Market Clearing Last Downtrend Hurdle

Sunday, March 07, 2010

I'm not all that big on the use of downtrends as technical indicators but I think sometimes they can be useful for interpreting a chart. The two major downtrends in the Dow Jones were both challenged and both coincided with the only 2 significant pull-ins in this continuing rally off the March 2009 bear market lows. Both corrections were minor 8-9% pull-ins before bottoming, the first in June 2009 and the second on in January 2010. Upon clearing this latest downtrend, there is no longer an overhead downtrend to act as resistance in the charts.

Friday's close has the Dow back to a mere 1.5% off the rally's highs. The Nasdaq led this week gaining 4% and closing just over new highs for the current rally. Shares of Amazon (AMZN) kicked off the week with a technical breakout gaining 9% for the week. We also saw a huge breakout to all-time highs in share of Apple (AAPL) up 7% and providing active traders with great opportunity. Money rotated into financials with a 6% 2-day jump in Goldman Sachs (GS) to end the week. Even the weakest players came off false breakdowns and short squeezed. Mastercard (MA) and Google (GOOG) contributed both gaining 7% over the last 5 days.

A move to new highs seems baked into the cake. Expectations have still been too low as this round of earnings has shown valuations too conservative. About 3/4 of all S&P 500 companies beat their analysts' estimates, an astounding number considering the level of optimism one would have expected after a 66% rally in the Dow. This was the best active trading week in the market this year though I don't expect the same next week. I am looking for some consolidation but I have a bullish bias for the coming months.
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