Have We Hit The Bottom And Made The Turn?

This week has generated a lot of news about the Dow's sudden bullish move, ending the week up over 700 points following last week's slide into level's not seen since the 1990s. Weekend TV magazines have pushed stories touting "the end of the fall is here, the bottom has arrived". Sadly these reports are really nothing more than optimistic words from reports who have been told to "try to not make it sound so bad". From a strict technical position there is little reason to believe the current bullish move is anything more than what Charles Dow would have called a "short term trend".

Dow theory breaks market trends into three phases:
1) Long term trend (lasting over a year)
2) Intermediate trend (lasting 3-6 months)
3) Short Term trend (lasting 3 days to 3 weeks)

Each of the trend cycles flow within the context of the larger trend. At the moment the Dow has been in a solid down trend since it's peak in October 2007. One can look at the chart below and also see a few intermediate trends, with several short term trend moves. The current move is most likely a short term trend because of where it's occurring on the chart.

Notice the secondary fan line which is coming into play as a downward resistance. At the same time much more of a rise and the Dow will be running into resistance back at the 7500 level. Couple that with the fact the 50 day moving average is quickly approaching the same region and there's a triple threat reason why the Dow will maybe have 1-2 more positive days this week before continuing in a downward spiral.

The exception to this move would be the reality that the Dow is currently sitting at the 20 day Exponential Moving Average. This alone could provide all the resistance needed to cause the market to stop it's climb and return to falling Monday Morning.

The next target of course is back at 6600. If that support holds we might can start writing some news stories about the bottom starting to form. If it doesn't..... 5500 here we come...