News / US Equities
For the past 2 weeks, we’ve been talking about being careful in buying into the market as the Dow is in a rally mode. We fear that the rise could be nothing more than a repeat of the rising wedge we saw back in March to May.
Our immediate concern is that the Dow’s current rally still hasn’t taken out the high of July at 11,820 (two arrows). The consolidation that’s happening now looks to be a textbook case. We have diminishing volume while the pattern is being formed. The MACD is racing upwards to the zero line, a sign of a rally. The 50-day moving average is trying to hold off the rally at 11,679 but the DJIA has closed slightly higher at 11,734. Even if the index will make higher highs, it could still be inside the wedge.
If the DJIA breaks down from the consolidation, we can expect the index to drop down to the 10,600 to 10,700 area. If we want to be bullish about the market, then DJIA must break through the three moving averages and the resistance area of 12,700. It also needs to take out 13,200 before we can say that things have turned around.
Recommendation: Stay liquid if you can only go long. Shorting opportunities are still plenty. 
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