Wednesday, September 17, 2008

Parallel In Jeopardy

In my last two posts I discussed the similarities in the price pattern in the Dow to 2001. Yesterday's high volume reversal puts that similarity in jeopardy. The financials certainly appear to have put in a short term bottom and possibly the Dow as well.

If the downtrend is to continue, we would expect price not to close above its falling 20ema. A trendline drawn from the September 2 high in the Dow downward through the highs of this decline puts overhead resistance in the Dow at around 11230 to 11250 tomorrow.

If sideways action is followed by a continuation of the rebound, then look for another test of the August highs prior to a resumption of the downtrend. If sideways action is followed by a breakdown, expect the downtrend to accelerate. If the market moves sharply higher, wait for a retest or pullback to see if its for real.

At this point the trend is still down and there is no point in trying to second guess that.

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