Despite coming close to doing so again, the Dow Jones did not sustain the ground above 16,559, and this remains the necessary requirement to trigger my next lower-risk buy opportunity. Until such an outcome prevails, my current recommendation remains unchanged.
Last Tuesday’s intraweek high of 16,566 tested the resistance at 16,559, but was quickly rejected. It is momentum above this level that is key to whether the break is truly a move to a new and higher trading band. Momentum (above previous resistance) is difficult to define, but I tend to describe it as a release of pent-up demand, where any subsequent pullback is quickly rejected and seen by traders as a fresh buying opportunity.
Interestingly, the fundamental trigger for a sustained break above 16,559 may come from Europe. The European Central Bank’s (ECB) delay in implementing a quantitative easing program is beginning to take its toll across the eurozone. I believe the time has arrived where mere hints and promises to stave off deflation are over, and the ECB will act decisively in the coming weeks. The major issue facing the global economy remains the same; there is too little inflation, not too much.
Recommendation: stay short. Target 15,606. Stop-losses should be triggered on momentum above 16,559. In such an event, the new short-term target becomes 17,778, with scope for an ultimate target to form in the band 19,228-19,409.