I am not bearish on the Dow, as a matter of fact, I am quite bullish, just not yet.
The monthly Dow closed with a show of balance between bulls and bears in a nice Doji, so balanced that it is a miracle the financial press anything to write about.
The neat trendline at the bottom is the bottom line of a wedge on the daily chart (more about that soon).
Right now, this picture tells us that the bulls are waiting for a signal to pour money into the markets and the bears are unsure or unable to sell the market lower.
The daily chart helps us figure out the shorter term move, which I think it is going to be a new visit to the lower trendline.
As you can see, we had our January bottom and an oversold rally, a failed attempt to break that bottom in early March, and the current rally. The current rally managed to break above the wedge briefly and failed. Now, it is common for wedge break outs to fake a failure and return to the trendline that acts as support. However, in this case, the trendline matched the 50 day MA and the Dow crossed under that line.
One possibility is that tomorrow we have a rally after a bounce on the green line (the 20 day MA) and that we exit the wedge for good. It is possible, I just don't see it as likely as a move towards the lower trendline during the coming week with a bounce on the lower trendline (if there is not another Bear Sterns in the horizon). A move to the trendline with a bounce would give us five neat waves of uncertainty. In any account the wedge is closing in and traders and investors will be taking positions for a breakout in either direction.
Amazingly enough, the levels to watch I gave after the January bounce are still valid, sign of a market that's still trying to find direction.
Longer term, I still think that while we don't break the January lows we will be still in the middle of a flat correction, and a new bull market is in the making. It is hard to see it now, but for as long as we stay above that long term trendline this is just a short term flat correction in a secular bull market.
Monday, March 31 2008, 7 PM EDT
BTW, we are missing some debate over here. Everybody is welcome to post their thoughts either as a blog, in the forums or as a comment.
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Last update : 31-03-2008 15:59
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