After spending a number of sessions moving slowly right below April’s highs, the major market
indices busted through this week. The real breakout action came on Thursday, during which every
index spent the entire session ticking higher. At its end, every last index we track closed the day above
April’s highs. After spending the past four weeks moving in a much slower and corrective fashion, this
more purposeful movement is a welcome sight. It’s also not too surprising, given the fact that the
indices had created sideways corrective patterns in recent trade. These patterns told us that higher
prices were coming, and here they are. Now, with all indices establishing new 2010 highs, the
importance of action from here cannot be understated. We have to believe that if a larger mid-term
pullback is going to occur, it is going to start pretty quickly. In other words, if this is a “fake-out
breakout”, we’d expect it to show its true colors within the next handful of sessions. If instead price
continues to build on this week’s breakout, it would quickly indicate that a larger mid-term pullback is
not in the works, and instead price is going to continue the long-term uptrend right away. Obviously,
the distinction between these two outcomes is very important as it will dictate market direction for the
next several weeks. Therefore, action from here is huge.
Since the move began, we’ve ultimately expected a larger mid-term pullback to play out. However,
price has become remarkably one-directional, and frankly it’s becoming hard to imagine that price is
even capable of going down. On Wednesday, we discussed how price has been on the rise for the past
nine weeks. The current up leg has now lasted 47 sessions, with the indices closing lower only 12 times
during that stretch. This persistence has allowed us to continually expect the near-term pattern to carry
us higher, despite the mid-term expectation of a larger pullback. Every time a negative session has
emerged, it has almost immediately been retraced by market strength. Basically, the indices have not
once given us a reason to exit our bullish positions. And once again tonight, they leave us at a place
where higher prices have to be expected. All we can do is trust it and just keep on holding on.
indices busted through this week. The real breakout action came on Thursday, during which every
index spent the entire session ticking higher. At its end, every last index we track closed the day above
April’s highs. After spending the past four weeks moving in a much slower and corrective fashion, this
more purposeful movement is a welcome sight. It’s also not too surprising, given the fact that the
indices had created sideways corrective patterns in recent trade. These patterns told us that higher
prices were coming, and here they are. Now, with all indices establishing new 2010 highs, the
importance of action from here cannot be understated. We have to believe that if a larger mid-term
pullback is going to occur, it is going to start pretty quickly. In other words, if this is a “fake-out
breakout”, we’d expect it to show its true colors within the next handful of sessions. If instead price
continues to build on this week’s breakout, it would quickly indicate that a larger mid-term pullback is
not in the works, and instead price is going to continue the long-term uptrend right away. Obviously,
the distinction between these two outcomes is very important as it will dictate market direction for the
next several weeks. Therefore, action from here is huge.
Since the move began, we’ve ultimately expected a larger mid-term pullback to play out. However,
price has become remarkably one-directional, and frankly it’s becoming hard to imagine that price is
even capable of going down. On Wednesday, we discussed how price has been on the rise for the past
nine weeks. The current up leg has now lasted 47 sessions, with the indices closing lower only 12 times
during that stretch. This persistence has allowed us to continually expect the near-term pattern to carry
us higher, despite the mid-term expectation of a larger pullback. Every time a negative session has
emerged, it has almost immediately been retraced by market strength. Basically, the indices have not
once given us a reason to exit our bullish positions. And once again tonight, they leave us at a place
where higher prices have to be expected. All we can do is trust it and just keep on holding on.