This Is Why I Think The Rally Isn’t Done

  • November 5, 2004
  • Mark Melin

Thursday Recap:

The
cash Dow started the day by touching both sides of the flat line in a coil
consolidation pattern. 
This lead to a sprint higher later in the day, with the cash Dow first
moving to test the 10200 level, backing off then sprinting higher to test 10250. 
At this significant resistance point it consolidated and then busted past
this level, running to close near the highs of the day at 10314, up a stiff 177
on the day. 

Like
the Dow, the broad-based S+P continued to find legs, up a strong 31 points on
the week so far.  We’ll see over
the coming weeks if we break into new highs.



Oil
moved into the $40’s on Friday.  You will recall that on October
27 we called a top in oil and on November
1 we said oil would trade in the $40s.  While oil might see some short
term bounce of the 50-day moving average and the lower Bollinger band, we might
have seen the highs in oil for now.

While
markets sprinted significantly higher, volatility — a measure of fear in the
market — still has not moved down into my sell region below 15. 
This provides an indication that the market has some room to run over the
next few weeks.  This is not to say
we won’t get a pull back here and there, but at this point I don’t think
this rally is done.



Prediction
for Friday: In the morning we could see another strong run-up with a bit of
consolidation in the afternoon.  On the upside we’ll watch for the cash Dow
to potentially stall near 10380-10400.  On the S+P we’ll watch the 1170
level as an area where the index may find sellers.