Thursday, May 14, 2015

upside breakout imminent

Here are three charts which I think offer some insight into the US stock market's current technical condition. 

As you can see in the daily bar charts of the Dow and the S&P the market has been moving essentially sideways since the top in early December of 2014 and this sideways tendency has been especially apparent since the late February top.

After any market has moved sideways for an extended period of time a move out of its sideways range more often than not is the beginning of a much bigger swing. For this reason it is helpful to look for clues which might point to the direction of the ultimate breakout.

As a rule a sequence of higher lows within a trading range presages an upside breakout and a series of lower tops a downside breakout. In the case at hand there is a very long sequence of successively higher lows (green arrows) visible in both the Dow and the S&P. This is a strong clue that the eventual breakout from this range will be to the upside. If so the Dow will move up at least to the 20,000 level and the S&P to 2250 or so. 

There is a reasonably good chance that the breakout move is underway. Not only have the downward reactions in these two averages recently shown a tendency to shorten but the 10 day moving average of the daily NYSE advancing issues is moving up from oversold levels and still has a fair way to go before becoming overbought (green arrow on bottom chart). 

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