Because powerful rallies often look like fakes initially, we shouldn’t be too quick to diss last week’s vaporous surge, which sent the Dow wafting 700 points higher in the space of just four days. Another 100 or so points of such hot-air magic on Monday and bears could find themselves seriously on the ropes. The chart below shows why. Notice how Friday’s 258-point thrust goosed the Industrial Average past two prior peaks. That’s not very impressive by itself, because these were weak “internal” peaks created by the uptrend begun on November 21.
But if you look to the left of them you’ll see a third peak that was made when the Dow was falling hard. This is a more daunting “external” peak, and if the blue chip average were to push above it Monday or Tuesday without taking a breather, it would generate a powerfully bullish impulse leg on the daily chart. The peak lies just 95 points above Friday’s high, so it wouldn’t take much more silliness to get past it. Skeptical as we might be about the staying power of such a rally, we’d resist the urge to short it until we see how it fares at 9256, a “Hidden Pivot” resistance. If that number gives way easily, though, and the Dow closes above it for two consecutive days, bears had better run for cover.
Comments on this entry are closed.