January 2010! This rally is out of steam!
The spoos have hit new highs and the DPO is divergent. The Vix has hit new lows and it too
is divergent. Look at how the pattern resembles May-June of 08. This market is ready for a
serious correction. Look at the inverse relation of the stochastics as well.
The Spring Rally of 2009
As early as late February 2009 we could be in for an explosive rally. Perhaps even historic. Here are several very simple reasons why.
- On October 10, 2002, the Dow hit 7197 subsequent to the 911 attack a year earlier. The SP 500 cash index hit 768.67. Since then we have had nothing short of a terrorist attack on our economy. It only stands to reason that these two support levels 768.67 (SP) and 7197 (DOW) support level need to be tested.
- On 11/21/08 the SP hit a low of 741.02. On 2/20/09 we hit a low of 754.25. On 11/21/08 the Dow hit a low of 7449.38 and on 2/20/09 it hit a low of 7249.47.
- The SP broke below the 10/10/02 support level. The Dow has yet to test 7197 but on 2/20/09 came within 50 points of it. A standard Fibonacci replacement below a 76.4% would call for support at 88.66, but if that breaks there is no other choice but to drop all the way back to 100%! on the Dow! We have been below the 88.66% retracement level almost every day since 1/20/09!
- Now look at the DJ Volatility Index ($VXD.X) On 11/21/08 it hit 74.60. On 2/20/09 it hit 45.03. That is a huge divergence! Comparably look at the Detrended Price oscillator for those same two dates. 7.51 versus 5.11 at the close. Again a huge divergence.
- Examine the VIX. ($VIX.X). On 11/21/08 it hit a high of 80.38. On 2/20/09 it hit a high of 52.04. Another huge divergence. Comparably look at the Detrended Price Oscillator on the Vix for those same two dates. 9.92 versus 5.57 at the close. Again a huge divergence.
- From the economic Stimulus banks are cash rich. Where do you think they might go with all that cash?
What to Watch For
Look for the Dow to retrace back to 7197. When it does, watch the tick of the VIX and or the VDX. Particularly watch the SP Futures and the Premium. If there is intraday divergence at the very moment the Dow hits 7197 the rally could begin. If that does not happen and the market continues to sell off, watch like a hawk for any new lows on the SP Futures to be accompanied by divergence on the Vix. When that finally occurs you can almost bank on a rally of potentially staggering proportions. Please note however, the overall economic situation is bleak. While an explosive rally could occur, it may be short lived. Until the fundamentals of the US and global economies resume a measure of stability, it is entirely possible that any rally we experience may not be sustainable. Any buying with intend to hold should be accompanied by a prudent and reasonable stop.
On 2/23/09 the Dow broke the 7197 support level as predicted. Volume was mediocre. Expect greater volume for the rally to begin. The next support level is 6927 hit on 10/28/1997 which is approximately 200 points below. The next level would be 6316 set on 4/14/1997.We called it accurately!! Posted on 3/24/09
Both the Dow and the S&P 500 showed historic rallies