After a massive 9 week advance, the Dow ran into resistance with its biggest weekly decline since early March. There is a resistance zone coming into play around 8700-8800 from the falling 40-week moving average and the Oct-Nov consolidation. After establishing support in Oct-Nov, this triangle consolidation now turns into a resistance zone. In addition, notice that 14-week RSI is trading in the 50-60 zone, which acted as resistance in April 2008.
Prior to this week, the Dow was up eight of the last nine weeks and advanced around 2000 points. We do not need a momentum oscillator to figure out that this rally is overbought. With the Dow at resistance and overbought, the odds favor some sort of consolidation or correction. A consolidation would involve a flat trading range over the next few weeks, while a correction would involve a retracement of the March-May advance.
