Dow Jones Bullish Flag Still Valid, But a Move Lower May Still Be in Cards

FTSE 100
FTSE 100

The dollar reverses course as the Dollar index is on the rise and that might threaten the Dow Jones upside potential. However, a bullish flag pattern still points to higher levels, despite the fact that a temporary correction might be in the cards.

The stock market’s resilience continues as investors are willing to bid for prices at current levels. So far, the 28,000 level acted as strong resistance and capped the move higher in the Dow Jones. In fact, the long consolidations seen in the Dow Jones are one of the reasons why the index lags when compared to its peers – Nasdaq 100 and the S&P500.

Initial Jobless Claims Failed to Trigger a Bearish Reaction

Yesterday’s initial jobless claims revealed that another 1.1 million Americans filed for unemployment benefits. Over twenty-eight million people receive unemployment insurance one way or another, and it reflects the true dimensions of the crisis.

But bearish news is no news for the stock market anymore. Not only that the Dow Jones did not react to it, but it actually spent most of the day in positive territory. The bid, as mentioned earlier, continues unabated.

Dow Jones Technical Analysis

The index forms a bullish flag that points to record highs by the time the consolidation ends. However, bullish flags are tricky patterns. They may consolidate for longer than many investors expect.

Moreover, the price action during bullish flags formation may be horizontal or, in this case, corrective in nature. More precisely, the market corrects into the territory of the previous bullish segment, before breaking higher.

Aggressive traders may want to wait for Dow Jones to reach the lower edge of the flag before going on the long side for the measured move. Conservative ones may want to wait for a move above 28,000 before buying. In both cases, the measured move points to new record highs, and only a drop below 26,000 would invalidate the pattern.

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Dow Jones Daily Chart

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