E-mini Dow Jones Industrial Average (YM) Futures Analysis – January 21 2013

The March E-mini Dow Jones Industrials futures contract is called a little better in pre-market trading. Volume was light because of the U.S. holiday. There is no cash market today or economic news so look for limited movement ahead of an early close.

Last week the market finished at a multi-year high. This was done without much fanfare, leading me to believe that the market is overbought. Better-than-expected earnings have been supportive, but concerns over the debt ceiling may be limiting gains. Talk that a short-term compromise is being proposed could actually help put in a top as it would satisfy the “buy the rumor, sell the fact” requirement.

Technically, the contract is in an uptrend and trading inside of an up channel bounded by 13756 on the top and 13520 on the bottom. A trade through the support line at 13520 will indicate weakness but not necessary a change in trend.

Based on the daily swing chart, a trade through 13232 will turn the main trend to down. With the market trending inside the channel, the best sign of impending weakness will be a closing price reversal top. This pattern typically leads to a normal 50% correction.