Weekly Chart Review, October 10, 2009

Those of the bullish persuasion certainly had a good showing last week as we essentially opened at the low and closed at the high. The week ended with price threatening to break beyond the resistance provided by both the Long (solid green line on the chart) moving average and the TD Supply line (down sloping red dashed line).

However, although it threatened, the push upwards did not break the TD supply line which was at 1072.04. This means that to qualify a break of the line next week we must open above 1067.99, which seems eminently doable. We would then have to wait a bit to see if the break higher can be confirmed. We will also have to be wary about how we close this coming week, as bearish divergence between the RSI/Composite Index and RSI/Derivative Oscillator persist. In fact, there is now potential divergence between the RSI and price itself. At the same time it continues to be important to note that the RSI still has not been able to break upward through the range typically associated with bear market resistance.

With the above facts in mind I would also be aware that the risk level associated with the TD Sell setup that preceded the late September/early October decline sits at 1079.96 (horizontal red line). That line can not be qualified this coming week so I remain leery about a renewed bull run here.

Bottom Line: If one has a longer-term view I would not be buying equities here, even if this rally has just a bit more of life left in it. If long during this great rally that began in March I would continue to use the 978 level as a “get out of Dodge” (sell) point.