Securities Research Services

Wednesday, December 17, 2008

A Trend May Be Developing

The market has been range bound for the past two months. This has not offered position or swing traders much to work with as prices have stopped and reversed on an almost daily basis.

Yesterday stocks responded well to the Fed rate cut and the major indexes all closed above their 50-day averages for the first time since August.

What is different between the August breakout and this month's breakout are two important details. First, volume has been very heavy over recent weeks as a base of support was being built. Second, breadth was excellent yesterday as the vast majority of stocks were up on volume increases.

The trend is as yet unproven but if we can see a base of support establish above the 50-day averages then the rally potential into year's end could offer some excellent swing trades.

We still think that SPY $700 needs to be tested before any longer term rallies can develop but that doesn't mean that this rally can't be traded for a profit if it can first confirm.

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