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It’s been a few days since my last post as I’ve been out of the office on a few projects and just not available prior to the open. Since then the overall market has put in a strong rally. The Dow Jones Industrial Average has risen from a closing low of 10,655.30 to close at 11,518.85 yesterday for a gain of 863.55 points or approximately 8.1%. As of yesterday’s close, the Dow Jones Industrial Average is now down only 1.39% on the year. While my 1st Rule a Trend may be that a trend remains in place until it is broken; my 2nd Rule of Trends is that the longer a trend remains in place the greater the chance it will be broken……………..

n looking at the charts from Friday’s activity I have the following thoughts.

1. The pre-market futures are sharply higher this morning due to the news out of Europe that Germany and France have pledged to come to a solution for the European debt crisis within the next 2 weeks. This makes me nervous. They have not actually agreed upon a solution. Additionally deadlines to come to agreement typically produce bad agreements in my opinion. I have said it before, and I’ll say it again; Europe has deep structural problems with its entitlement system that are generational in nature and will take years, if not decades to fix, if at all……………….

A Look at Tuesday’s Market Activity: The overall market staged a very impressive rally in the last hour of the day with the Dow Jones Industrial Average rallying almost 300 point in 45 minutes. While it is not entirely clear what sparked this rally, the media is giving credit to comments from Europe about their realization that they need to protect their banks from failure. If this is the case, then I consider it be nothing more than than a case of computer driven momentum activity. I help edit the Sterling Reporter, and this so called news, was basically reported on very early in the morning by the UK newspapers. Unfortunately I think this volatility is pretty much the new normal, we are going to need to learn how to deal with this volatility and ride it out.

Oil was lower by $1.94 to $75.67 per barrel, and Gold was lower by $41.70 to $1,616.00 per ounce. In the grain markets, Wheat was lower by $0.154 to $6.04 per bushel, and Corn was lower by $0.046 to $5.876 per bushel, while Soybeans were lower by $0.174 to $11.60 per bushel.

A long time friend of mine, who is a stock broker I have a great deal of respect for, called yesterday and asked about the market. Our conversation focused on the Dow Jones Industrial Average which I consider to be the leader which all other sectors follow. Our discussion centered on downside support for the Dow. I stated that I saw support and 10,415.54 and then at 9,686.48 basically the post “Flash Crash” support levels. When asked what happens if we break support at 9,6848.48; I looked at the chart during the spring of 2009 and came up with the following support levels. I see some reasonably solid downside support in 8,700 range, a little bit at the 8,000 level; and then its a sharp drop to 6,600 on the Dow. Does this mean I think the Dow is definitely headed towards 6,600? No. But I do not see support with any real solidity until the 8,700 level on the Dow. Does this mean I think the Dow could go to 8,700? Yes, I think there is a good chance we could see 8,700 on the Dow Jones Industrial Average by the end of this year.

A Few Thoughts Before the Open: In looking at the charts from Friday’s market activity I did not see a single index or stock that I would consider buying. Everything has a negative pattern. My concern in looking at the charts is that it appears that the selloff, or market downturn, could accelerate and we could see a repeat of August; only this time to lower lows.

The Bottom Line: I’ve been saying that I felt the market was in a sideways pattern with a downside bias. While my 1st Rule of Trends is that a trend remains in place until it is broken. However my 2nd Rule is that the longer a trend remains in place, the greater the chance of it being broken. One or Two more down days and we could see a retesting of the August lows.

In looking at the charts from yesterday’s trading activity, despite the approximately 140 point move higher by the Dow Jones Industrial Average, I really did not see anything with a bullish chart pattern. There were only a very small handful of stocks setting new yearly highs, and none of them looked interesting. The very vast majority of the heavy volume stocks continue to have bearish chart patterns. Really, the only stocks that look to be moving higher are…………….

A Few Thoughts Before the Open: In looking at the charts from yesterday’s trading activity I have the following thoughts on this morning’s market.

1. I think the across the board selloff in commodities is potentially signalling a decline in the economy. If we see a continued decline in commodity prices then I think there is substantial increase in the probability that the U.S. economy will enter a recession within the next 6 months.

2. Having completed my look at the individual stocks I did not see any stock setting a new yearly high with an attractive chart pattern; and the stocks with the heaviest volume all had bearish chart patterns. Not a good sign if you are looking for a market rally.

3. In looking at the charts of the various indices, I noticed that the chart of the Dow Jones Transportation Average was far more bearish than that of

A Look at Tuesday’s Activity:  The overall market was sharply higher in a broad based move that saw basically every sector index I track move […]