Tuesday, April 22, 2008
So far no disaster
The Stock markets started to rally last week with the Dow taking out my resistance level of 12,750 which has caused me to be a lot more bullish. Here is what I said:
A market that is not falling in the face of of worsening news is a strong market. That is why I think the risk is that the stocks will rally from here. Not that I am saying that is going to happen but that would definitely catch a lot of people by surprise. If the stock market doesn't start down soon I think we are in for a monster rally. Closing above 12,750 on the Dow would make me very bullish. Conversely, trading below 12,100 means the bear is still alive and must be respected.
(Pat, pat, pat on back.) Here comes the caveat. The rally of the March 8th low has been ugly. Sharp up days and nauseating declines. Now that doesn't mean that it couldn't be a base for a coming rally but I would still be ultra cautious which is why I am going to bail on the idea of a rally if the Dow trades below 12,500. A mere 1.3% from where we trading at the moment. Today's sell off scared me. A brief move above an important resistance level and then selling off below that level is not a confidence builder. The rest of todays and tomorrows action will be important. A rally from here will make the two day sell off look corrective (three waves down) and that will be a nice base off which we can be a lot more confident about this rally.