Volatility Expansion Breakout in Dow Jones Industrial Average
The Dow Jones Industrial Average (and broader market) is attempting to stage a breakout today… Several points are of interest at current levels… Regardless of fundamentals, momentum begets momentum… And while a near-term top may be close… For now - while the Dow Jones Industrial Average is trading above the 1st Standard Deviation Containment Zone (on the daily chart), it might not be a good idea to fight the trend…
In addition, the 4-hour chart is also showing ripe conditions for a volatility breakout, as seen through short-term volatility currently expanding, the DJIA trading above the Containment Zone…and WAVE PM indicating the distribution has plenty of energy to pull…
Chasing the DJIA “just to get in” - at current levels - is probably not a good idea… Rather, as short-term volatility collapses below long-term on the 15-minute, and then hourly, traders will be tipped to a pullback en-route… Generally, in situations where a volatility breakout ensues above the Containment Zone on the daily, traders most often have a chance to buy a pullback to the Containment Zone, as benchmark trades step off the ask, waiting for a dip to reload order flow…
A move back into the Containment Zone on the daily will likely have the DJIA into mean reversion, lateral action… With a move lower potentially in-store… However, while the DJIA is trading above the 1st Standard Deviation on the daily - the trend is up, and could yield upward of 400 to 500 points…
Mark Whistler is the author of eight books. Long awaited Volatility Illuminated Two (with co-author Steven Tsai) is expected on shelves before early summer 2011.
More about Volatility Illuminated and Macro to Micro Volatility Trading
http://www.fxstreet.com/education/forex-books/book.aspx?id=d1086089-a703-42e9-823c-677008d577a1
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