Dow At Trendline Resistance

The Dow's high today of 10434 hit right on the upper trendline of the rally from the March low. While volume was higher today, it was still below average. Potential negative divergences are developing. An overthrow of the upper trendline is definitely a possibility, but would likely lead to a more severe decline than one that begins from the current level.

I am still expecting a retest of the November low, but due to the fact that we are rapidly approaching the expected 10 month cycle low, it is unlikely that the correction will extend much below that level. Markets have managed to forestall a more severe correction that would have probably ensued had the October decline continued after a modest bounce in November instead of the rally to new highs.

I realize that I stand in the middle between the bears who are out in force calling for an imminent retest of the March lows and the bulls who are calling for the rally to continue into year end, but make no mistake about it, the patterns that I am seeing develop in a number of stocks point to a significant rally once the anticipated correction is over, whether that be November, December or January. I haven't seen this many solid looking setups in individual stocks since June. While some select large caps have been carrying the major markets higher, other stocks have been correcting and building new bases. That alone is enough evidence for me to discount the extreme bearish case.

As always though, we trade what we see and not what we think.

I survived the camping trip with some really sore quads. It is always an experience with my boys' scout troop as the scoutmaster plans some fairly challenging hikes. We started near Rocky Knob on the Blue Ridge Parkway and hiked about 6 miles to the campsite with a precipitous decline of about 2000 feet over 2 miles on a trail which was more suited for a goat than hikers with 40 lb packs. The campsite was very pleasant with a cold and clear running stream. We enjoyed a nice meal of chicken and rice next to the campfire. After a reasonably restful night and eggs for breakfast, we hiked the rest of the loop for another 6 miles back up to where we had started.

The trail, stream crossings and campsite were built by CCC workers during the Great Depression. While I am for less government, it is hard to argue with the benefit that some of the work that was done back then has added to our lives over the decades. The difference today is that I don't see the obvious benefit to the average person from the government's stimulus efforts.