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This Chart Shows The Dow Is Hitting A Critical Level

Wednesday, October 26, 2016 9:25
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shadow-dollar-sign-1239535-638x363The venerable Dow Jones Industrial Average has been stuck in a tight range over the past six weeks, and the next big move could be a major one to the downside.

Take a look at the Dow chart below, which illustrates the index’s movement since July 2015. Pay special attention to the red highlighted areas, which show the most important short-term levels:

dow-chartImage courtesy of @LuckyTrader23

As you can see, we’re well off the all-time highs set back in August, and are continually bouncing along the 18,225 level. This level acted as a top back in April of this year, and now could be forming the opposite — a bottom.

But if conditions worsen, then 18k will likely be a huge battleground level, since we saw that area act as another top late last year (plus, human beings love round numbers). Note that the Dow hasn’t been below 18k since early July.

If things get really dicey, the next stop below there could be as low as 17,000 or so, which would equate to a 5% dip from current levels. We haven’t seen the Dow that low since late June’s Brexit crisis, which saw an almost instantaneous bounce and a massive rally through current levels all the way to 18,600. Since then, we’ve just gradually dripped lower.

Historically speaking, the longer the Dow sits in a very tight range like it is now, the bigger the potential for a major move. With all-time low volatility possibly getting ready to snap, the market’s most famous index could be in for a bumpy ride as we inch closer to the November election, which is almost certain to have dramatic effects on the markets regardless of its outcome.

The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) was up $0.44 (+0.24%) to $181.92 per share in Wednesday afternoon trading. Year-to-date, the only ETF that tracks the Dow Jones has gained 4.55%.

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