Market Update: Where to next?

Summary

We've seen yet another bounce since our recent dip fueled by the earnings of AA which surprised with unexpected higher earnings and revenues. In addition, it appears as if all of the major banks just need to upgrade the big players and the stock market rallies. On the brink of a breakout, IBM was upgraded on Friday to $140 by Barclays and rallied 2.98%. Other big technology names were sent higher with the news including BIDU which has reached new highs ($427.07, +3.49%). BIDU is only 3 points from making All Time New Highs, amazing isn't it?

Sometimes I have to question the timing of the analyst upgrades, its a little too convenient that they come out right at resistance or at a key break of support. Also where are the sell recommendations? Even if they are out there, it seems you never hear of them. UBS recently downgraded a group of financials including WFC, but of course you never hear this on CNBC. I had to find it on a blog post under a user comment section. Even a simple news search of "Barclays IBM" produces many more relevant results on Google News than "UBS Wells Fargo". On 10/02/2009, UBS upgraded Apple, and despite the market being down, Apple soared 2-3% after forming what appeared to be a head and shoulders breakdown on the 60m that would have taken the stock down to $170. On 10/08/2009 UBS issues its sell on Wells Fargo while the bullish momentum is strong and the stock drops less than 1%.

Testing a Broken Trendline

Here is a chart that makes the argument that we are only retesting a broken uptrend in the SPX. The retest is confirmed by volume which has been significantly lower on the upside. I think everyone should now be watching this trendline closely. It significantly lowers our upside potential without a drop early in the week. The good thing about this trendline is it charts well both in Log and Normal scale, something I've recently been indecisive about when deciding which one to follow.

Here is how the last one played out on our previous dip. However, note the lack of heavy selling volume. Also something very interesting to note is the very "bullish" candle on 09/16/2009 which appeared to breakout of several trendlines. This seems to summarize the market as of recent to me. If things begin to look too bullish, its time to sell and is one reason why it is tough for me to buy breakouts.

1938 Industrials vs 2009 Nasdaq 100

1938:

2009:

Here is another set of charts comparing the 1938 and 2009 scenario. Remember both of these have looked very similar in structure for over 10 years. The 1938 recession rallied up to its 61.8% retracement level. That is only 2.5% away on the NDX-100. That would put the Industrials around 10060, the SPX around 1098, and the TRAN at 3970. This will fit nicely into Dow Theory because the Transports will not confirm the Industrials new high. This also allows for the SPX minimum new high target to be reached of 1098.