DJIA, 12/7/2007

 

Today, Friday December 7, 2007, the Dow closed at 13625, gaining 0.04% for the day and ending the week up 1.9%. The 2 successive weekly rallies by the market has been impressive and uplifting. But the bottom line is that nothing much has changed in the Dow in terms of getting a clear signal as to where it will be headed in a big way.

In the weekly time frame we need to see a resolution of whether the June 2006 uptrend line is solid enough to carry the index to a new high above the important resistance level of 14198, or if the trendline ultimately breaks down.

Looking at the daily time frame, we see a neutral pattern with the Dow heading nowhere since mid July 2007. The next critical levels for this time frame are the 14198 resistance and 12724 support.

Bullish scenario. The Dow breaks 14200. If this happens, the height of the range suggests a potential upside move of 1400 pts and will be a good time to change from a defensive to a more aggressive stance and start opening long positions.

Bearish scenario. The converging uptrend and resistance lines in the weekly chart is resolved to the downside with a trendline breakdown. If this happens, the next level where we can reasonably expect potential buying support is at 12500.

It will be interesting to see if the Fed cuts its rates next week and by how much and if it does, will it serve as the catalyst for the market to overcome the slowing economic outlook that has been weighing down on the financial markets for some months now. Cheers!

Copyright (c) 2007 Whipsaw. All rights reserved. (This article also posted at www.whipsaw.bravehost.com)

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