Today is Tuesday September 29th and we had a consolidation day today. There was not a lot of movement during the day, other than marking some time and drifting sideways. That actually serves a purpose, in that it can bring in rotation. What I mean by that is, weak hands are getting out while stronger hands are getting in. With this move as extended as it is, others would call the late comers as, Johnny come lately. These are the people who are just now convinced that the rally could be for real and they want in.
There is still room to the upside but it is getting squeezed by some strong overhead resistance on the daily chart. As time is moving forward, the momentum is slowing. The resistance overhead on the Dow has hit an upward sloping line eight times and each time it has been met with a move off of that area. This one is very clear on the daily chart. The bottoms have been rising at a faster pace but not by a whole lot. What is developing is called a rising wedge and this happens to be in a up-trend. Do you know what happens when you have a pattern like this? What is the next move when the pattern is broken? Well, the pattern is by no means broken yet, and from the looks of it, has a little more room to the upside, but not much. Looks like 10,000 will be a likely target for the upside, something I have been saying for a while.
The bottom of the rising wedge would put it at around 9300, but that would be if it just fell off a cliff and went straight down, not to likely, but that is where support comes in at the bottom of the pattern. It will likely bounce at least once off of that level once it gets there and it will get there, that is for sure. As time passes, the support level will rise, eventually choking off the low, until it is broken. The tops have found resistence at a slower or lower trajectory and what you get is a rising wedge.
When it is all said and done, the pattern will break and at that break, you can expect at the very best case scenario, a move back down to the middle of the march rally. The low on the Dow was around 6500 and let us assume that the high is going to be 10,000 so a move to around 7900 will bring it to a little more than a 50% retracement. That will be the best case scenario. That will take place when the lower support is broken and again that is currently as around 9300 and rising.
I did just see another rising wedge in the context of the bigger rising wedge that I have been just discussing. That is inside the upper leg of the current move we are now in. Is is getting squeezed and has bounced off of that level with yesterdays low of 9640. So that is the where we are right now. If this small rising wedge gets broken to the downside it is going to more than likely move over and or down to the lower rising wedge that I had been discussing above. That is the major support for the whole move.
With all the talk, I will now have to post a chart of what I am saying so that you can see now with your eyes what I am saying in words. So check below the Dow chart and see the notes that I have made on it to see if any of that makes any sense to you, hopefully it does.
The bullish sentiment is down to 46% and that is 1% lower from last week. This is going in the right direction and allows for more room on the upside for the bulls if they can muster it. A reading of 55% is considered extreme and we are well off of that right now. It is interesting to see what will happen. I will leave the possibility open that the upper line that I discussed where the resistance was coming in at multiple times, that is that can get broken to the upside, then you may have a new pattern that could form and that would a parallel channel. The lower yellow line will become exactly parallel to the new location directly on top of the highest peak. We can look at that if and when the time comes. We have plenty on the plate to watch and see develope.
Thats it for now.
http://www.screencast.com/t/WAe6CAPyqO Daily chart of the Dow
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Tags: bullish, daily chart, Dow chart, retracement, Rising Wedge
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