Technical Breakout…

This week we witnessed the power of a technical breakout. For months the four major averages were stuck in a prolonged trading range. In last weekend’s blog, I eluded the need of the S&P 500 to not only break through the 1225-1230 zone, but remain above it for multiple days in order for me to get more bullish. Boy did it deliver! Not only has the S&P 500 remained above the breakout zone, it has now closed above its 200-day moving average. This is a very promising premonition for the bulls. For the week, the S&P 500 (chart) closed up 3.8%, the Dow Jones Industrial Average (chart) +3.6%, the Nasdaq (chart) +3.8%, and once again the Russell 2000 (chart) led the way as far as percentage gains by closing up an eye-popping 6.8% on the week.

So why did we breakout? Very simple, strong corporate earnings continue to come in, a surprisingly strong GDP report was released on Thursday, and the single most important catalyst was the Euro Zone coming to terms with at least an outline on how to resolve their debt crisis. However, coming up with an outline and actually executing the plan are two totally different agendas, so we must stay tuned as to how things progress. That said, the markets were happy to see at the very least that some type of plan was agreed upon in principle to resolve the debt crisis across the pond.

So what’s the set up now and going forward into year end? Well, with the type of run stocks have had in the month of October, it is natural to expect some type of pull back to occur. For me this could create attractive entry points via indexes or equities, but as a reminder, whenever you choose to go long an index or equity, define your risk and always have protective stops in place.

Happy Halloween 🙂