The channel is constructed by connecting peak to low as lower line and the upper line is a parallel line, which isdrawn on the most outside peak. The rationale of this way of construction is to filter the noise of a primarytrendline. A convincing breakout of a channel is needed to signal a change in downtrend.
One interesting observation can be obtained from percentage change in every rally and plunge residing in thechannel. For rallies, the percentage increase is steadily rising, specifically from 8.8%, 7.5%, 12.0% and 21.6%.For downswing, the decline in percentage is slowing down, from -14.6%, -15.9%, -31.7% to -26.5%. In otherwords, rallies are getting stronger while downswings are getting weaker.
From our weekly chart, we believe DOW is expected to retrace 38.2% to 9000 points. Nevertheless, theunderlying pattern for it to reach 9000 may take numerous forms.
From the daily chart, the upper resistance (in yellow circle) must be respected as there are total 3 failed attemptsof breakout.
Two scenarios may play out. Firstly, a decline to 7476 before a channel breakout will take place. Secondly, adirect channel breakout without major decline.
We believe the probability is skewed toward second scenario as the swings in smaller time frame (5 periods) hasbeen in line with one month time frame (18 periods), unlike the previous rallies in the channel where we canobserve swings in smaller time frame. Therefore, a direct breakout of the channel would occur soon withoutmajor retracement despite the strong resistance.
Sponsored Links
No comments:
Post a Comment