Dow's resistance

Click chart to enlarge

We've adopted a "long strength, short weakness" approach to the market to avoid having to outright 'time' it. Still, we enjoy the challenge of trying to guess the market's next move. We look at many blogs, particularly other technical analysis blogs, to see if others are seeing the same chart patterns we do. Some did see last Friday's selloff as a break of support, and called for a weak week this week:) While only some of them saw it as a breakdown, all of them recognized the resistance line drawn on the chart of the Dow above. A chart of the S&P500 is virtually identical, with resistance at 1390. Many are simply rounding it off to 1400. We've heard so much talk of this resistance level on CNBC, and have seen this line drawn so many times on various blogs, that we know it has significance. The market also has to contend with its 100dma (also shown on the chart above).

If Google's 75 point gap up tomorrow morning doesn't cause a market rally strong enough to break these resistance levels, then our guess is that they won't go down easily. It's only 130 Dow points away. The question isn't whether or not we'll reach it, but whether or not we'll close above it. We expect traders to start popping champagne corks when this line of resistance is conquered. It will be interesting to see how the market dances with this line on an intraday basis.

Of course, once this resistance line is broken, it becomes support.