Lisa. Favors-- not the movie.
The Jerry Favors Analysis Sunday November 8 8 pm
The Dow on Friday was up as much as 75 points,reaching a
print high of 8990.91.We closed up 55.10 at 8970.57.Last week
we gave you a projection calling for 9001 plus or minus 160
points intraday.A slightly higher projection was given later
last week calling for 9025 plus or minus 167 points intraday.
That projection could allow for a maximum of 9192 intraday.
Keep in mind there is nothing that says the Dow must reach
the maximum of that projection.That is just the maximum that
projection allows for.The intraday high on Friday was 9042
intraday. That high was near the 82% retracment level
mentioned in our last newsletter. The 5-Day RSI on the Dow
closed at 93.23 Friday. That is the most overbought reading
since 6/13/97. It is interesting to note that the 5-Day RSI
on the Russell 2000 closed at 97.29 Friday. Again remember
the RSI cannot go above 100,so a reading of 97 is about as
high as you will normally ever see before some sort of
correction sets in. While the RSI numbers are at obvious
overbought extremes,the Trading Index readings are not as low
as we would like to confirm some sort of important high is
near. The simple 10-Day Trin closed at 0.86 and the Open 10-
Day Trin closed at 0.87. Those numbers are low enough that
they could support some sort of high in this time frame but
not low enough for us to consider them high probaility
signals that a major top is near.The Trin-5 closed at
4.33,which is near overbought territory,but not quite low
enough to give us a truly reliable signal that we are either
at or near a high.
As those of you who have been with us awhile know,we keep
several important trading bands on the Dow.One the
strongest,and most dependable is the 10-Week 7% Exponential
Tradng Band on the Dow.Over the last 70 years the Dow has
tended to find resistance when it rallied up near or slightly
above the top of this band.We would expect the Dow to see
some sort of at the very least short term high if it rallies
up near or just above the top of this band.The top of that
band this week should be near 9128 or so. Last week's
intraday high again was 9042 on Friday. We also keep what are
called Projection Bands. This technique was discovered by Mel
Widner,Ph.D and discussed in the July 1995 issue of Technical
Analysis of Stocks and Commodities.These bands are
constructed by finding the minimum and maximum prices over a
certain time frame and projecting these forward.This results
in a certain type of trading band which gives minimum and
maximum boundaries.Prices will always be contained by these
bands. You can normally ecpect some sort of top when prices
rally up near the top of these projection bands. The Dow
rallied up near the top of this band on Friday. The Dow has a
long history of reaching at least short term highs when it
rallies up near the top of this band,and we are there again
now. The band could allow for somewhat higher prices early
this week but it suggests that if this occurs it will
probably not rally too much above the boundaries and
projections we gave you earlier.
We already have a short term Sell Signal from our 2-Day
Rate of Change charts,and a close above 9102.90 on Monday
would be necessary to reverese that signal. The hourly charts
have not yet given a sell signal,so we could still see higher
prices Monday.
Our bottom line is that we believe we are near at least
a short term high.The real question is whether or not this is
a Bear Market rally or the start of a new Bull Market leg to
new all tme highs? We frankly do not belive we will see new
highs but if the trend continues up we will give you a Buy
Signal nevertheless. We will not retain a Bearish outlook if
market action proves us wrong.While we believe it is
extremely unlikely that the Dow will see new highs we will
not fight the tape and stay short if the market is giving
every indication it is going higher.If the market proves it
is going higher we will give a Buy Signal and go long,no
matter how bearish our current position might be. However to
this point this rally has done nothing atypical to other
Bear Market rallies of the last century. The Dow could still
rally up near the July highs and then turn down dramatically
to new lows below 7400.Our objective from here is not to be
overly bullish or overly bearish,but to keep you with the
trend. After the first pullback this week,which we believe is
inevitable,we will decide if we want you to return to the
long side,and what stocks we think you should buy. If it
becomes clear a more important top has been seen we will tell
you what we want you to go short.
For now though the jury is still out.The hourly charts
have not given a short term sell signal and could not do so
before Monday afternoon.A decline below 8938 on a print basis
early Monday would give a short term sell signal. A rally
above 8991 would signal higher prices,at least very short
term Monday. |
