Stock Market's Rocket Ride Loses Steam

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By David Gillie

NEW YORK (ETF Digest) -- I started learning about the stock market by building and launching model rockets with my older brother.

No matter what the shape and size of the rocket or how big the engine was, we knew it was going to come down.

We hoped the parachute would open and it would have a soft landing somewhere near the launch area. Of course, there were duds, crash landings and, on occasion, lost rockets.

So it is with the stock market. The market left the launch pad in mid December. Just like in model rocketry, we can estimate how high it will go by the size of the engine (volume, economic data, etc.).

What we can't be sure of is how far the momentum will take the market after the fuel runs out. We hope that the chute opens and it returns safely to earth. Barring any strange winds such as a blowup in Europe or war breaking out between Israel and Iran, we can estimate the recovery area.

We'll plot the course on the weekly SPDR Dow Jones Industrial Average(DIA) chart, which corresponds to the Dow Jones Industrial Average.

First, let's look at the Money Flow Index (green histogram). We can see that our propulsion maxed out in early January and is declining. It didn't reach the levels of the first half of 2011 (our engine isn't as big as QE2). Volume through January is below the moving average (blue line). The +/- Directional Indicator (second from the top) shows gravity is taking its effect on the DI+, although the DI- has not yet turned up confirming a trend reversal. The Relative Strength (at the top of the chart) is still trending up, but it is nearing its highs around 70. MACD and Stochastics are still trending up. The combination of these indicators tells us we are in the spent-fuel, momentum phase of the trend.

On the price area of the chart, we see that we are at the resistance (bright green line) of our previous high of $128.37 or 12,837 on the DJIA. Momentum could carry it higher. Unless there's a second-stage engine we're not aware of (peace in the Middle East or a resolution of the euro debt crisis), it's unlikely to go much higher.