Dow Dances on 50-Day MA -- Mini 3 Peaks

So far the Dow has managed to stave off even a 5% correction on a closing basis and barely registered a 5% drop from the intraday high on October 20 to the low on November 2. In the chart below you can see how strong the support is at the 50-day moving average red line.

We suspect this 50-day MA support to hold for the next several months. If the economic recovery begins to falter more dramatically and the political climate of midterm election year 2010 heats up in the early part of 2010 – as it often does – the ensuing pullback could bring us back to the July 2009 lows near Dow 8000.

Also plotted on the chart are the possible points of a mini 3 Peaks/Domed House Pattern that may be forming. For now the pullback appears to be contained, but we'll have a close watch on the jobs picture, housing, confidence, the political atmosphere as well as technical readings, fundamentals and seasonal indicators for signs market strength and momentum are waning. In any event we expect another prime buying opportunity in 2010, so buy this rally with caution.

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