Dow At Short Term Support...

The Dow continued to retreat by 1.62% last week as the technical pullback continued. No trends go in one direction all the way. All rallies are interrupted with technical pullbacks such as this one. Technical pullbacks usually happen after a significant intermediate term rally when investors take profit off the table. Really not much reasons beyond that but the media can always find something pessimistic to talk about.

The Dow is now at its short term support level at about 8000 points, marked also by its weekly 30 period moving average. The 7750 - 8000 region is an important region to hold as it was short term resistance for this intermediate rally in April. If this region fails to hold, then serious doubts may be cast on the survivability of this intermediate bull trend. So far, there are signs that bullish momentum is coming back into the market as many of my short term indicators show bullish divergences. This is when I would be cautious about being newly short or newly in put options.

The Empire state index and the Philly Fed would be the focus of the week as investors look forward to more optimistic numbers to continue the recovery scenario (see Stock Market Calendar). This Friday is also expiration day for most equities and index options, which could spell some volatility before and during that day.