Stock-market Bulls Run, But Bears Lie in Wait


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The stock market has continued to rise as it works off the massive oversold condition that existed at Christmas. This week, the S&P 500 penetrated through the resistance at 2,600, although it has not done so very convincingly.
Most of our indicators are on buy signals, and we could envision this rally continuing into month-end, at least. But the S&P SPX, +1.32% chart remains bearish, and since that is the most important indicator, it is a warning sign not to become complacent. There is still danger of the resumption of the bear market.

The SPX chart shows the index is still in a downtrend. The pattern of lower highs and lower lows beneath a declining 200-day Moving Average continues to exist, and that is bearish. There is support at 2,350 (December lows), and SPX broke through the 2,600 resistance level on Wednesday but is already falling back below that level today. The last “high” on the chart was near 2,800, so if this rally culminates anywhere below that, the pattern of lower highs will be intact.
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