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As expected, the S&P 500 managed to punch through the 1490 resistence level helped by news of a government plan to support struggling homeowners. The controversial plan was seen by many as good for stocks.

The index also managed to break through the psychologically important 1500 mark, which is another positive sign over the short-term.

Over the medium-term, market breadth indicates that the situation has moved from very oversold to oversold. Yesterday’s close shows the percentage of S&P 500 stocks above their 50-day moving average is 41%, which is still well below its 3-year mean of 59%. This indicates the presence of low-risk buying points over the next few weeks.

S&P 500 Breaks Free

Comments (6)

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1. scott said:
Thursday, 6th Dec 2007 at 9:25 pm

it is possible to build the exact opposite bear argument but i wont, because of the next sentence.

What i like about this chart is the divergence bettween aug lows and nov lows. Historical divergences in MA at extremes, show strong price follow through. This can be confirmed on similar charts available here.

I am simplifying, a full contextual understanding of price and trend is important to apply this divergence, especialy at overbought in a bull market.

this chart tells a thousand stories, i love it!

2. darex said:
Friday, 7th Dec 2007 at 6:38 am

Scott being somewhat inexperienced myself would it be possible to elaborate on your comments above.

When you say the divergence between aug and nov lows do you mean they both have similar divergences between % above 50 day and S&P?

Also when you say you could build a similar bear argument – what would that be and why do you disagree with the bear argument that you could posit?

3. darex said:
Friday, 7th Dec 2007 at 6:45 am

Mo do you expect this rally to continue all the way to overbought and if you do at what level do you expect that to be?

Really like the website by the way!

4. Mo Shaarani said:
Friday, 7th Dec 2007 at 7:26 am

Normally, when breadth indicators are coming off extreme lows, they have a tendency to go all the way to overbought levels with consolidations or retracements in between. Barring any new negative events, I don’t see why the market can’t continue to rise until January at least.

You’ll hear me begin to say that the market is overbought when this indicator is at least one standard deviation above it’s 3-year mean, but this does NOT necessarily mean that the market will decline. It just means that the probability of a decline will begin to get bigger as time goes by.

The majority of market indicators are much better at picking bottoms than tops. Rising and declining markets are not two sides of the same coin.

5. Scott said:
Friday, 7th Dec 2007 at 8:46 am

nod to Mo.

darex, if there was no divergence noted in the charts. and the aug low was the same level and the nov low. A bear argument would of been that the rise in prices was a short term correction to a bear market. There would of been no way to tell which story was correct with out the confirming divergence.

We are at/near profit taking on the rally, but as mo points out, its much harder to use these charts at the top. Never underestimate the level that new money will raise the market higher than sell signals. There is plenty more upside on all the charts as any market breadth expands on med to long cycles. A short side profit taking correction should lead to more up, long as it is not extreme and many days (both conditions). There is the possibility of a long side head and shoulders setting up in the S&P (bear).

I wish i knew what Jan brings us. Very hard to get a solid read. I am biasing to ranging market for jan, only cause i cant tell. Charts are not saying what is what yet.

6. darex said:
Monday, 10th Dec 2007 at 9:47 am

Mo, Scott thanks for the replies

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