Dow stuck in trading range

Price at time of writing – 16,173.

Casual observers might be forgiven for thinking that share markets had crashed over the past week, given the alarmist financial headlines that have begun to emerge. 

Nothing is further from the truth, with the Dow Jones down just 72 points since writing last week’s update. Nonetheless, in the absence of any upside buy trigger, my current short recommendation remains intact.

Although the back-to-back falls late last week were notable, we must remember that 150-200 point daily moves on an index that stands at over 16,000 are not exceptional, and the alarmist headlines should, as always, be largely ignored. What is notable is the influence my crucial level of 16,175 is still having on the Dow.

The beauty of Gann-theory is its ability to take emotion out of everyday trading decisions. Fundamentals will ultimately prevail in the long-term, but over the short-term the mathematics usually wins out. It was no surprise, therefore, to see the Dow bounce back and close right against this level again last night.

The short-term trading range on the Dow can best be defined as 15,606-16,559. A clean break either side of this range is necessary before any new trend can be established. Meanwhile, I leave my current target near the bottom of this range, at a level that marks a 50% rise from the important low in October 2011.

Recommendation: stay short. Target 15,606. Stop-losses can remain unchanged and triggered on momentum above 16,559.

Dow Jones chart

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