Breakout in Stocks Favors Continuation of Rally

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The following is an excerpt from the April 17, 2012 blog for Decision Point subscribers.

With European markets up and the release of more positive earnings news, the market opened up, rallied to midday and consolidated from there to the close.

spx large cap 20120417

Stocks: Based upon a 12/05/2011 Thrust/Trend Model buy signal, our current intermediate-term market posture for the S&P 500 is bullish. The long-term component of the Trend Model is on a buy signal as of 1/5/2012, so our long-term posture is bullish.

The thumbnail of the daily bar chart reveals not only a short-term breakout above the declining tops line, but the formation of an ultra-short-term rising trend channel, which unfortunately, is also a reverse flag.

spx large cap 18 days

A look at the 6-month line chart of the SPX shows a short-term double-bottom, a bullish formation. In the thumbnail, we see that the neckline was penetrated with today's close. The technical expectation would be an upside target just below March highs around 1412.

spx double bottom

As I alluded to in the title of today's blog, looking at our ultra-short-term and short-term indicators I see evidence of what could be a positive initiation climax. The CVI and STVO both jumped up and broke from the declining tops. The VTO bottomed.

spx cvi stvo vto 1 year

The Participation Index-UP had a significant high today.

spx participation

We see a similar breakout for the McClellan Oscillator and the Summation Index consequently has turned up.

spx mccellan oscillator

Conclusion: With the exception of the reverse flag (which is simultaneously part of a double bottom), the charts are favorable for a rally continuation. The index charts feature a breakout, rising trend channel and bullish double-bottom. Our indicator charts in all time frames have bottoms, initiation impulse readings and breakouts.

Gold: As of 3/15/2012 Gold is on a Trend Model neutral signal.

Gold recently broke above the declining tops line but has been retracing back toward it. So far it is holding as support. The PMO is still rising, but is starting to look like it is topping.

gold support

There is still some leeway for gold to drop a bit further and still remain above long-term support of the rising bottoms trend line on the weekly chart. The PMO is still falling and is oversold.

 gold weekly

Crude Oil (USO): As of 4/16/2012 United States Oil Fund (USO) is on a Trend Model neutral signal.

What a difference a day makes. Oil just yesterday had a negative 20/50-EMA crossover which moved our intermediate-term Trend Model BUY signal to a NEUTRAL. Today USO gapped up, breaking out from the declining trend channel. The 20-EMA is still below the 50-EMA. If there is price follow through on today's gap up, we should see the Trend Model move back to a BUY signal. The PMO has bottomed in recent oversold territory which is also bullish.

uso neutral

Bonds (TLT): As of 2/9/2012 The 20+ Year T-Bonds ETF (TLT) is on a Trend Model neutral signal.

The price of bonds has been clustering above the declining tops line. The PMO continues to rise out of oversold territory. Volume is decreasing and price is still too scattered to determine a trend.

20 year treasury bond fund tlt

Technical analysis is a windsock, not a crystal ball.

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About Erin Heim