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However, this apparent stability disguises some increased volatility, and it is worth noting the index also retested its December high last week. Although the Dow opened on Friday marginally above its key resistance at 16,558, there was no momentum and the index quickly sold off. As a result, my short recommendation remains unchanged.
What has encouraged me of late is the resurgence in US merger and acquisition (M&A) activity. Although a revival in M&A has long been expected, it took a disappointingly long time to arrive. Rather than merely hoarding cash, company boardrooms now appear to be gaining in confidence to grow via acquisition, and take advantage of cheap readily-available credit. Better late than never, this fresh confidence could well become the fundamental justification if the Dow were to break towards a new and higher trading band.
Despite a fierce two-day pullback in US share markets, the Dow still trades above my former target of 16,175. Whilst this remains the case, some benefit of doubt must remain with the five-year uptrend. In the absence of a clean break above 16,558, the sideways pattern over the first quarter is intact.
Recommendation: stay short. I am raising the short-term target to 15,606. Stop-losses can remain unchanged and triggered on momentum above 16,558.