Technically Speaking: Breakout Or Fakeout

Posted by Lance Roberts - Real Investment Advice

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In this past weekend’s newsletter, I discussed the relatively “weak” breakout of the market to new record highs. To wit:

“Over the last few weeks, I have been discussing the ongoing consolidation process for the S&P 500 from the March highs. (For a review read: “Oversold Bounce Or Return Of The Bull,” and “Return Of The Bull…For Now.”) As the expected rally in stocks, and reversal in bonds, took shape as the S&P 500 was finally able to ratchet a record close at 2399.29. (Read: 10/2016 – “2400 Or Bust”)



Larger Chart

“With the market on a short-term ‘buy signal,’ deference should be given to the probability of a further market advance heading into May. With earnings season in full swing, there is a very likely probability that stocks can sustain their bullish bias for now.

The market did do exactly that this past week, and while hitting a new high, as noted above, it was a ‘weak’ breakout as volume contracted.”

The question for the bulls, of course, is whether the current “breakout” is sustainable, or, is it a “fakeout” that reverses back into the previous trading range? As Steve Reitmeister from Zack’s Research suggested on Monday:

“I would say it all depends on investor confidence that tax breaks are on the way.”

It all hangs on just one issue.

……read more HERE