Rally's Last Chance

The decline this week has surely seemed to bolster the bearish case, but there is still an outside chance that a significant rally may ensue next week until the end of January. The key level is thursday's (1/15/09) swing low of 28.07 in the Qs and 7995 in the Dow. As I stated in the previous post, this decline has the feel of a B wave, probably wave c of a flat correction. After reviewing 500 stock charts this morning, I found a significant number sporting 5 waves up from the November 21 lows followed by 3 waves down or sideways. What I did not find was a significant number of bearish looking charts. Yes, many stocks are down, but the patterns do not look bearish on the intermediate term.

A good example is GE which has 3 up and 3 down from November 21. GE could possibly hit 20 in the next two weeks. At the same time some markets are already testing the November lows, e.g. the DJ-20 transports and the financials, BKX and XLF. Finally, the Qs are now showing rising relative strength which has coincided with rallies for the past few years. Expect upside next week. If volume increases and the rally approaches the January highs, then new rally highs are probable. On the other hand if volume is weak and the rally stalls at the 50dema, I will looking to go 50% short for a retest of the November lows. I do not expect much downside below the November lows so profits will be taken there if seen.

Over the next few weeks I will begin showing trades I have taken for better or for worse on a weekly basis. I will do my best not to cherry pick. Constructive criticism is appreciated and I hope that the examples will be beneficial to readers.

Good trading next week.