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THANKS TO MOUNTING bearish technical evidence, the stock market is in a precarious position despite Wednesday's strength. The stage has been set for the bears to take over, and while they have not done so yet, the risk for investors jumping in now is just too high.

Last week, I highlighted several indicators saying that the five-week rally has lost its momentum, its fuel and its driving sentiment (see Getting Technical, "The End of the Rally Is Nigh," April 8, 2009). These factors do not automatically set a top in place, but they do set the stage for a falling trend to begin.

The April 9 rally, when the Dow Jones Industrial Average gained 246 points, seemed to have been a last-gasp type of move. Volume and breadth were strong enough to inspire market pundits to proclaim that the market had plenty of life left. After all, it was another new high for the rally and this time a six-month trendline was broken to the upside (see Chart 1).

Chart 1

The Standard & Poor's 500 did move above a trendline of sorts drawn from the Oct. 14 high. I say "of sorts" because I do not believe it really was a valid trendline at all. True, it followed many textbook rules for trendline construction but not my biggest personal rule. It did not describe the action.

Unless trendlines keep investors on the right side of the market, they are merely lines drawn connecting unrelated points on a chart.

Critics will point out that a trendline that runs through not two but four market peaks is a valid line. Normally, I would agree but in this case there were rallies and declines on the order of 25% along the way. If we apply the journalist's favorite rule that bull and bear markets are characterized by 20% moves up and down, respectively, we can then cite at least two bull and two bear markets since October.

Of course, the market's major condition is still bearish overall. So is it valid to use one trendline to describe two full up and down cycles? My answer is an emphatic no.

Therefore, last week's action cannot have been the strong breakout that many believe.

I am not saying that the market cannot edge higher but at what risk? With so much overhead supply waiting to come out at 875 on the S&P 500 and then again at 950, there is not a lot of upside room. Contrast that to the downside risk of another trip to major support at 741 and again at 666. As I've said before, just because it is a rally does not mean it is a good idea to play it.

Let's go back to the chart to look at a pattern called a "rising wedge" (see Chart 2). Although prices continued to rise, swings between rallies and pullbacks diminished. It tells us that uncertainty is building and that is not good for bullish trends.

Chart 2

Given that overall market volume continues to decline, the lack of conviction by the bulls is becoming critical. The wedge pattern is nearly complete, and all it would take is one or two big down days to trigger the breakdown.

The Nasdaq presents a different picture as there is no declining trendline about which to argue (see Chart 3). Rather, there is a clear resistance zone at 1652-1165, and it has so far successfully stopped the rally.

Chart 3

In technical literature, resistance is a price at which rallies tend to stop. They do not necessarily have to reverse course, but the burden of proof falls on the bulls' shoulders. It is up to them to prove that demand can soak up all the supply that is released at resistance. Anything less hands the reins to the bears.

Can the Nasdaq break out from here? Of course it can. But when we look at all the technical factors mentioned earlier, the odds are stacked against it.

For now, it's a waiting game. The bulls have stumbled, but the bears have not yet seized control.

Getting Technical Mailbag:Send your questions on technical analysis to us atonline.editors@barrons.com. We'll cover as many as we can, but please remember that we cannot give investment advice.

Michael Kahn, author of three books on technical analysis, former Chief Technical Analyst for BridgeNews and former director for the Market Technicians Association, also blogs at www.quicktakespro.com/blog.

Comments?E-mail us atonline.editors@barrons.com