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Friday, June 18, 2010

Friday Weekly Charts

It's now becoming a little clearer that the 50dema is going to be a point of resistance, as we tested it again today only to be thrown back. Right now I have a resistance level at 1118-1120 a pivot point at 1105, whch would put ultimate support down around 1190. The bullish scenario here is a pullback to 1105 followed by another move up, the bears can't do much until 1190 gets broken. This could be the middle peak of a  W shaped correction, usually the start of a strong bull run, or, as I point out on the weekly chart below, it caojuld also be the mother of all bearish formations.

On the weekly chart 1150 looks line the line of ultimate resistance, and itf we get there and get pushed back, we will forme the ultimate bearish formation, the dreaded head and shoulders. Unlike the H&S we had back in June of last year, this one is visible on the weekly chart. Unless we get to a new high, this pattern will be valid, \

Th epattern is slightly less obvious on the Nasdaq, and we are now just below the 10 week average. A breakout from there would do a lot for the bull case, but we really need to get to a new high before I am convinced, and I don't think we will get there any time soon.

The Dow industrials are strengthening relative to the other indexes, another sign of overall market weakness. CMF is actually higher than it was on the last peak, and MACD is a little stronger. I doubt that this will form a symmmetrical head and shoulders, but they rarely are as TPTB fake out as many traders as possible.

The Dow transports are thestrongest argument for the bullish case and are halfway to invalidating a head and shouders, but unfortunately, they don't represent a very large part of the market. Still, a new high here would go a long way to improving the psychology of the market.

The Russell 2000 is sitting right below the 10 week average. I'm not an expert on head an shoulder patterns, so I don't know how significant a right shoulder higher than the left shoulder is, but until this gets to a new high I will treat is as a bearish condition. Safety first, as BP would say.

A while back I had a post compWhile the analog is not perfect, it is still pretty close, and the economic coditions of 1837 are frighteningly close to what I am seeing today. The rally from 1932 to 1937 was a reslt of massive stimulus by the government, which basicaly ran out of money by 1937. It seems we may be about to run out of stimulus steam here,as well. Yes, interest rates are still low, and the Chinese are still buying our debt. But that can stop at any time. With no warning.

I will have the new high update shortly.

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