Today the three major market indices, DJIA, SP500, Nasdaq 100 have entered the region I have identified in my last post as the potential ‘
bear trap’ zone. The reason I suspect this region could be a potential bear trap is the two possible support levels are part of this region, the 50 SMA and the trend line formed with the March and July 2009 lows. What makes this zone to be a likely bear trap is the Dow 10,000 target. The market has a tendency to be attracted to those targets that have been tossed into the ring. If you listen carefully, you can hear the market whispering that it wants to hit the 10,000 mark before it reverses. Just look back on how the market hit the $100 a barrel of oil, and the $1000 an ounce of gold target. Similar behavior will occur for the Dow on its way to hit 10,000. The bears will claim victory when the first attempt to reach the target by the early bulls fails. Then as the bears beat down the market as the first wave of bulls are exhausted, the sidelined bulls that missed the first upward move seize the opportunity to get in at a lower price, and this sideline money will move in swiftly into the market that will trap the bears and forced them to run for cover. The combined entry of the sideline money and the short coverings will propel the market to hit the target like a rocket taking off, straight up. Will this scenario come true? Nothing in the market is certain, but as a trader, one must have a theme or a scenario to trade with, and this is one of the scenarios I will be on the lookout for. When it occurs, I will be prepared to take advantage of the move. And if the scenario does not materialize, then I will be ready to take the other side of the trade.
Here is the SP500 chart from my last post:
Here is the latest SP500 chart along with the chart for the DJIA & Nasdaq 100:
Until the market breaks below the bear trap region and bounce off at some lower support level to find this bear trap region as resistance, I will continue to watch for the Dow to hit the 10,000 target and 1100 on the SP500.
