I know that many have been reluctant participants in this eight month old uptrend (including me), but I believe there is enough hard evidence to believe that a correction at at least equal in magnitude to the June-July correction is ready to unfold.  Calling for corrections or reversals during this uptrend has made many an analyst look bad and this rally has no doubt cost some in the industry their jobs if they did not fully participate in the move.

This rally started in March when the mark to market rule (FASB #157) was abolished for banks, allowing them to set whatever value they wanted to the worthless debt clogging their balance sheets.  The world of make believe combined with massive liquidity injections by the Fed have proven to be a lethal combination to any rational players looking for ebb and flow in this market.

Now that economic reality finally seems to be setting in again (no economic growth without massive government spending along with continued job losses), let's take a technical look at the Dow which has been the market leader.  The mere fact that the Dow has been leading over the past month is a huge red flag on this rally as small caps and tech (measurements of risk tolerance in the market) have faltered badly in comparison.   The outperformance in the Dow is driven by those looking to benefit from a weaker dollar and also looking for the 'safety' of highly liquid multinationals.

In the chart below I have plotted a daily chart of the Dow with the Fibonacci support/resistance bands I have shown in the past.  These bands are not retracement levels, but are computed using actual swing points in the market.  In the windows below, I have plotted normalized volume, which just means that volume is scaled differently so the 50 day moving average looks like a straight line across the volume histogram.  This gives an easier 'at a glance' look at volume to determine whether or not volume is above or below average.  I have also plotted an standard 14 period RSI in the middle window along with a volume oscillator in the lower window.  the volume oscillator is simply the difference between a 10 period moving average of volume and a 25 period moving average of volume.  Volume surges cause the oscillator to move higher, while tepid or weak volume cause it to move lower. 

Notice how the June - July correction was started when price rallied into the Fibonacci resistance band in the 8775 - 8934 range.  Notice also how volume was weak heading into the high and both the RSI and volume oscillator were showing negative momentum divergences.  Price corrected 10% over the next four weeks.  Now fast forward to today.  You see that price has managed to rally up into the next Fibonacci resistance band on weak volume and momentum divergences.  We will see how this next correction unfolds.  For now I would suggest keeping your strongest longs but using hedges for protection.  This market looks ready for a correction but it is hard to fight the easy money/weak dollar policy of the Federal Reserve.