Is the U.S. market poised for a correction? If it is then investors must decide if they want to protect profits before the correction develops. Traders and investors will also prepare to take advantage of any correction to enter the market again in anticipation of a continuation of the trend. Technical analysis identifies the probability of a correction and also helps to identify how large the correction may be.
The most important feature the on the Dow Jones Industrial Average chart is the parallel trading channel. The lower edge of the channel is the support trend line. This support line uses the low of June 2012 near 12,090 and the low of 12,515 in November 2012 as the anchor points.
The upper edge of the trading channel is created by the up sloping resistance line. The line uses the high near 13,233 in March 2012 and the highs near 13,655 in September 2012 and again near 14,020 in February 2013 as the anchor points for the position of the trend line. Between October 2011 and March 2013 the Dow remained inside the trading band. This included regular rally and retreat behavior.
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In March 2013 the Dow broke out above the upper edge of the trading band and continued to move higher. This breakout has a new upside target near 15,400. This target is calculated by taking the width of the trading band and projecting it upwards from the point where the breakout occurred. This calculation provides both an upside target and also a value for any correction or reaction away from the target level.