Tuesday, May 11, 2010

Dow Test Imminent?


My best guess is that we are setting up for a test of the recent lows. Since last Thursday's action was so volatile and the activity was of suspicious nature, it is difficult to pick a specific level. So I am going to cop out and pick a range. That range is 9,800 - 10,200. As the chart above indicates, the moving average is around 10,200, there is the round number support of 10,000. Resistance has been defined in the last few days above 10,800, so at the moment, risk/reward is around a 5:1 to 9:1 ratio. The bears are still in control, don't believe the broker propaganda. The weekly chart is NOT oversold and shows support around 10,100. The daily is oversold and just needs a bullish divergence to turn short-term bullish. So I plan on playing from the short side here looking for a test of last week's lows. This could lead to another rally attempt, with the current level being a natural resistance level. If this occurs and leads to another leg down, support is not evident until 8100.

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