A positive breakout from the downtrend. 

A big day for stocks Wednesday had the S&P 500 break above multiple resistance areas on high volume.  There were three trend lines broken which, if this rally is for real, should act as support now and the S&P is now above the 20, 50 and 200 day exponential moving averages.  All positives. 


                          Chart provided courtesy of www.decisionpoint.com

The PMO indicator has now given that second buy signal that I have talked about before.  If you look at that indicator above you will see that if the blue line crosses above the green line (10 day moving avg.) a second time, after the first failed, it tends to be a very strong buy signal.  (Same is true for sell signals).

I won't add it here but the small cap stocks chart is not quite as positive.  The down trend has not been broken yet.  I expect it to shortly but I am still leaning toward the S&P 500 (C fund) as being the fund that is less vulnerable. 

So far 2005 has been a lot like 2004, which was a very tough year to trade and adjust to after what we saw the 10 years prior. 

It's never a cake walk but aside from some tough moments in 1997 and 1998 the markets basically just went straight up from 1995 to1999, straight down from 2000 to 2002, and straight up again in 2003.   In 2004 we had a very choppy consolidation from January to about August, and even into October.  I was used to buying breakouts and selling breakdowns so the chop had me whipsawed as I was getting in at the top and out at the bottom for the first half of that year.  As I said it was a tough year and early on my returns were well below that of the S&P 500.  By year's end I had finally caught up for the most part, but it was a long battle. 

Now here we are in 2005 and as I mentioned, it has started in a similar fashion to 2004.  I have been looking to 2004 and 1994 as guidelines in how to handle a consolidating market.  Of course right now my indicators are telling me we may have seen a bottom in the S&P 500 but we could certainly see more of a chopping action.  In a consolidating market you want to buy oversold conditions and sell overbought conditions.  When markets are very strong they can shake off these readings, going higher even when overbought and vice versa.  Right now I think the best course of action is to be nimble.  I don't plan to be married to this bullish posture that I currently hold.  If and when I do get more pessimistic, it too will only be a short term "play".  Like 2004, I do expect a big breakout at some point later this year or early next year. 

For now, I feel the S&P 500 has put in a low.  I would really enjoy taking advantage of a strong rally moving up toward the highs made in March, but then I will likely go back to playing defense.  That could takes weeks or months.... hopefully.

That's all for today.  Currently 50% C, 20% S, 30% I fund.  Watch for an interfund transfer in the next few days as I will likely lighten up on the S and/or I funds and move more into the C fund.  See you tomorrow.