There now is no question that we have a Dow Theory bull market signal, but it couldn’t have come on an uglier day, with distribution on near-record volume. Just based on the action and the volume behind it, this would be a good place to look for a correction, with the market very overbought in all timeframes. 1540-1550 on the Nasdaq and 945 on the S&P are our ideal targets, the recently broken 2000 downtrend lines (see first two charts below). Those targets also line up very nicely with lower channel lines in the daily charts (charts three and four). The Dow (charts five and six) has support at 9053, 8969-9000, 8931, 8800 and 8600. The bearish case is that the Dow, the Nasdaq and the S&P have now all essentially duplicated their October rallies from the March lows; in Elliott wave parlance, that could mean a completed ABC bear market rally. For the time being, unless the internals begin to deteriorate significantly on a pullback, we give the benefit of the doubt to the bulls. With a 24-2 record from 1897-1998, Dow Theory has a better winning percentage than Yankees pitcher Ron Guidry did in 1978. Give us our lower targets (1540-1550, 945 and 8600) with strong internals and we’ll be happy. Resistance is 1000-1007, 1020-1030 and 1056 on the S&P, 1666-1719 on the Nasdaq, and 9262 on the Dow.
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