The Flatbook: DJIA - critical juncture?

On the back of recent price activity, we feel the market has betrayed underlying bearish sentiment and we will begin picking up shorts on rallies going forward. The Dow Jones Industrial Average has crossed, and more importantly consolidated below MA20, all the while in adherence with the descending channel pictured below.

While the debate over Greek aid rages on, here at the flatbook we looked for any significant technical evidence that recent highs of 10733 (DJIA) and 1150 (S&P500) may represent the beginnings of a second leg down. Resistance/support level 10650 on the DJIA and price action around this level is most worthy of mention. Having tested and settled above this level in January, June and July '06, the DJIA continued to the upside for the best part of 15 months to October '07 highs. In Sept '08 we failed at this level and the bottom dropped out of the market until March of last year when we finally stemmed the tide at 6470 (DJIA). Ominously, we tested and failed at this level two weeks ago and have since settled decisively below it.

Thirdly the candlestick pattern that formed as we failed 2 weeks ago at 10650 is comparable to that, formed at Oct '07 highs.

Though it's not quite an evening star formation (there is not a gap between the first and second sticks, and the second and third sticks respectively), the sentiment of indecision is still manifest in both patterns.

To conclude then guys, we are sellers of rallies below 10650 on the DJIA. 2010 could be a very bumpy ride.

Though we've posted it a couple of months back, we'd like to draw your attention once more, to the following video detailing Robert Prechter's (Elliot Wave founder) long term views on equities: