DJIA: on the verge of a breakout?

he Dow appears to be on the verge of a breakout from its recent consolidation pattern. As can be seen on the chart, the index is continuing to find support from its 50-day moving average (17965) and a bullish trend line around 17900. Here it formed a hammer candlestick pattern yesterday. Today, another similar pattern is being displayed, although things could change by the close of play tonight. What is more, the index has been making a series of higher lows in recent trade. As a result, the momentum indicator MACD has crossed above the signal line and is holding above zero, too.

The key level that needs to break down is around 18125/50. As well as old resistance this level also corresponds with a short-term bearish trend line and the 78.6% Fibonacci retracement of the most recent downswing. Thus, a potential break above this apparent triangle pattern may lead to further technical buying towards, and perhaps beyond, the previous record high of 18285. The 127.2 and 161.8 per cent Fibonacci extension levels come in at 18485 and 18740, respectively. These will be among the next bullish targets should we get there.

Meanwhile if the bulls fail to push the index above th 18150 resistance level once again then things may turn ugly, particularly if the index also goes on to break support at 17850. In that case, a move down to the next levels of support at 17620 or 17545 would become highly likely.