After falling as low as 10043 last Friday, the Dow Jones now looks like it could be very soon testing its 50 day MA resistance level, which currently stands at 10431. The 50 day MA has started to shift downwards, but with a BUY SIGNAL given by the stochastic on Monday, and seeing it followed by another sharp move up on Tuesday, I think it will attempt to move back up over its 50 day MA. This was to be expected to happen sooner or later, as it is very common to see an attempt at recovering losses after seeing a critical support level broken, which is now resistance. If the Dow Jones were to manage to move sharply over its 50 day MA, we would have a minor BUY SIGNAL. At that time, the next resistance level we would be targeting for would be around the 52 week high of 10729. A sharp move above 10729 would then trigger a STRONG BUY SIGNAL, and would most likely mean that the major up trend will resume. However, if the market falls back again from the top, this could indicate the possibility of seeing a double top pattern which would reaffirm the end of the past major up trend. Although the market has been moving back up sharply this week, keep in mind that it fell much harder during the past 2 weeks. The negative momentum we saw in the past 2 weeks was much stronger than the positive momentum we are experiencing so far this week. It is normal to see a a few bounces back up after such a move down. Keep in mind that the the Dow Jones is still off by 458 points (4.46%) from its high of 10729. Also, if we look at the weekly chart, the STRONG SELL SIGNAL given by the MACD is still valid. With that being said, I would be very cautious right now, and for those with no current positions in the market, I would WAIT on the sidelines. The next few weeks will be very determinant in terms of the market's direction for the rest of the year. In the very short term we could see more up side, but in the long term the market really has to prove itself and manage to move back up and hit a new 52 week high. The past 2 week's losses did do a lot of damage, and the market will have be driven by very strong positive news to resume the major up trend. There is always the strong possibility of seeing a sideways trend, but it is too early to say. A sideways trend would make trading a lot harder. In a sideways trend you would have to be able to be very good at timing your entries and exits while cashing in smaller gains than usual, as you would then risk of losing it all.
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