Hope Springs Eternal!

Hope Springs Eternal!

Monday September 26, 2011

9:40 PM

Seems all it takes is a few whispers in the right places and the party begins!!  Really?  REALLY?  The talking heads go crazy!  Everybody's excited!  Buy, buy, buy!!  Really?  REALLY??  Reports of POSSIBLE options being explored by the European leaders seems to be responsible for this new "rally" to the upside.  Really?  REALLY?  Isn't that what they have been doing for the last couple of weeks?  Exploring options?  Or was all that just fluff?  Yes <sigh>, it seems rumors, reports and innuendo go a long, long way these days.  I only wish the big boys would share those reports and rumors with me before they share it with the world!  Always nice to have a "leg up". 

 

Please, let's try to remember....... that reports, rumors and innuendo is just that.  Fluff.  Until something concrete is announced it's really meaningless.  And lastly, please remember........... if a dead cat is dropped from a high enough plateau, it bounces!!  And that's exactly what this.  A Dead Cat Bounce!

 

Let's review support and resistance levels.  Support levels are the areas in the chart that actually support the price action on the charts.  The same way your floor supports you.  It attempts to support the price of the falling stock.  It attempts to stop the fall in price. 

 

Resistance is a natural spot in the chart that tries to keep the stock from  moving higher. Think of it as your ceiling.  Then look at the Bear Flag before it broke to the downside.  The top line was the resistance line.  And each time the price hit that line it retreated.  And the bottom line of the channel was the support line.  And every time price hit that line, it reversed and moved up.  At least until........... the support gave way and broke.  Then price dropped thru the bottom and the Bear Flag Prophesy was complete. 

 

Now the previous support line has become the new resistance line (the new ceiling).  Price will have to work hard to break thru the resistance (ceiling) and move higher.  We need a bigger catalyst to accomplish that feat.  So we can hypothesize that it will take a few attempts to break thru.  And usually, in this type of pattern, it fails to do so and often reverses hard when price fails to break thru the resistance.  It is referred to as "kissing the channel good-bye".  In other words, price often moves up to the bottom of the previous channel (the new resistance line) and then drops, this time going farther and deeper than before, creating yet a new low.  In our case to test Dow 10,420.  Or perhaps to test the magical Dow 10,000 level.  The fix is in.  The odds are a move to the downside after kissing the channel good-bye.  The fly in the ointment?  That would be the European Leaders actually doing something.  Something worthy of a decent rally.  And I don't see that happening quickly enough to avoid another drop and another test.

 

Yes, today was a good day.  But the little rally is based on thin air and nothing concrete.  And it was great that we closed above Dow 11,000!!  But it's not enough.  Without concrete action, we will kiss the channel good-bye and take another nosedive.

 

One change in the trend table tonight. Short term is up. Target?  The resistance line.  Call it about Dow 11,200.  Watch for the reversal.

CURRENT MARKET TRENDS
Long Term (Weekly Chart) - Down
Medium Term (3 day chart) - Down
Short Term (Daily Chart) – Up