Is The Rally Over?

The market has been moving higher for the last four weeks and gained more than 20% since the March 9, 2009 closing low, so is this rally over? From the market's behaviors, it does not appear this rally is over. Instead, it appears the market is playing out this rally according to its script. It is converting more non-believers to buy into this rally. More talking heads are calling this rally more than a bear market rally, even some of them are calling this a new bull market rally. Furthermore, there are lot of talks that the market has bottomed on March 9, 2009. Sound like a bull trap? I'm not going to fight the tape. I will be long until the trap is set and be very watchful for signs to close all my longs before this bull trap is snapped.

Lets take a looking at the charts and those levels to watch for signs that the trap is about to be snapped.



From the DJI chart above, all the support and resistance levels drawn in blue are fairly close to the Fib retracement levels. The DJI first attempt on breaking the 8000 level resulted in a pullback to test the 7500 for support and to lessen the slope of the price channel. The success in the second attempt on breaking above the 8000 level included a test of support at the 8000 level (resistance turn into support). The trendline crossing into the price channel at 8250 should not be much of a resistance since ahead of this level are the stronger resistance at 8400 and the Fib 61.8% level. One of these two resistance levels could potentially be the reversal point.



The SP500 chart also show the resistance levels (drawn in red) are closely aligned with the Fib retracement levels. The trendline crossing the price channel should not pose too much of a resistance. The major resistance appears to be near the 880 level, where the resistance trendline and the Fib 61.8% are. This level should be closely monitor for possible reversal.



The Nasdaq 100 shows a slightly different characteristic than the DJI and SP500. It has broken through the trading range and probably will not encounter resistance until it reached the upper trendline of the price channel or the resistance level at 1380. The 1380 level need to be monitored for possible reversal point since the upper price channel trendline also crosses this point.

In the near term, the market appears to still have more upside. But the resistance levels mentioned here should be closely monitored for possible reversal. When these resistance levels are approached, I will tighten up my stops on the longs to avoid getting trapped with those late comers.