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Technical Report
by: Jim Ellis, TimeFrameInvestor.com

This morning the price was fighting to hold the Oct lows as support.  But as the afternoon began that support began to crumble and the prices started moving below it to head towards the intra-day lows that were set last Thursday when the price "peeked" below this support for the first time.  

This made for the second time the price began moving down thru this support level, and then late in the afternoon for the second time the price spiked back above the support to cancel the breakdown.  One slight difference between this week and last week is that last week when the price recovered it sparked quite a strong intraday rally, and today it didn't.

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

"On the djx 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.  There is still the extremely oversold monthly charts to contend with, and also the lack of weakness on the ndx, so we would want to start with a tight stop on a new "short" position, as these warnings create some risk that a breakdown could turn into a "head fake".  At this time not enough risk to keep us out of a new "short" position, but enough to justify a tight stop."

That late afternoon recovery turned the breakdown into a "head fake".  The candle turned blue on the daily chart of the djx, along with the appearance of an up arrow.  This is giving us a strong warning that while the support has been violated, it is still holding and we are not seeing weakness that would suggest a breakdown is likely.  And there is also a potential higher low on the djx hourly chart, from the intraday lows from last Thursday and today.  This creates a growing prospect that the daily chart is forming a bottom and that we could see a new upward move develop.
However, we have the fact that the price has violated the support of the main Oct lows (line on the daily chart), not just once, but twice.  That is a cause for concern, because it shows that the support is not solid.  Then we also have the hourly chart that ended the day with overbought pressure, and the hourly chart is in a downtrend with lower lows and lower highs.  This creates a conflict that creates some higher risk conditions for right now.

We are walking a "tight rope" on these shorter term charts.  There is still a risk/potential that the price could breakdown, but we are seeing a shift back towards a growing potential that this support will ultimately hold and that the price would then start to move up.

"For Tues we could see a resolution to the test of this support."

At the middle of the day it was looking like the issue was being resolved with a breakdown, but that drop became just a "head fake" and the price snapped back to continue to test the support.  On the djx we are seeing more warnings that suggest it is getting more likely that the price will continue to hold up, but to confirm this we must see the price hold this support and start to actually move up from this support area.

"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 each chart, would give us an aggressive indication that the support has held.  The reason that this would be an early and moderate risk situation is that we would need to see strength begin to appear on the daily charts, and the weakness evaporate from the weekly charts.  Normally it is not one candle that gives us a signal that a new move is developing, unless the price spikes thru a level to show that momentum is appearing to create a "hard reversal" type of move.  And at this time a move above the highs from Thursday would be that "hard reversal" type of indication."

At this time a move above the highs from Tues would be an early indication that the price is starting a new upward move, but I would still like to see a move above the highs from Monday for a stronger signal, and I would also want to see a green candle appear on the daily chart.  

We are still right on the edge, and there are still valid arguments for both a breakdown and a for the support to hold.  We do not want to let our emotions over ride what the charts and the price is telling us.  So we will continue to monitor the price and charts closely, and should the price breakdown then we will have a downward move underway, and we know that we do not fight against it.  Or should the price begin to move up, then we will be seeing more indications that the support has held and that a new upward move would be starting to develop. 

Jim.   www.TimeFrameInvestor.com

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