Role Reversal Day For The Dow

I must admit that I was wrong about not expecting a significant breakout this week.

The Dow staged a strong and extremely significant rally today, closing upwards by over 216 points with good volume. What is so significant about this rally is that it confirmed the 7500 level as a support level, which creates a role reversal. A role reversal day is when a past resistance level became a support level. When that happens, prices go higher. To make it even more significant, the rebound happened right off its 50MA, which provides support when the Dow trends up.

All these happened as more economic data started showing signs of stabilization. Yesterday, we got better than expected ISM number and today, Factory orders turned in better for the first time in 7 months (see stock market calendar). Investors were elated even though jobless claims turned in lousier yet again, casting a shadow on tomorrow's unemployment rate report. In fact, I suspect the peak unemployment reversal speculators are going to step in again, like they did over the past few months, if unemployment rate is higher. Consensus is for unemployment rate of 8.5%. Could that be the peak unemployment rate for this crisis? Well, 8.5% is way higher than the peak of the last crisis and could possibly be the peak for this crisis... we will never know until unemployment rate really come down. I suspect its going to take another quarter more since all that policies need time to filter down into jobs. Another crazy thing the policy makers are doing to save the day is to allow banks to start "marking to market" again... don't remind me how all these mess started in the first place. Investors were not too crazy over this move as the financial sector merely moved with the market today.

For now, the Dow is in a short term and intermediate term Bull Trend within a primary Bear Trend. Lets see how things develop and whether or not we are witnessing the bottoming out of this crisis.