The Dow ETF (DIA) has pulled back sharply over the past couple of weeks, but the indicators beneath the chart are showing an interesting development. The PPO has compressed tightly near the zero line, which often signals momentum is coiling before the next directional move. At the same time, the ADX line had been declining, indicating the previous trend was losing strength. Now we are beginning to see the −DI line rise while ADX starts turning higher, suggesting downside momentum may be strengthening.

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This type of compression between indicators is often referred to as a P3 squeeze (or P3.5 for bearish moves), where momentum builds before a larger move unfolds. With PPO now rolling lower and −DI gaining strength, the setup suggests the potential for continued downside pressure in the short term, which could favor bearish option strategies if the move follows through. The EMA’s are in down trending order which also shows a down trend.

Wishing your the best,

Wendy