Market Summary
In our last report, we mentioned that it would be interesting to see if the Dow would be able to break above the resistance of the psychological 14,000 level. As you can see from the chart below, the bulls did briefly send the index above the resistance on Tuesday for the first time in history, but Friday's weaker-than-expected earnings from Caterpillar Inc. (NYSE:CAT) and Google (Nasdaq:GOOG) combined with a heightened concern about the subprime lending problems dampened the bull rally. Given the upward diverging moving averages, the longer-term momentum may still be on the bulls' side.
Another chart of interest this week is of the Nasdaq because the recent price action is starting to look overextended. The bearish crossover between the RSI and the 70 level could be used by the bears to suggest that we could see a short-term pullback toward the support of the 50-day moving average before we see a continued move higher.
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