DJIA 5/26/09

TRENDS
* PRIMARY downtrend | Res (Prior) 9000 (MA180) 8600 | Sup 6500
* INTERMEDIATE uptrend | Res 9000 | Sup (Prior) 6500 (MA60) 7800
* SHORT TERM consolidation | Res (Prior/BB upper) 8600 | Sup (Prior) 8200 (BB center) 8300

INDICATORS
* MAs | Price >MA20; >MA60; < but nearing MA180 | Slope MA20(+); MA60(+); MA180(-)
* MACD | trending up but weakening | Positive divergence (Oct08 to Mar09)
* Volume | decreasing volume consistent with sideways movement in May

ANALYSIS
* BEARISH: For now, odds remain in favor of the primary down trend continuing. Selling pressure may be reasonably expected to appear at or near 9000 after which a fresh downleg commences that could take the Dow below 6500.
* BULLISH: The MACD positive divergence and a developing inverse head and shoulders keep the hopes alive for the low probability end of the primary downtrend that could lead to a reversal or a prolonged sideways trend. There are at least 3 scenarios under which this could occur:
1. The inverse head and shoulders pattern comes to fruition and the index breaks upward of the MA180 and the 9000 level with a possible TP of 10500 thereabouts.
2. The index corrects under selling pressure that appears at or near resistance levels and finds new support without retesting 6500 thereby forming a provisional uptrend with one higher low.
3. The index corrects and retests the 6500 support forming a double bottom from which to launch a reversal or sideways trend.

CONCLUSION
1. A reversal from this point breaking above the MA180 and 9000 level is possible but unlikely.
2. A failure to breach resistance levels and a new downleg that will continue the primary downtrend is likely but we need to watch out
(a) if the index finds support above 6500, or
(b) if the index breaches 6500 or forms a double bottom.