The State of the Trend

By: George Krum | Sun, Feb 16, 2014
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After retreating briefly back within the megaphone pattern the DJIA is challenging its upper boundary once again:

Dow Jones 30 Monthly Chart
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While we do not subscribe to the literal '29 parallel story line, it can't be overstated that should the rally stall at these levels, the stakes will be very high. Previous rallies which have lasted longer than the current one (red dot) with greater than 100% advances were followed by declines lasting on average (red dot) 500 days, accompanied by an average 40% decline:

Dow Rallies and Declines Chart

Therefore, if the DJIA is unable to maintain its uptrend trajectory, and break above 16,000, strong defensive action will be warranted.

In the meantime, market breadth suggests that a period of consolidation should be expected. And the reason is that, while weekly liquidity readings are just starting to turn up, the daily readings are nearing overbought levels. As mentioned before, strong moves occur when the daily and weekly trends move in unison from oversold levels, just as it happened at the recent February '12 bottom:

Weekly Liquidity Chart

Weekly Liquidity Chart 2
Chart courtesy of OddsTrader

Gold and silver were able to break above their most recent downtrending channels and are bouncing against key resistance levels. If gold is able to break above the 50% retracement level, that will give it another strong technical boost:

SPDR Gold Trust Shares Weekly Chart
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iShares Silver Trust Weekly Chart
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George Krum

Author: George Krum

George Krum

George Krum is the author of the "CIT Dates" blog, and the following apps:

OddsTrader - combines the power of Hurst Channels with proper risk and position size management. For a web version see OT Signals below.

Gann 9 - the only financial app that allows users to effortlessly apply the legendary W.D. Gann's tools and methods for trading (including the Square of 9).

OT Trend - helps you quantify and forecast the seemingly random ebb and flow of stock, index or mutual fund movement.

OT Fibonacci - automates the process of applying Fibonacci numbers, ratios and time series to any security.

OT Seasonal - allows you to perform seasonal analysis on practically any security from around the world, and to build long-term forecasts and models.

OT Pairs - pairs trading, one of the most successful hedge fund trading strategies, is now available on your smart phone.

OT Pivots - combines the power of pivot lines with cycles to provide you with concise technical analysis and powerful trading signals.

OT Signals - a web app accessible from any browser, tablet or pc. It gives buy/sell/hold ratings for any instrument from around the world, and defines the trend and support/resistance levels.

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