It was brought to my attention that some of you may not understand my discussions of overhead resistance in evaluating the current market conditions.

First, on a Daily chart of the DOW (for example) with corresponding 20, 50 & 200-Day MA’s set on your chart “studies”, you will see clearly that the DOW broke through “support” on increasing volume on 1/21 & 1/22.

Since that time, all of these trends (20, 50 & 200-Day MA’s) now represent overhead resistance to the prospect of the DOW moving higher, especially given that the controlling trend… the 20-Day… has rolled over and has broken below the 40 & 50-Day MA’s.  This type of action is called a bearish crossover and historically indicates sustained short-term (ST) weakness.

From a Weekly perspective, the DOW has been in a bearish pattern since the Week of June 23rd, 2008 when it broke below its 200-Week MA and has not made a single attempt to break back above this longer term trend since that time.  In addition, 2 weeks ago the DOW broke below its 20-Week MA and now that trend appears to be rolling over to the downside.

From a monthly perspective, since the DOW broke back above its 200-Month MA in June of 2009 it climbed for 6 straight months… however… since breaking back above its downsloping 20-Month MA on relatively weak monthly volume, the DOW has weakened as it has approached its downsloping 50-Month MA, without making any significant challenge of that long-term (LT) trend, which currently resides at roughly 11,150…

All of these indications has caused us to conclude that we may be headed for at least a ST correction without any clear catalyst to drive the averages higher.

If you have any questions please send those along.

Coach BD

02/08/2010 at 12:40 pm
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