Friday, December 18, 2009

Dow Signaling a Break Lower Out of the Range Soon

The market rallied this morning, lofted by the good RIMM and Oracle earnings. But after the cartwheels and riverdancing stopped at this "great" news the market sold off to new lows. The S&P is not that clear right now as to the wave structure and is sporting a similar garbled look that it has the past several declines that have been eventually completely reversed. However the Dow Industrials tell us a different story.

As you can see from the attached Dow Industrials 15min chart, the index has traced out a 5 wave decline, telling us that the short term trend is down, and that 10,264 will be broken before 10,510 will be broken. What's interesting is that this 5 wave decline led right to the bottom of the Dow's lower range then bounced (see Dow daily chart). This may be significant because it means that after a wave 2 or B corrective rally occurs, the Dow will charge lower beneath 10,264, and probably much further towards at least the 10,100 area, breaking down the lower end of the range. The significance of breaking out of the range to the downside will be examined when it occurs. A strong rally in the Dow right now would be a great risk/reward opportunity for the bears to get short with a stop above the 10,510 level.

As you can also see from the Russell 2000 chart, it too has declined in 5 waves and rallied in 3. The top of wave 2 at 612.81 should cap any rally attempt and 600.96 should eventually be broken.

Also notice the dollar has continued to climb. The series of higher highs and lower lows is still intact, so the short term uptrend is still intact. I drew a trendline that appears to be holding the rally up in place so far. A close beneath that trendline will break the series of higher lows, and the level that has hoisted the rally so far, so it would hint that the short term rally was ending.

1 comment:

whitemule said...

i really enjoy your commentary though it seems you are the only bull left

all the other bloggers i follow are now upping their targets and i hope the hell they are wrong

this has been the most fustrating few months, the sunday night ramp every week makes one wonder about who is really controlling these markets