A Key Reversal Day...

FUNDAMENTAL ANALYSIS
The Dow rallied 117.54 points today in an encouraging struggle against the odds! The dollar has reached a new low against the Euro, crude oil approaching $100 and the financial sector continues to look doubtful. Seriously, nobody knows for sure what this optimism in the market is all about today as market futures was already pointing sharply upwards before opening. The weak dollar definitely has it's pros and cons; Pros: makes American products more competitive in the global market and has been the main driver behind the huge growth in exports in the Q3 GDP numbers. Con: makes imports more expensive as exporters raise prices to combat the weaker dollar, thus importing inflation. The question really is, how much does Americans today depend on imports for their daily needs? (If you are American, why don't you comment to this post about this issue? :) ) On the brighter side, there is now a lot of tax cut and free trade plans coming out of the White House and that could really help the economy in the long run if they are signed tomorrow and in the days ahead. Well, the slogan for the day definitely is what the President proposed; "Keeping America Great".

TECHNICAL ANALYSIS
This is definitely a key reversal day in the Dow today. A key reversal day is a technical analysis juncture where a stock either break its current pattern and go up or, on the flip-side, if a key reversal day fails, the stock can be in a lot of trouble. The 117.54 points rally in the Dow today broke the pattern we saw back in 14 Aug and opened up the possibility of a rally from this point onwards. In fact, going slightly back in time, we saw that the Dow rarely go into a short term rally unless it forms a "W" bottom formation. We saw a "W" bottom formation back in 2 July, we saw the same "W" bottom formation back in 21 March and a huge "W" bottom formation back in 24 July 2006. So what's missing in today's "W" bottom formation? A volume surge within the "W" bottom formation. We usually like to see at least 1 volume surge within the days enclosed by the "W" bottom to demonstrate a blow-off but we are not seeing this. Well, the Dow's long term and mid term bull trend remains safely intact and the 30WMA continues to hold up strongly so on the technical front, we remain bullish. What remains is catching the proverbial falling knife... where exactly is the bottom? Will this "W" bottom formation signal a bottom?


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