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Dow Jones election rally heading into resistance

Article By: ,  Financial Analyst
November 7, 2012 10:49 AM

Now that we have the US elections out of the way the markets have reacted with a positive tone prior to the outcome. But the real test is to see if the rally will hold or fade out. Although it is difficult to say how investors feel about the outcome the charts are suggesting that we may see a significant move soon. The reasoning is that up until the elections we have seen a consolidation pattern develop and a breakout is required to resolve the indecisive phase. With breakouts the moves can be swift and volatile in some cases. Once the breakout occurs there could be a trend continuation or a trend reversal at hand. See key levels below:

FTSE 100 back at 5900 again
Taking a lead from the US markets the FTSE 100 has managed to remain above 5830 again and is testing the 5900 resistance level. The last two attempts to break past the 5900 level resulted in the index falling lower. If it manages to clear this level then the route towards 6000-6150 may transpire. The momentum trend has remained positive, which indicates that the index does still have fuel to move higher. But caution is required if the FTSE 100 closes below 5830 and if the current move fails to sustain bullish momentum. The downside is that we could see a triple top formation which could create a bearish pattern resulting in a reversal.

Gold rallies at support
Tuesday’s rally which has helped lift the Dow Jones index away from 13060 may provide an opportunity for the bulls to take the index higher. It will need to move above 13338 in order to prove that the rally will not fizzle out. Above 13338 we still have the 13550 level which needs to be overcome. The negative aspect is that the momentum has been bearish and until a bullish thrust has developed, traders may seek to sell into potential rallies. We may see selling pressure develop by the end of this week unless the index moves past the resistance levels. A clear breakout is required to indicate the next key move.

Gold rallies at support
The support level has held for gold and also created a potential bullish scenario if we see the metal close on its highs by Friday. As the bullish momentum is still intact, the metal may reach for $1,775 where we saw the recent reversal. The price of gold may then move upwards to see $1,840, which becomes the focal point if current support levels are sustained. Failure to hold support may turn gold onto a bearish situation for the short term and bring the commodity down towards $1,550 if the bullish move does not work out. The next few days will need to hold onto positive momentum to avoid the decline.

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