por bachelor » Lun Ago 02, 2010 7:25 pm
One Piece Of Puzzle In Dow Rebound Missing
By Tomi Kilgore
The Dow Jones Industrial Average has sent a couple of technical messages suggesting the market’s correction that began in late-April has just ended. There is still one piece of the market’s rally missing, however, before investors can get comfortable believing a new uptrend has started.
First, the Dow has rallied past the June 21 high of 10594, which means the pattern of lower highs — one key component of a downtrend — that has been in place since April has now ended.
In addition, the index has topped the 61.8% Fibonacci retracement of the decline from the April 26 high of 11258 to the July 2 low of 9614, which comes in at 10630. Fibonacci followers believe that as long as a rebound remains below the 61.8% retracement level, the previous downtrend remains intact. Conversely, getting through it implies that a new primary trend may be starting. The Dow was recently up over 200 points.
Before the all-clear signal is sent, however, there still needs to be one final confirmation from the Dow Jones Transportation Average. According to the century-old Dow Theory, the Dow industrials and Dow transports have a symbiotic relationship, since the industrials track the makers of products while the transports follow the movers. Basically, since neither sector can be successful without the other, the indexes need to show they are moving in the same direction to confirm the primary trend.
The Dow transports were up 71 points at 4494. The good news is that the index has already passed the 61.8% retracement level of the decline from the May 3 high of 4828 to the July 6 low of 3870, which comes in at 4462. All the transports have to do now is move above the June 21 high of 4534 to start a new pattern of higher highs, which is one of the key components of an uptrend.
Meanwhile, the S&P 500 Index was last up 24 points at 1126, below both the June 21 high of 1131 and the 61.8% retracement of the April-to-July decline of 1140.