It was an ugly day for the stock market, but the charts tipped us off that something might be afoot today. Following a two day rally last Wednesday and Thursday, both the Dow and the NASDAQ had narrow ranges and doji bars Friday. These were both indications to be looking for a breakout, directional move today.
The daily chart of the June Dow Jones futures shows the setup, and gives us some things to look for tomorrow.Friday’s bar is circled; note that it couldn’t clear Thursday’s high. We were looking for a breakout, directional move today; potential short sale points were Friday’s low of 8006, first Trade or Fade support at 7980, and the up trendline, which came in at 7943 today. Profit targets for short sales were the second trade or Fade support of 7890, then last week’s low at 7814. The next target was Fibonacci support at 7759; that wasn’t reached today.
For tomorrow, there are conflicting signals.On the bullish side, there’s the tendency for breakout trades to reverse themselves the following day, and the momentum indicator, which is on a buy signal for tomorrow.On the bearish side, MACD is at the early stages of a bearish crossover. I’d expect to see some retracement up tomorrow, as profit takers come in. A move under the Fibonacci support of 7759 could accelerate the selloff.
There’s the setup!
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