Standard deviations

As is usually the case with posted images, clicking on it will show it larger on another screen.

I know I said the Dow could go to 10,500 or higher and I was staying away from the market and not going to be going short anytime soon, but I can't help looking and observed something interesting tonight. Computers are pretty good at plotting trend lines and standard deviations, so an innocent bystander like me can press a couple buttons and make uninformed observations. Using linear regression one can plot trend lines through a lot of data. Something like 68% of the data points will fall within one standard deviation of the trend line. Something like 95% of the data points will fall within 2 standard deviations of the trend line. So, I plotted a trend line going back to the high on the Dow in late '07. The image I've attached only goes back 9 mo, to show better definition, but the trend line does have a longer history. Anyway the rally we've been "enjoying" has moved the market from the bottom of a two standard deviation channel to the top of a two deviation channel, and for the last couple of weeks the Dow has been bumping against the long term, downward sloping top.

A 1.5 standard deviation channel better fits the data for the rally we've been in since March. The Dow is currently grinding against the bottom of this channel. So which will it be? Breaking below the rally channel to stay in the long range downtrend or breaking above the long term trend to sustain the rally channel. Can't do both and it's time to make up it's mind.

I'm still just watching, but I'm getting edgy.

PS The S&P chart looks about the same.