Watch the Dow for a Breakout

The Dow Jones Industrial Average ($DJI) continues to hold at highs above the 13,330 resistance level, suggesting further strength ahead. However, recent price activity suggests a breakout in either direction from the current range could spark the next short term move.

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Narrow Range

The daily chart of the $DJI shows price continues to hold at highs after breaking through the important 13,330 resistance level a week ago. The 13,330 level had been resistance for the year until the recent breakout, which bodes well for further strength ahead.

However, current price activity indicates a breakout from the current 7-day range could spark a solid short term move, regardless of direction.

You see, the current price range has been extremely narrow, which means the index is coiling ahead of the next big breakout opportunity.

Dow Jones Industrial Average ($DJI)

As a matter of fact, the average 5-day range in the Dow has been 289 points, while the current 5-day range is only 144 points. That’s a 50% drop in price range, which is rather significant.

The Range Ratio indicator shows a current 5-day reading that is below the .75 level, which is marked in red. This reading generally alerts you to a potential breakout ahead.

Pivot Resistance

The daily chart also shows price is holding right at the monthly R2 Floor Pivot level of 13,620. Since the range congestion has formed above resistance, an upside break is to be expected. A push through 13,620 could spark a nice short term move higher.

However, If price cannot rise above this pivot level, look for a downside push back toward the monthly R1 level at 13,355 for a retest of the breakout zone between 13,330 and 13,355.

As long as the Dow remains above the monthly pivot range (pink lines), continued overall uptrending behavior is expected in the medium term. As a matter of fact, look to buy any pull-back to this zone (13,055 to 13,080) should a retracement occur.

Targets to Watch

If price breaks free from the current 7-day range, look for a move of about 180 points to occur rather swiftly.

Therefore, a downside break brings the 13,320 target into play, while an upside break opens the door to 13,830.

Watch 13,500 and 13,650 closely for a breakout.

Let’s see how this one plays out!


Frank Ochoa
PivotBoss | Own the Market

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