DOW HITS TOP OF CHANNEL; POSSIBLE WEDGE SUPPORT TEST

The Dow has been moving higher the last three months with surges early in the month and pullbacks later in the month. Notice how the Dow bottomed in early September, early October and early November. Also notice how the Dow peaked in mid September and mid October.

Here we are in November with an early month advance and the Stochastic Oscillator overbought. As long as the Stochastic Oscillator remains above 80, it should be considered both overbought AND bullish. Notice how the indicator remained above 80 for two weeks in September and two weeks in October (yellow areas). Currently, the Stochastic Oscillator has been overbought for two weeks in November. The red dotted lines show the Stochastic Oscillator moving below 80.

A similar decline below 80 would be short-term negative and argue for a correction within the bigger uptrend. Until such a move, expect overbought conditions to remain and the short-term uptrend to continue.

The Dow encountered resistance at 10500 and is expected to test the lower border of the ascending broadening wedge formation.

Broader wedges (with a megaphone appearance) are more reliable than narrower (telescope-style) wedges, but the formation nonetheless warns of a correction back to the base of the wedge at 9000. Bearish divergence on Twiggs Money Flow (13-week) reinforces the signal, warning of a secondary correction. Upward breakout from the formation is less likely, but would offer a target of 11000*

FASTEN YOUR SEATBELTS >>> JUST IN CASE :p