It's the Bull's Move...

With the major trendline holding last week, the bulls now have the ball. The question isn't will they win the game, but instead how long will it take for them to lose the ball and give possession back to the bears. With the stimulus bill on the table and bank bailout plan coming up on Monday, let's quickly remember the results of just two of the most recent gov't interventions/announcements:

- 9/18/2008: Stocks soared for the second consecutive day Friday to close out one of the most tumultuous weeks in the 216-year history of Wall Street as investors scrambled back into the markets on faith that the unprecedented moves by the government will shore up the financial system. (Results? Stocks hit their high at the open of the next day. Stocks hit new bear market lows by 9/29).

- 10/13/2008: Relief poured through the markets. The 11.6 percent gain in the broad Standard & Poor’s 500-stock index was that gauge’s best single-day gain since 1939. Stocks in Paris and Frankfurt had their best single-day gains ever, rising more than 11 percent. The Dow Jones industrial average, which closed at 9,387.61, up 11.1 percent, is now back to its level on Thursday. Only four times in its history has the Dow risen more percentage points in a day. Those gains came in 1929, 1931, 1932, and 1933. (Results? Stocks hit their high at the open of the following day and have been going down ever since. Gains were completely given back by 10/15)


So here's where I think we go from here. I'm giving two different scenarios major consideration:

- the first is the picture above. In this scenario upside is extremely limited, possibly a gap down Monday and failed test of Friday's high. We then drop to the 850 zone and test this key pivot. We fail the test, and we drop back to the trendline that has been tested successfully (4x already) and it fails. We then continue to drop like crazy. Being significantly, short, I'm of course in favor of this scenario.
- the second is the picture below. In this scenario we likely test the 850 zone too, maybe with more upside first or maybe immediately. But this zone holds, and we rally hard to the 880-900 zone depicted on the chart. We fail here and then go down.
- the third scenario is not shown. But it essentially means we are moving to new bear market highs in the 1000-1050 zone. This can't be a consideration until we break 940, which I don't see as very probable (possible maybe, but not probable). Good luck and hold on. Monday should offer some clearer direction.