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Down with the Dow?

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Be cautious in the short term - but don't write off this bounce just yet.

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Editor's Note: The following was posted in real time on our premium Buzz & Banter. It's being shared here for the benefit of the Minyanville community.

As you can see in the chart below, the Dow Industrials are in for some serious resistance from downtrend lines, the 40-day moving average, and old lows.

As the say, the true test of a man is where he stands in moments of adversity; we'll find out soon.

But as I shared yesterday, I'm very cautious in the short term, but I'm not ready to write off this bounce just yet. There's been too clear a display of strength to ignore.


Click here to enlarge


Now, let's check the vital stats of the market as it has been running since last week:

  • S&P Short Range Oscillator (courtesy of Standard and Poors): +4

  • Percentage of stocks above 10-day moving average: 95

  • Percentage of stocks above 40-day moving average: 32

The last time we had readings like this was at November's end; the most important overbought indicator in the very short term is the percentage of stocks above their 10-day moving average - a bold 95%.

Back in early December, the market got its breath back before trying to run again. Well, that plan was foiled by the Transports and Financials.

As I said earlier, I'm not yet ready to bet against the markets newfound strength - but as long as this strain isn't virulent, a couple of days rest ought to do it.

No positions in stocks mentioned.

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