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Dow Jones Industrial Average
has recovered most of the losses it incurred in the big selloff. Notably, the Dow's multiyear breakout over 11,700 last October is still intact. This keeps the venerable index on track to eventually take out this year's highs and head toward 15,000 in the months ahead.
But price must still overcome the considerable barrier imposed by this year's high.
That might take another few months, at least.
A cautious stance is required at this juncture, despite the good tidings we feel as the Dow and other indices set their sights on the old highs. Sadly, these lost levels mark solid resistance. That raises the likelihood of another sharp downturn as price approaches those boundaries.
The Dow's fate rests firmly on the backs of its top performers and comeback kids for 2007. Logically, these should be the issues that lead the average higher after short-sellers load up in expectation of another ugly downdraft that, hopefully at least, will never come to fruition. Let's take a look at one leadership stock.
long-awaited spinoff of
has been well received by Wall Street, with the stock rising more than 10% in the past three weeks.
It's now trading at an all-time high in a wickedly strong pattern that predicts the rally will continue into the middle of 2007 at least.
The stock is now working on a bull flag pattern near the recent high at $71. This suggests that price will eventually start a measured-move rally that equals the distance of the March run beginning at $62.
This yields a short-term reward target in the upper $70s.
Altria is definitely the Dow stock to watch in the next few weeks.
to see more of Alan's charts of Dow leaders.
At the time of publication, Farley had no positions in the stocks mentioned, although holdings can change at any time.
Alan Farley is a professional trader and author of
The Master Swing Trader
. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback;
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