As a follow up to yesterdays post I would like to say that the market responded well to its need for urgent bullish movement. Yet, despite today’s sharp rise some work remains to be done and time is running out.
As I noted yesterday the Dow needs to break 8400 and stay above it for awhile to negate a very steep fall showing itself in many technical charts. I also stated that a further climb above 9000 is needed over the next few weeks to keep the net dip from demolishing the November lows.
Though today was a nice move there were danger signs present. Short term sentiment indicators for the Nasdaq 100 have now gone into overbought territory and look ripe for a short term decline. Now, it is possible for the overbought condition to last a couple of weeks, and it is possible that the Nasdaq could still rise another 5 or 10% before releasing the overbought condition, but that is not the norm. Since, as I mentioned yesterday, the Nasdaq usually leads the way up an down, it would be natural for the Nasdaq to start down early next week. This is not a prediction, but rather a statement of statistical probability.
The fact that the Nasdaq is now overbought and the Dow is still below the critical 8400 mark is a negative sign for the market. Yet, the last two days advances have been on higher volume which is a good sign. Couple that with the possible big news coming out of the Obama camp regarding the stimulus plan and this rally could have one more sizeable burst early in the week. Will that burst be enough to send and keep the Dow over 8400 for the foreseeable future?
That, my friends is the key question.
Since the goal of this and last nights post is to warn the casual investor of possible damage to their portfolios and nest eggs, I will give an update next week on how this got resolved and how safe things look over the net couple of months.
Jim Guido
This weekend I plan on a post on some thoughts regarding the war on terror.