Now that the 9,000 mark has been passed in the Dow Jones Industrial Average, everyone wants to start counting to 10,000. Do the bulls have enough momentum to charge ahead? From a charting perspective, this is possible but several small cautions come with this optimism.
The first is the small resistance area near 9,400 that is seen on the weekly chart. The initial rebound from below 8,000 found resistance in this area so there is a high probability resistance will develop again.
The second caution is the 10,000 target. It is a nice round figure but the chart shows the strongest historical support is near 10,200. This is the area that will provide the strongest resistance and cap any rise from 9,000.
Who cares about caution now the depths of the economic winter are behind us? Green shoots apparently have not withered. On the very positive side is the unchecked market fall from 11,000 to under 8,000 in just a few weeks in 2008.
This is a positive because the fall did not develop any support areas. This suggests that a breakout above 9,000 has essentially no technical or charting barriers to a rapid move towards 10,000. This is the equivalent of clear skies ahead.
More From CNBC.com
- Pros Say: S&P Could Rally Another 10-15%
- Charts: Nikkei to More than Double in 3 Years
- Back to Asia Pacific Stories
The rapid rebound that carried the index above 9,000 has confirmed the development of a powerful bottom reversal pattern. This is not the V-shaped recovery suggested by some analysts who do not have good chart analysis skills.
For a true example of this pattern they need look no further than the Shanghai Composite Index. The pattern of Dow recovery is very different. The Dow shows an inverted head and shoulder pattern, and it's most clearly seen on the weekly chart.