Looks like the wish on your Christmas list this year could be for the Dow to go beyond 10,000, following today's breakthrough. But we look at the charts to find out just how important the Dow's renewed strength is to Asian markets.
Clearly, the break above the 10K mark is an important psychological barrier. Still, it comes with a significant warning.
The chart shows that the strongest historical support is near 10200. This is the area that will provide the strongest resistance and cap any rise from 9,000. This feature is enough to put a damper on the euphoria.
What’s 200 points between friends? Quite a bit when it comes to trading methods.
When it comes to trading methods, 200 points makes a big difference. It’s the difference between a rally trade and a trend trade. The high resistance level at 10200 suggests we can see a short term rally towards this level followed by a retreat and retest of support in the area near 10,000. The ability to hold support near 10,000 will reveal itself if this is:
- a trend consolidation
- an excited bullish exhaustion pattern
- or a genuine continuation of the trend.
The breakout above 10,000 is not a surprise to chartists because the Dow shows an inverted head and shoulder pattern and its most clearly seen on the weekly chart. The target level is 11,600, well above the initial 10,200 resistance level.
Trend continuation in the Dow will push markets higher. In Asia, China will add to this tailwind push. These reactions will affect Hong Kong, Korea and Singapore. Watch the Shanghai Composite Index, with its powerful trend consolidation continuation pattern. It is less probable that the Shanghai index will break above 3000 in the current trend rally, but a move towards upside targets near 3400 is developing as part of the Shanghai consolidation pattern.
The key leading index that sets the scene for Asia is the Kospi.