S&P500 and Dow break through downtrends
The S&P500 and the DJIA made impressive gains this week after toppling downtrends that have kept the market quiet for the past few weeks. The S&P500 bounced tremendously off its lows with the Dow replicating the trading action though not as strong as most would have hoped. The turnaround was fueled mostly by large selloffs that have priced in virtually no good news from the market. Each news item that comes out if good will bring large bounces while bad news is unlikely to do as much damage.
Unfortunately the breakout in the S&P and Dow trendlines happened with weak volume as the result of a holiday weekend. An early close on Friday kept volume light. Light volume on breakouts is usually a sign that the market will retest old resistance as support. This time light volume was more likely due to holidays than trader indecision.
A break through this downtrend is very important for a end of the year rally. Consumer confidence spending numbers are weak but holiday spending seems to be holding up. The fear is that consumers will be all out after the holiday season and speed up a slowdown in the first quarter.
Expectations for the remainder of the year are bullish. After breaking these lines the market has limited resistance until the upper 9000 region on the Dow to 9600. The S&P500 faces minor resistance at 920 but after that has a clear ride back to its highs. Long term bearish, but the end of the year may surprise many people.
