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Follow Through Lifts Market Above Triangle Formation at Trader’s Narrative

Today the stock market echoed Friday’s late day surge on similar rumors of a bond insurer bailout.

Market breadth was very positive with advancing volume outnumbering declining volume on the NYSE 6:1 and on the Nasdaq 4:1.

I’ve had a few requests for more bread and butter technical analysis so here you go:

spx out of triangle Feb 2008

The volume today was a bit too muted for my liking. If we are to follow market prerequisites of the past, we’ll need much more enthusiasm to put up a 90-90 day. Today was more like a 65-80 day. Not bad. Not bad at all.

But a very forceful breakout, especially as we’ve been coiling inside a triangle for more than a month now, would be welcome by the bulls.

I didn’t really want to comment on the triangle formation because I had a hunch that since everyone had talked it to death, it would not complete. Usually patterns that are extremely obvious do that.

After all, just because we’ve coiled into a tighter and tighter range, doesn’t mean that prices can’t just peter out of the apex and continue sideways. Right?

I continue to expect higher prices. When we’ve seen so many extreme readings from trusty indicators, it isn’t surprising to see an upside breakout. For example, when the Dow Jones Industrial Index has only 4 stocks above their 200 day moving average we know that things have gotten very stretched to the downside and a “regression to the mean” will be upon us.

But I would caution against reading too much into a peek above a resistance line. The Achilles heel of this market is the financial sector. And until we move beyond rumors we won’t have a solid floor under them.

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