Dow Jones Industrial September 16, 2009

It's about time I revisit the chart of Dow Jones Industrial Average. Why today? Because it's been over a month, and the index was up on a larger volume, and because my once-dessimated portfolio recovered to what it was right before the September-October crash of 2008.

In my August 3 post, I bragged "I Told You So in May, and Sucker's Rally Continues!". I'm not bragging again, but just wanted to mention what I got right almost for the first time since I started actively trading, almost exactly two years ago (right before the market top...). That's about psychology.

"To be really a "sucker's rally", the rally has to threaten to fill the huge gap down created in October 08", I wrote back in May. Whatever the underlying reason or un reason, the market has climbed just like I thought it might, handily beat my first target of 9,300 - 9,400. Right now, Dow is between the 32.8% retracement and 50% retracement from the October 07 market top.

In this Dow 3-year weekly chart, 50% retracement would take the index to about 10,300. That's the middle of the sheer cliff from October 08 crash; very thin resistance (remember those days when Dow dropped 200, 300, 500, 700 points in one day?). I wouldn't be surprised it runs up to 61.2% retracement, which would be around 11,200.

RSI is in uptrending channel, MACD is solidly positive, and slow stochastic is above 50 for the first time since the 2007 market top. It could collapse back so quickly if a next financial disaster hit, but for now they are all good signs, no negative divergence. Only negative divergence I see in the chart is the volume. It's been decreasing ever since the March 09 bottom while the index marches upward ("Rally that no one believes in"). However, the trend may change, as proverbial "performance anxiety" among professional traders, fund managers, and retail investors may intensify.