Thursday, September 23, 2010

Stocks - Was The Breakout A Bull Trap

Investors have been patiently waiting for the S&P to break out of its recent trading range which it finally did earlier this week, but was that breakout a bull trap?

Above is a daily chart of the S&P500 and as you can see we are now back below the breakout point. The Russell2000 and the Dow Jones Industrials are showing a similar pattern but the NASDQA being the most bullish of the major indices is well above its recent trading range.

If the S&P were to close below last week's low (green line), that would confirm at least to me that the breakout was false. Keep in mind that tomorrow is Friday and if the market closes weak, the S&P will have formed a weekly bearish spike pattern. Lets see what happens tomorrow., should be interesting..


DG said...

Hi Kevin,

The yen broke a huge trendline and has now rallied almost closing the gap. Thoughts? Might be worth a post.

ben said...

Kevin, I think a lot of people are
looking for end-of-year rally, so the psychology feeds on itself - people
wants to get in before it is too late.
The short sellers have been surprised.

Please take a look at S&P in 2004. Right now, the market trades very similar to that year.

With CDs and saving accounts interest rate close to zero, there is a lot of money out there looking for somewhere to park. They have bid up bond price to irrational level. Now, some money is tracing stocks, commodity, and gold.

I was recently looking at NNN properties. It is a "hot" market now. People will buy walgreen buildings with such a low yield and locked up their money for years because there is no alternative with higher yield to invest.

Of course, when a lot of people are tracing for investments with low yields and bidding them up, we all know what eventually will happen.

It is a question of when it will happen...

Anonymous said...

i can't remember this strong of a rally is such a short time frame!

maybe the internet bubble days!


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