We have a rebound on Dow just right at the support line of Wedge pattern. This gives credence to this support level. Unfortunately, we can’t really say whether this rebound is sustainable or not as the bullish move has not been accompanied by an enthusiastically higher volume. This led the Dow stuck in a narrow range as shown on the chart below. In the chart, we can see a range (as in a rectangular box) that the Dow currently resides in and this range is closing. The Dow has to go some where. This is getting really excited as I will ultimately see a breakout either way. When it happens, I will bet on the winner for a few days of fun and thrill. This is potentially a profitable setup to trade.

I did not go long at this rebound simply because the volume was not high enough to justify my entry. Besides, I still have the lingering fear with the weekly chart being bearish. These conflicting bullish/bearish charts are not conducive condition for me to take up any trade for now.

The S&P 500 is almost similar in pattern as in the Dow’s. The support is slightly different, though. The 20-day moving average seems to provide strong support. I tend to believe that if and when the Dow breaks the support as mentioned above, the S&P will break this 20-day support as well. We let the Dow to show the way this time.

Case Studies:

The AIG offered a very good case study here. I have mentioned last week that we had a good setup with AIG. The signal was an elongated red bar – the biggest I have seen in the past couple of months. Coupled with the bad news that they had, it made a very good trade and entry window, despite the confusing charts in the Dow.

If you have taken the trade, yesterday was the exit point. Two reasons: Firstly, we had a big sell-off with high volume after a few days of falling. This is one sign of the end of the crash. The second reason is more objective. The Slow Stochastics has reached the oversold area. There is no reason not to get out.

STOCKS TO WATCH:
GM – long or short, subject to next day trading condition.

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