DJIA 3/24/08 STOCK MARKET TECHNICAL ANALYSIS

MARKET BREADTH
AdvIssues: +2,100
NetNewHighs: 0
UpVol: +2,575,219,176

TECHNICAL ANALYSIS
Primary consolidation * Secondary downtrend * Short term uptrend
Support 11,600-11,700 * Resistance and Near Term Objective 12,800 * Rounding top on the weekly chart * Range pattern on the daily chart *

OUTLOOK
The Dow advances 1.52% on the heels of news that JPMorgan is raising its bid for Bear Stearns from $2 to $10 per share and that housing sales snapped a 6-month streak of declines (New York Times, MICHAEL M. GRYNBAUM, Published: March 24, 2008). But the index closes off its highs on lighter volume taking the thunder out of what CNBC's Dylan Ratigan was saying as the biggest 2-day advance in 5 years. The index breaks through the intermediate downtrend line today and the technician's focus now shifts to the 12,800 resistance. I consider this level significant because it has been touched thrice in the last 4 months. Once as support in Nov-2007, and then as resistance in Jan and Mar-2008 after subsequently reversing its role. In technical terms, this means it is reasonable to expect huge selling pressure at 12,800 and odds favor the advance being cut down at or near this level. However, potential buyers will also be looking closely at how the index fares at resistance because if it is breached we could be looking at a potential double bottom pattern on the daily chart. It would take a tremendous amount of buying interest to overwhelm the huge selling overhang waiting at resistance but if this low-odds breakout should occur, the momentum could be enough to (a) encourage those with existing positions to buy more, (b) attract new buyers otherwise waiting at the sidelines, and (c) convince and persuade erstwhile sellers that it is futile to continue selling and it is now time to buy. This collective buying interest could then send the index to 13,800 thereabouts. I approach important price points knowing the odds, but quickly change my mind as soon as the market gives a clear signal that it's going against me. As a technician, I spend a lot of time and effort studying and defining (as opposed to forecasting or predicting) the direction and turning points of the market for the primary purpose of riding trends. I know the market is always right and I accept and act on whatever it has to say.