It's Hard Out Here for a Bull

As noted, the Dow probably did more in calling last week's low than any other average, as it was the only average (that I am aware of ) that didn't join in with a new low of its own. Granted, it would have been more of a sensation had the Dow bottomed at, say, 7885 or so, and rallied about 1000 points from there. But we'll take what we can get.

Additionally, the Dow gave us a higher low by about 83 points, while everything else was collapsing to lower lows. And from those lows, the Dow rallied almost 1000 points in a few hours of trading. Not bad.

Now, once again, the critical level remains the Oct. 10 lows at 7882. But before we get there, we have to go through the 8000 level, which effectively held on the last trip down, as the Dow bottomed just below it at 7965. So now, there is a band of support at the 7965-8000 level.

At this stage if this support area is taken out, a return to the prior low at 7882 would seem to be a foregone conclusion. Breaking that low would be quite bearish, especially if confirmed by new lows in the other averages. As noted above, the next important support is the October 2002 lows near 7200.

Dow Jones Industrial Average Turning the market

Click here for larger image.

In addition to last week's divergence, there were a bunch of bullish key reversals. These don't happen every day, and when they do, they are usually good for more than a one-day rally.

Last Thursday, there were key reversals in almost every index. New lows were followed by higher highs (than the previous day) and a positive close. These, of course, were key reversals, as they marked new five-year lows in everything but the Dow.

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At the time of publication, Schiller was long Dow, S&P, NDX, Russell 2000 and financial services funds up to 55% invested levels, although holdings can change at any time.

Dr. Harry Schiller is a Registered Investment Advisor with the California Dept. of Corporations. He holds a Series 7 General Securities license as well as a Series 4 Options Principal license. He has been owner and editor of the Short Term Consensus Hotline since 1988. For more information, see www.harryschiller.com. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.