And around that time, DOW had a rally in March starting from 11,800 and it goes all the way up 13,000 before it stops and reverse (in May). I remember the sentiments that many felt the economy is still healthy.

From May 2008 to July 2008, something happens. DOW reverse and break through critical support level. The rest is history as we know it. September marks the biggest drop that most of us have seen.

Yet, barely one year after this huge drop, lots of analysts are calling ‘green shoots’. All of a sudden, with the recent rally, lots of people is feeling bullish again.

It seems that this rally is so powerful that the problems associated with over leveraged has disappeared. People are once again able to pay off their mortgages. Or is that really so?

Apart from the banks ‘magical mark-to-sky-high’ assets,  is the average Joe’s house selling at 2007 prices? Is the average Joe’s job secured or are there more people who needs assistance from the government, friends etc?

Are consumer spending more or are they tightening their spending?

These are the issues that forms the backdrop of my thought process.

At the same time, I know that there are lots of funds that are sitting on huge pile of cash. And these folks are edgy. They are trying to get back into the market. They need to stay invested.

But, can all these funds in the world push and sustain the market?

I bet not.

They can push it up again when the market dips. But, will the reality from macro economics catch up at some point? I bet it will.

Let’s take a look at the chart again. Following is a Weekly Chart for DOW.

1. From the chart, we can see how the rally in 2008 starts in March and ends in May.

2. The current rally that we are in now happens to to start in March. It is now May. And the volume has tapered off.

3. Will we see the beginning of a reversal? And more importantly, will we see the next big fall?

4. I don’t have the answer. But, I do know that the easy money for this rally is over. For any company to justify a higher stock price, they need to show it with their Financial Results. Even then, we will discount some of the reports because of their excellent ‘mark-up’ on assets.

5. Where does this lead us? Personally, I will be taking profits on the long positions, and at the same time start establishing shorts.

6. Be careful out there. Maybe, there is wisdom behind the phrase ‘Sell in May and go away’.

Let’s just do a quick glance at DOW Weekly using Ichimoku and see what we can find out:

From the chart, we can safely observed the following:

1. Index has hit resistance at 8043 and is now turning.
2. The upper limit of 10,000 that Darryl Guppy mentioned can be found by looking at the kumo resistant level on top. On Ichimoku, it is around 10,287.
3. The lower limit of 6,000 on Ichimoku as defined by the Chikou Span is the recent low of around 6,607.
4. On a very short term basis, we will be obeserving if the reversal continues and whether it can stay above the 6,607.
5. If it goes below this level on the Weekly Chart, we are going to see more ‘blood’ on Wall Street. 
6. The very sector that has lead this rally will probably be the same sector that can cause the support to break.

Thinking Out Loud: What if GM files for bankruptcy? Is GM part of DOW?

Just last week, I posted a Weekly Chart reading on DOW.

In the post, Ichimoku identified 8011 as possible resistant levels.

Here, I am going to show how it shows up on the Daily Chart.

Firstly, noticed how the Weekly Chart resistant translate to the kumo resistant on the  Daily Chart?

On the daily, candle has pierce through 7942 resistant.

At this moment, the kumo still has not twist to show that a convincing upward trend has started.

However, we do have a signal from Tenkan sen crossing Kijun sen.

We may see DOW retracing a bit after such a great run. And it may trade inside the kumo; a trendless state.

The blue arrows are there to highlight the resistant from Chikou Span on the Daily chart. And yesterday’s close has pierce through it a bit. 

The great thing we can see here is DOW has recaptured the lost ground in the Feb selloff.

8011 continue to be a level that I will be monitoring closely.

I have also close off my short positions and started placing small probes on some long counters.

But, it wasn’t that long ago when Obama was sworn in that we have such similar feeling.

Let’s go back to some fundamentals and let the charts tells us the story.

Here, we are going to examine DOW’s weekly chart.

3 things that shows the trend is still down (look at the respective points on the chart.

1. Point 1. Tenkan sen is still trending down and beginning to flatten (signalling that short term it isn’t going anywhere)
2. Point 2. Kijun sen is still trending down and DOW has not breakout of this resistant
3. Point 3. The forward kumo shows that it is still trending down. With such a huge drop in recent days, what has change that can all of a sudden change the economy? Are banks going to lend money like back in 2007?

Moving forward, we see a fairly strong resistant at 8011 levels identified by the Chikou Span. Even if DOW manage to rally to this level, I doubt it will be able to break through this level.