Trading the U.S. stock indices during 2012 was not an easy task for some traders and 2013 may also pose challenges as the global economic outlook remains uncertain for growth.
Looking back, the Dow Jones Industrial Average had rallied from December 2011 up until May 2012 gaining 13.66 percent at 13,338 before seeing a corrective move to the downside and losing 9.77 percent in just 23 trading days.
But the Bulls stepped in to lift the index above the May high to then create the 2012 year high at 13,661 in October to once again see the second decline of the year losing another -8.71 percent in 28 days.
As the end of 2012 approaches the Dow Jones index has created a lower high and with just a few more trading days left it seems unlikely that we may see new highs.
What is of concern going into 2013 is a potential bearish sign, which may cause a challenge for the bulls if they fail to clear past 13,661.
A classic bearish head and shoulders pattern seems to suggest that further declines may be ahead. For this scenario to occur the Dow Jones will need to see a break below 12,471 to confirm we are heading lower.
Currently the index remains in a short term bullish momentum phase and traders should not rule out attempts at reaching 13,407–13,550 once the 13,338 resistance level has been cleared. Short term support resides as 13,000–12,900 if the index heads lower over the coming weeks.
However, if the Dow Jones does no pick up further strength in the first quarter of 2013, then a sharp decline towards 10, 915 could become a target with lower targets at 10, 065 which equates to a 50 percent corrective move.
2013 for the Dow Jones is likely to provide ample opportunities for both the bulls and bears as the index continues to challenge the highlighted price targets and extreme volatility is likely to pick up sooner rather than later.
Sandy Jadeja is the Chief Technical Analyst for City Index a leading provider for Spread Betting, CFD's and Foreign Exchange trading. He has been involved with the financial markets for over 24 years and is a trainer in technical analysis. He is a regular guest on CNBC. He can be reached at firstname.lastname@example.org
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