Dow broke down from a Wedge at very notable long-term resistance. But a Wedge is a somewhat over-hyped pattern that is not as scary as it sounds. It really just means that something that has been rising is likely to take an interim retrace, whether or not the retrace leads to further bearish activity or renewed bullish activity.
So Dow has dumped out of the Wedge, not quite retraced a Fibonnaci 38% and will have painted a really nice weekly Hammer candle if today is a solid up day. The rally has been likely due to signals in a hysterical VIX, hysterical Treasury Bonds and yes, hysterical gold. But what is this rally and where will it end?
The red neckline (correlating to the 1260 target on SPX) is a logical termination point. But in being aware of the truism in the first sentence of this post, and our experience of the power with which frightened bulls can turn brave amid momentum, greed and psychological confirmation, we should think about a break above the neckline - which would allow the media to trumpet a negation of the breakdown (remember, every geek on the planet sees those necklines, not just you and me).
So be aware that a test of the underside of the Wedge would be the next upside target. This could be at around 12,500, which would be a cool 500 points higher after the media tout the retaking of 12,000. For the sake of symmetry and a great setup, I would love for the market to fail at the necklines. But I have seen this movie before. How about you?