|In a previous article "The Dow's Bearish Broadening Formations Persist" (05/13/02), I suggested that a trendline test around 9250 might be coming. Friday's extreme price swing had a low of 9261. That combined with a "hammer" candlestick formation indicating a possible bottom, looks convincing enough to satisfy that trendline test. What we need now is a confirming bullish candle or up-day to verify this bullish potential for a noteable rally.|
The pervasive taste of doom and gloom out in the marketplace may well be an important capitulation marker here. Volume on Friday hit a healthy 321 million shares and it will be interesting to see if enough traders sense a substantial turning point and volume hits higher levels here.
|As noted on the chart, each trendline touch, or near trendline touch, resulted in a substantial rally and no doubt some traders will try to anticipate a reoccurrence. The downside danger would be failure here and an abrupt move to violate the trendline. I don't think this is as likely, but as always the market will have the final say.|
|Graphic provided by: stockcharts.com.|
|Notice what the chart indicators are suggesting at this juncture. There are several positive divergences set up, and observe the similar set up at the previous trendline test. This adds credence to the bullish scenario. With a bullish confirmation here the MACD (moving average convergence/divergence) will soon give us a bullish confirmation via a crossover. Aggressive traders may choose to move with a bullish candle confirmation of Friday's hammer while a more prudent trader may wait for MACD's moving average line crossover. Important upside tests will likely occur at 9750 and 10,000.|
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