Dow Jones stages a rally…

By Sandy Jadeja 16:14 26- Nov -2008

The Dow Jones broke below the 7883 low as expected and followed this by a rally to gain +12% over two days.

A previous rally from Oct 27^th to Nov 4^th gained +18% over six days. This suggests that the current rally has gained more strength on a shorter time frame making this more of an impulsive more.

Also the decline into November had created a five wave structure and this now could set the stage for a three wave corrective pattern to the upside. As long as the 7449 low holds then we are likely to see a move higher for this week which is a shortened trading week due to the Thanksgiving holiday. But trading is likely to be choppy on thin volume and we expect exaggerated moves into the week after of December.

The bear trend does not seem to be completely over just yet even taking into account the recent rally. The index will need to see a break above 9165 but also faces a hurdle or two along the way. Resistance stands at 8500 followed by 8811 which if cleared could see a rise to the expected 9165 level.

We should also note that the momentum is still in negative territory and until there has been either a thrust to the upside or continued strength over the next week or two then the rallies may be short lived.

There is also the window of December 15^th which remains open to seeing a low take place if the current rallies fail to inspire higher moves. If the pattern plays out then we could expect a minor high into early next week followed by a decline into December and setting the stage for a strong rally leading into 2009.

Until a clear pattern has emerged for the Bulls the index remains on the weak side and susceptible to sudden falls unless we see immediate strength helping to carry the markets higher.