The Obama Honeymoon Rally Predictions
Here is my prediction:

This is just a prediction, so don't try holding me accountable for it. Just consider it thinking out loud. You are welcome to add your opinions to it, because maybe there is something that I missed or you have another idea. We can watch and see when Tuesday comes. This is just something that I do daily and thought it would be fun.

First of all, birds, schools of fish and lemmings all have one thing in common - they all change direction at the same time for no apparent reason and head a new direction.

The stock market is the same way. Everybody decides that it the President's first day so we are required to rally in a positive direction. What nonsense....the market is crappy the rest of the year, but on this one day it is going to be just fine to rally. It is an emotion driven direction and there is not any economic basis for it. People will react like the birds, a school of fish and the lemmings.

Yes, it is great to be positive, but I believe it is a false positive at this time.

Well, as you all know, the market has been bad for one simple reason. There are more sellers than buyers, because when it hit the fan, tons of people dumped their stocks and are scared to death of the market.

This coming week, a percentage of those that sold out will jump back in, but not all of them, so the market will still be weak, by percentages.

I do not have the slightest idea how long this rally will last, because it all depends upon levels of resistance and support, but it is sure to have a large pullback when the fantasy is over. At what level that it will pull back to, I don't know, nor does anybody else right now. I am willing to give it a guess as far as levels go on the way up, but couldn't tell you where it will land on the way down at this point. I am not going to predict a time line, because it could be a war in the trenches no matter how short or long. One thing is for sure - there will be a winner.

I did my analysis by creating annotated charts on www.stockcharts.com, however I don't have any that I can send because I don't have a membership there and what you create is wiped out at the end of the session. But if you want charts to refer to, go there and enter the symbols $COMP for the Nasdaq and $INDU for the DOW. The regular charts you can send to yourself or even link to. Set the MA's to 10 and 50 and 200. Set the timeline at 6 months, so you can step far enough back to take a good look. On the indicators use the RSI, MACD and ADX. Click the price levels in. Click the Y axis in and you will pretty much be seeing what I see. Also, the background can be set to Mohave, which is very pleasant to the eye.

Starting with the DOW -

Let's start with last Thursday, the 15th. We had three levels of support 8000 8150 and 7965 and two major levels of resistance 8500 and about 8598 where the 50 day MA lives. We bounced off of the 8000 support level 250 points and settled down a bit and closed at 8212.49. 8150 at this point is the current support level. As we get closer to 8500 the sellers will start selling like crazy. It should be a very difficult time getting to 8500, which was our support level not long ago. If and when we do, I doubt if we will be hanging in there too much longer. I would really really be suprised to go through the 10 day and 50 day MA> The 10 day MA was above the 50 day moving average and that is huge part of the bounce back from 8000.

So now we move into Friday, we have a new set of support levels. They are 7695 8000 and 8150. Our new areas of resistance are 8350 and 8500 and then the 10 and 50 day MA. We seem to have a fair amount of support at 8150.

Here is the deal - Shorters have had a really bad time the last couple of days because stocks were too flat to short. At 8350 they are going to start testing the water again and the closer it gets to 8500 the more sellers there will be and the blood will begin to run faster and faster.

8500 is where everything will begin unraveling and then we will be coming back down. I would be extremely suprised to get up to around 87xx where the MA will be. In addition, the 10 MA is above the 50 MA and it looks like it is on its way down. This is not a good sign for buyers, but that could change direction on Tuesday because of the Obama Honeymoon Rally.

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Now to the Nasdaq -

As I have said many times, I am really bullish over 1500, but lately it has taken some unpleasant dips, but has been strong so far. 1500 has been a really good and strong support level so far.

BUT, look at the chart right now, with the settings I gave you above. We have just about completely formed a head and shoulders. A couple of more days and we quite possibly would be on the downtrend. As you know, head and shoulders is not a friendly chart pattern. It is a sign of too much confidence of buyers and then reality (the sellers in this case) go back to work nawing away and causing a downtrend.

The only saving grace that I can see is that the rally will kick things up a notch and produce a wave there instead of a head and shoulders and downtrend. In this case, the Obama rally may actually help.

If we get over 1600, it could give us a better day, but I can't see getting there and staying there without a royal fight.

We are so close to crossing the moving averages 10 50 day (which I use), then things could be looking up for a while. I believe the resistance level of 1665, at this point, if obtained, will be the definitive ending point of this rally. That is far as I can try and project right now.

I will monitor this daily and match it up with what the market is doing and make corrections as the days pass.

So, those are my predictions and reasoning. Please feel free to add on, dissect or disagree. If you disagree, please give solid reasoning and illustration so we can all learn from your experience.

Thanks,

Bill