The Dow hits my major tramline

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With support coming in to the Dow, the euro and gold, many of my upper targets are being hit this week. This is always very exciting, as I prepare for counter-trend trades.

So let’s continue with the Dow from 7 December. This was my chart then:

(Click on the chart for a larger version)

The up-sloping line is my trend line off the October 2011 low, while my down-sloping tramline pair is my suggested scenario.

Back then, these lines had very little going for them – very few touch points, in fact. So I needed to be alert to making modifications.

As I write this morning, the market has moved up from last Friday and into the blue zone, which means that my label “a possible scenario” should now read: “the current scenario”!

I have taken another look at the tramline pair and believe I have a slightly better placement:

(Click on the chart for a larger version)

The lower line now sports an early touch point (red arrow), as well as the prior pivot point. I have taken it through the plunge low of 16 November as I consider that to be a throw-over after a rapid plunge.

Remember, a sharp move and reversal can overshoot valid tramlines, and it is OK to cut off the pigtails, as I did here.

This places the blue zone target at the crossing of the upper tramline and the underside of my long-term trend line.

This is a moment of truth, as resistance here should be very tough to break.

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Also remember we are in wave 2 up, which could end at any time, bearing in mind that upward retracements in the Dow have historically been deep – sometimes, very deep.

This means I am on the lookout for a top in the Dow. Can another related market yield any clues?

Here is the Nasdaq, which has been noticeably weaker in the current rally than the Dow:

(Click on the chart for a larger version)

Remember, the Nasdaq index consists of smaller tech-focused companies and is considered much higher-risk than the large-cap Dow.

Here, I have drawn in my tramlines. Right away, it has reached my fourth tramline and is currently battling with the same selling forces that are operating in the Dow.

So, both indexes are at major resistance.

Now, I do keep an eye on the economic calendar, and today, the Fed will announce their deliberations from the current monthly meeting. Expectations are that The Fed will switch from buying the usual Treasuries to ‘alternative assets’, and this has been buoying stocks in anticipation.

Recently, the US dollar has been sold ahead of the meeting, as today’s announcement is expected to be bearish for the dollar. Also, Treasury bond yields have jumped ominously.

The market pays close attention to Fed statements, of course, and trading around release of news can be very volatile.

So, f you are an active trader, I recommend you follow the US economic calendar on Bloomberg.com.

This morning, I have decided to remain on my hands for this reason. But if I see a spike up following the Fed news, I may look at this as another opportunity to fade it.

• If you’re a new reader, or need a reminder about some of the methods I refer to in my trades, then do have a look at my introductory videos:

• The essentials of tramline trading
• Advanced tramline trading
• An introduction to Elliott wave theory
• Advanced trading with Elliott waves
• Trading with Fibonacci levels
• Trading with 'momentum'
• Putting it all together

• Don't miss my next trading insight. To receive all my spread betting blog posts by email, as soon as I've written them, just sign up here . If you have any queries regarding MoneyWeek Trader, please contact us here.

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Published in Spread betting blog More articles by John C Burford