The debate rages on — Is this a new bull market or just a bear market rally? Have we bottomed out? Are the markets turning for real? Let's see what the charts have to say.
The charts highlight the difference between a rally and a trend. We are accustomed to thinking of a rally as a short-lived upwards movement. Time is a factor in separating a rally from a trend, but it is not the most important factor. The difference between a rally and a trend is the way the trend tests and retests a rising support line, or trend line.
Let's take a look at a couple of examples.
The Dow has all the features of a extended rally, but none of the features of a trend. On the other hand, the Hang Seng Index has the features of a trend that is initiated by rally behavior.
A trend has a pattern of rally, retreat, rebound, rally and retest of the trend line. This is shown in Chart A (Hang Seng Index). The April retreat is a significant 'stress test' of the trend and it finds support at the lower edge of a long term consolidation support and resistance area that has been developing since September 2008.