S&P 500 Breaks Out of Downtrend

At the end of November, the S&P 500 broke briefly above its downtrend line only to sell off significantly the following day (last Monday). After recovering nicely since last Monday's big decline, however, the S&P 500 has managed to hold well above its prior downtrend line, which is definitely a win for the bulls.

While there are now numerous resistance levels to get through as the market tries to climb higher, at least it's forming a new uptrend and not a downtrend.

click to enlarge

Comments

[helplessobs...:]

This is the first sign that asset liquidation is slowing down. I look for a sideways move in a new channel as liquidators and value investors argue over pricing and value.

2008 Dec 08 12:50 PM

[MeagerBeaver:]

And if one had drawn the line 10 days earlier we would have seen 8 days above the line in October only to see it dive below again. Better to look at moving averages 50, 200.

2008 Dec 08 01:31 PM

[pdd:]

looking for move to 1000 area for 2x Top, then move to new low.

2008 Dec 08 02:16 PM

[Bruce Pile:]

More encouraging is the behavior of the Shanghai Index. This index (China) was the early warning for what was to follow in the credit/commodity debacle when it did a 50/200 day moving average crossover clear back in March! If only everyone would have paid more attention. It has now travelled above its 50 for the first time since the crossover. The U.S. indexes aren't through their 50 yet. However, the Chinese market seems to be obeying a straight line resistance level more faithfully than the moving average, and it is now just right on this trendline. So we are about to the stall point if this is to be another in a continuing series of brief countertrend rallies.

As I said back in January, when everyone was saying maybe the bottom is in, I think the bear will probably make new lows from here. The massive global debt unwind cycle took over control of U.S. stocks in October, and has been overriding all other normal supply/demand and expansion/recession cycles. Before then, the markets were behaving pretty much normally anticipating a normal recession and, in the market leading small caps' case (Russell 2000) even beginning to anticipate a conventional recovery (it began to lead the broader market up nicely in September). But then a sharp break from normal happened and it was all about the abnormal debt condition. I doubt that this unprecedented debt unwind, from decades of build up, will have just a two month effect on the stock market.

2008 Dec 08 02:32 PM

[MicroTehnicus:]

Bruce - the "sharp break from normal" was the Lehman Brothers bankruptcy. I don't the think the market was discounting this one.

2008 Dec 08 05:04 PM