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Technical Report
by: Jim Ellis, TimeFrameInvestor.com

The new week began with a gap down that tested the Oct lows early this morning.  The price did not follow thru on that initial weakness and bounced back up to test the lows from mid day Friday as resistance.  The resistance held and the price fell back to end the day at the lows from this morning and for the second time in the same day testing the Oct lows as support.

This week we are following the DJX in the Red Option Technical Report.

"First and foremost, the mid day higher low created the prospects for the price to make an upward move.  We would use that mid day low as a "tight" stop, and while the price remains in this hourly chart range we have the potential that the upward move could still develop.  
With the change in the candle and trend, we will not just "hope" that the price holds up, we will face the fact that a move below Friday's lows would cancel the higher low, and would create a "lower low" on the hourly chart, which would be the start of a potential new downtrend.  Also, on the djx because Friday created a red candle and red trend, a move below Friday's lows would be a second red candle that would be moving down to signify a downward move is developing.  

The biggest issue we face is that the price is so near the Oct lows that has been a key support level.  While a move below Friday's lows would give us a downward potential on the djx, due to how close the price is to a major support level we would want to see a break of the Oct lows as a lower risk signal that a breakdown and downward move is developing.  At this time that would create low risk conditions for a new "short" swing trade."

I highlighted in bold 2 key things that we see on the shorter term charts.  The gap down today hit the support of the Oct lows, and did NOT breakdown thru it.  The hourly chart has set a lower low with the gap down this morning.  What is very interesting is how the price bounced up to hit the mid day lows from Friday, and that level acted as resistance, which creates a lower high on the hourly chart.  This is quite ominous as the price fell back to end the day right at that critical support level.  

The djx daily chart is still showing the weakness of the red candle and trend, so there is still the prospects for a breakdown.  But the djx hourly chart ended the day with extremely oversold pressure.

"With the changes that occurred Friday there is now a much greater potential that we could see a breakdown and a new downward move develop.  But with the recent failures of the price to live up to the potential shown on the charts we would want to see the price actually breaking down thru that support to signify that the downward move would be developing. " 

We continue to see a lot of weakness that represents the potential that we could see a breakdown.  But so far the support of the Oct lows is holding the price up.  

For Tues we could see a resolution to the test of this support.  A break thru this support would create a downtrend on the hourly and daily charts to show a new directional move is developing.

If the support continues to hold, then we would have a double bottom forming on the hourly chart and a move above the hourly chart resistance that is marked on the chart, would give us an aggressive indication that the support has held.  The reason that this would be an early indication is that we would need to see strength begin to appear on the daily charts, or for a "hard reversal" type of move to develop, and at this time the price would need to move above the highs from Thursday for that indication.

Jim.   www.TimeFrameInvestor.com

Here is a link that explains the different colors and indicators on the charts used in the Technical Report.