Im gonna run a quick technical analisis of the DJI (30) just before it opens and give what is my personal opinion of what might happen and how could we trade it if it happens.

DJ30 Industrial Avg Index 4-2-2015

  • Easy to spot the triangle the index in currently drawing. Right now we are in the top of it which could mean or a turn around or a breaking day in which case we might want to trade some intraday longs until we get to that 18000. Its also important to remember that triangles are in theory continuation patterns so we should expect it to break upwards.
  • ADX: very low ADX which means no tendency and lateral market, this makes total sense with the triangle figure. We should check oscillators. ADX might give a signal after a positive day like today, its very close to doing so.
  • RSI: its showing divergence at both 17000 minimuns and if we use dinamic RSI we can even see a buy signal already.
  • Stochastic: Comes from very low, it has lots of space to build up and it suggests a long position should be open.Given that normally triangles break at around 2/3 or its lenght and considering how the main oscillators are giving already some signals with a lot of space to develop before been overbought i think today could be a good day for a upwards breaking of the triangle.

    So what about the strategies? I would not suggest to trade a short, the long trend is still positive and the odds are against shorts, even if a rebound to the bottom part of the triangle happened there is not much space to trade it and it will have a very poor TP/SL ratio.

    Thats lets us with two options: (a) openning long during the breaking of the triangle or (b) waiting for a pullback and openning long after the pullback happens.

    Option (b) is more save and has a better TP/SL ratio but you might not get the opportunity to trade it because there might not be a pullback. In the other hand option (a) makes sure you are already in the market but the TP/SL is not so good and you might have to suffer the psicological pressure of a pullback.

    Nuño Pérez del Barrio.