With the markets balancing inside a trade range without a clear trend, we try to find and distinguish the important signs and leave noise aside. DOW is clearly weaker than S&P in its recent downward move and upward reactions. Both indices have managed to break out of the upward sloping trend channels and test their first short-term support levels. The decline from the all time highs in both indices looks impulsive at first but gets complicated after a few days with lots of overlapping patterns and sideways moves.
Our favorite scenario sees both indices make a new downward move lower towards their 38% Fibonacci retracements. However we could see this sideways movement to stay in force and keep prices at the same levels for the rest of the week. DOW has short term resistance at 15550 and short-term support at 15340. Breaking either price level will commence the next bigger degree wave. S&P on the other hand needs to break above 1703 or below 1686 for the sideways trend to end and to start a new move either towards 1714 or 1665.
We still believe that at this price level it is more dangerous to be bullish than bearish. We still see that it is more possible for a downward break towards 1675 at first and then towards 1655. It is important to keep in mind that both indices have broken outside of their upward sloping channels. This works like a magnet downwards towards the 38% and 50% Fibo retracements.
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