Which way? Which way?On one hand, we have a very nice upward channel with the March 9th marking a true panic low, which by my reading, is a feature which extends well below established channel range trading. We have risen some 60% or so from that bottom and made many wonder what is driving it all. Its a very good question. My take is that the Govt has simply replaced the consumer which used to drive the Market until Oct 2007. It may not be over, but it can't last forever.
Now on the other hand, there is still a very major downward channel which frames the is entire bear market. The bear has been very beaten up recently, but it may not be completely dead.
The S&P is quickly approaching the upper trend line for the down channel, and the detrended price oscillator is definitely showing divergent tendencies indicating good grounds for weakness. On top of this, the dollar weakness, which few would argue has some significant role to play in the rally so far, is potentially at a turning point. We saw a bogus devaluation story this week, followed by supportive statements from the FED more or less confirming the dollar will be supported, and QE will be reduced when the economy improves. Since the FED has also been talking about how much the economy is improving recently, it seems logical to think they might be ready to support it soon.
And then there is earnings. INTC and GOOG on deck, and its going to be a big part of what happens in the next couple weeks. Good earnings could very well break the back of this downward channel and leave no where to go but up. The upward channel will prevail, and we'll know which lines to follow. But earnings could be also be not so great, or just not good enough.
There are hidden forces at work in the collective mind of traders at large, and a small crack in the dam can lead to a whole lot of damage. So we are far from out of the woods.
Collision with the upper line of the big down channel is a major crossroads for this rally. It's going to get interesting.
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