Beginning of the end for "Rally Of Hope" ?

I have been cautious about the DJIA since I last wrote on it in  end October last year  (http://tunmarvinworld.blogspot.com/2009/10/has-djia-reached-top.html).   Though then there were no sign yet that the market is about to collapse again. But since it was already near its upper Fibonacci ratio retracement levels, I warn myself not to be carried away by the increasing bullish sentiments expressed by the "experts" all over the media.

The US market people have been calling the current bull rally a "Rally Of Hope" as it has been rebounding from the 2008 slaughterhouse low of 6,469 on 6th, March, 2009 to the recent high of 10,729.

But what happened the past 3 days has completely wiped out the Santa Rally's gain and bring the Dow back to its mid November's levels. And this is the fastest large fall since before the Hope Rally started. I can see from the weekly chart that the longer term trend line is now broken. Unless prices manage to go back above this trend line within the next few days, I would say this could mark the end of this rebound.  From the weekly chart, price has now closed below the upper Bollinger Band which by itself offer the first initial sell signal.I also notice the MACD has now crossed down and dipping its head acutely. But since it is still relatively "far" from its zero signal line, I would wait for  more confirmation  to emerge. The Stochastic has also crossed down its moving average but it still manage to stay above its 80 signal line. Once crossed down the 80's line, I would take that as an initial sell signal. The weekly ADX has also stopped rising and begin to dip its head. Since it is now above both the D+ and D-, I would take that as a confirmation  that the prior trend has ended, even though that may be just a temporary one.

From the marked out Fibonacci ratio, you should take note that this market has already retraced more than 50% of its prior bear cycle. In a mature financial market like the Dow, it is unusual that the market would  retraces more than 50% . So I would say this is an important and significant point to pay attention to.

First thing that the DJIA daily chart catches my attention is that price has closed below the lower Bollinger Band for the first time  . The daily ADX which has been "dead" at below 20's since mid December (that is why the Santa Rally was not impressive) , has now started to rise. Since the D- is hanging above the D+ and  looking at how the D- has expanded outward, this is a confirmation of a great bear is in action. This great bear is backed by a negative and falling MACD which is falling near its zero signal line. Once broke though below, we can expect more bears will come into the market. The Stochastic is also negative and falling and it has just fallen below its own 50's signal line which is usually a more confirming bearish signal.

The MOST IMPORTANT item in this chart is the  bearish divergences found at the MACD and the prices. Prices have been hitting new highs since mid November last year to recently, but the MACD has failed to register higher peaks. This is usually a sure sign that the bull is getting stale. As a result, the current whack down. If the bull fails to regain ground swiftly over the next few days, we could easily see the Dow goes back to 9,000 and 8,100.

Unless price can regain above the upper Bollinger Band soon, I would conclude this is the beginning of an end to the " Rally Of Hope". If Elliot Wave Theory could be trusted, we could be doing the final major wave down where either we could see a double bottom or a new low. I am sorry to bust your bubble for thinking that we are already out of trouble.