Polarity In The Dow Monday

Monday's action was really interesting to us chart watchers. Former Resistance becoming Support before our very eyes. I think this is the most important concept for us.

I tweeted what the chart looked like on Stocktwits Monday asking if this former resistance would indeed become support?

15 minutes later the Dow Jones Industrial Average started a 100 point rally. Although the meat and potatoes of the move came at the end of the day, the point is that the buyers showed up at a level where there used to be sellers. That's what should happen. When it doesn't is when you really need to look out.

I think based on this action, we have a terrific reference point for US Stocks short term. Above Monday's lows and we like them long. A rollover below the potential "hammer" candlestick would be worrisome and evidence that further repair is needed.

It's days like today that really help us manage risk the best.

Here are the candles on a 10 min time frame:

On top of the obvious risk/reward, consider a few other bullish factors: Momentum turned much higher on this new low in prices. That's exactly what we look for. The recent low also could not hold getting back above that prior support very quickly. This puts a potential false breakdown on the table too. And for you Elliotticians, I put my wave count up there but I think it's pretty clear.

To me all these things add up to an easy point of reference that helps us manage risk.

This is the reason why I do this.

Tags: $INDU $DIA