zero and trigger lines, shows signs of slowing down.
Now in case the 25850 level fails to hold the price from dropping further, then we may see the setback extending towards the 25600 zone or the upside support line drawn from the low of the 28th of June. However, even if this is the case, we would still see a decent chance for the bulls to jump back into the action from near those levels.
We would like to see a clear close below 25600 and the aforementioned upside line before we assume that the bears have taken the driver’s seat, at least in the near-term. Such a break could see scope for negative extensions towards the 25150 area, or the psychological nubmer of 25000.
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