Exhaustion?

Rally is still rolling. Nothing to complain about, yet. But it should end sooner or later. We are in the sixth week of it so far, and we might have two more, three tops.



The biggest technical hurdle seems to be Dow Jones 8000. We didn't see confirmed breakout though this level. With 13 day moving average closing to 8000, rally is starting to show signs of exhaustion. It looks like Dow is settling in the 7000-8000 range. Which would be an achievement anyway, compared to horrible slump in February.

Bad technical sign: so far Dow didn't break downtrend which started in November 2008 (green line). Good sign: current rally broke major downtrend started in September 2008 (blue line). It probably means that we are over the major panic, but not over the planned sell-off.

Sentiment is improving, which is a bad sign too. Reaction to earnings have changed: big sell-offs after great earnings at Goldman (GS), Intel (INTC) and Abbott Labs (ABT) look pretty bearish to me. Compare that to reaction to Research in Motion (RIMM) earnings two weeks ago.

Of course, I can be wrong and rally can continue through Dow 8000 and break November-April downtrend. Next several days will show us direction. I'm sitting tight, not buying or selling anything.

I completely ignore fundamentals right now, because market ignores them. Mr. Market is smarter than any of us.


Full disclosure: at the time of publication author did not have positions in any stocks mentioned. Positions can change any time.