Stock Market Analysis

Sunday, October 16, 2011

Dow Breaks Out?

What a week it was last week!

It almost looked like a breakout/reversal week last week with the Dow closing above the 11,600 points for the first time in 11 weeks on a weekly basis! However, I referred to it as "almost looked like" because the Dow is actually still trading within the influence of the 11,600 / 10,600 channel. There were also no strong fundamental developments to support such a reversal. As such, I would still expect to see a retest of the 30DMA soon. The quality of the retest would tell me if this is a reversal or that the Dow is simply still trading within that 1000 points channel.

For now, I would still be very careful in defining this as a breakout. This week is options expiration week and we are also getting some important leading indicators. If leading indicators continue the trend of better than expected economic data, that might be the short term fundamental catalyst needed to convince investors that this is a reversal we are looking at.

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