Back to 10,900
Trading range from 10,700 to 10,900 solidifies.
Next resistance at 11,000.

From yesterday's commentary,"For Tuesday, I WOULD go Long on a solid crossing of 10,750 with stops at 10,720. 10,720 will be our new fulcrum on the Dow.."
Again, using channel theory and the bounce off 10,725 we were able to make a nice gain today on the Long side, as the market rallied back to the top of the range. Please note that I did not"call the market." I don't think anyone can do that with any consistency. The important event was a rally off the support line at 10,720. From there, we had a low-risk situation as the index climbed back to the top of its range.

The really interesting thing about the Dow is the fact that the new leg up from the lows created a new lower vertex in the Weekly Chart, and the resulting pattern can easily be translated into a bullish flag. Several readers saw this and wrote me today, commenting on it. I have to agree. The important way to interpret this is to expect a break of the upper line, but play the channel below it until the break occurs. That is what we will focus on for the next week or so.

Short Term Dow

In the short term, as you might have guessed, we will be using 10,900 as a fulcrum and watching for a move down off this level, or a solid break through. I think we will see a retracement, but that doesn't matter. Use the level and trade from it.

Medium Term Dow

In the medium term, we are Long and watching to see if 10,900 can be broken solidly. If so, we have a great shot at making it to 11,000 and then - we should see a retracement. If we drop instead, we will exit at 10,875 and wait for the next setup for a Long play. We will only go Short if 10,720 is crossed to the downside.

NASDAQ Composite and
OEX (S&P 100)

The NASDAQ is also consolidating in a range from 2,000 to 2,200. Our next key resistance will come at the center line of the action last year - about 2,400. So, we are 200 points away from there. We are at resistance by virtue of the channel (at 2,200) so the most likely scenario for tomorrow is a retracement. But a break of 2,200 would also be a good chance to go Long, again. The OEX is in a similar boat - although it did cross 650 today, it did not do so by much. We want to watch tomorrow and see if it holds. As I have said many times, the OEX is a great belwether indicator of the general health of the stock market.

In Summary:

With the new leg up on the Dow, and a rearrangement of our lines, we can see the potential interpretation of a bullish flag (as opposed to a diamond). The upper line of the flag is at 11,000 so we would expect a retracement there and then a solid break if the market is going to move higher. For Wednesday, we will be watching the boundaries, 10,900 on the high end, and 10,720 on the low end. Odds are fairly good for a channel to form in this range.



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