E-mini Dow Jones Industrial Average (YM) Futures Technical Analysis – Will Sellers Stop Short-Covering Rally on Test of 26215 – 26494?

September E-mini Dow Jones Industrial Average futures went on a wild ride on Wednesday before settling marginally higher. The cash market was nearly 600 points lower shortly after the opening as traders reacted to a plunge in global bond yields. The Dow began its recovery once bond yields stabilized and losses in the Chinese yuan were curbed.

On Wednesday, September E-mini Dow Jones Industrial Average futures settled at 25940, up 16 or +0.06%.

The price action suggests that the major players – institutions and funds – may have priced in the negative headlines and are now looking for value.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. However, momentum has been trending higher since the formation of the closing price reversal bottom on August 6 and its subsequent confirmation on Wednesday.

A trade through 25032 will negate the closing price reversal bottom and signal a resumption of the downtrend with the next target the main bottom at 24626. On the upside, the main tops come in at 27358 and 27397. We can’t even think of a change in trend to up, however, until buyers overcome a short-term retracement zone.

The main range is 24626 to 27397. Its retracement zone at 26012 to 25685 is controlling the near-term direction of the Dow. After straddling this zone for three days, the market is attempting to cross to the strong side of this area early Thursday.

The short-term range is 27397 to 25032. If the current short-covering rally continues to gain traction then its retracement zone at 26215 to 26494 will become the next upside target.

Daily Swing Chart Technical Forecast

Based on Wednesday’s price action and the close at 25940, the direction of the September E-mini Dow Jones Industrial Average futures contract on Thursday is likely to be determined by trader reaction to the main 50% level at 26012.

Bullish Scenario

A sustained move over 26012 will indicate the presence of buyers. If this move is able to generate enough upside momentum then look for the rally to extend into the short-term retracement zone at 26215 to 26494.

The short-term retracement zone at 26215 to 26494 is important to the structure of the market so traders should pay close attention to the price action and order flow inside this area. Since the main trend is down, sellers are likely to come in on a test of this zone. They are going to try to form a secondary lower top. If successful, this will mean that real short-sellers have arrived and that they will try to generate enough downside momentum to challenge the low of the week at 25032.

Overtaking and sustaining a rally over 26494 will paint a more bullish picture for traders.

Bearish Scenario

A sustained move under 26012 will signal the presence of sellers. If this move generates enough downside momentum then look for the selling to possibly extend into the main Fibonacci level at 25685. This is a potential trigger point for an acceleration into the main bottom at 25032. If this level fails then look for the selling to possibly extend into the next main bottom at 24626.

A second bearish scenario could begin if short-sellers arrive on a test of 26215 to 26494.