It's a Break-Out!
Incline Capital
Mike Hurley
September 28, 2010
Stocks had another nice week, with the broader market averages up in 2-3% range. Much moreimportantthan the magnitude of the gains however, is that the Dow, S&P and NASDAQ have now moved through key areas of resistance on their charts (A).
These ‘break-outs’ serve as confirmation to the strength the market began showing in early September. Remember, stocks surged off support in impressive fashion with up volume swamping down by a 10-1 ratio on both 9/1 & 9/3. Action which is typical of a meaningful market bottom. The ‘buy’ signal flashed by the MACD on 9/10 (B) was also important confirmation, with the final step in the bottoming process beinglast week’s ‘break-out’.
While stocks have gotten overbought and may well pullback over the short term, market internals are ingood shape and suggest stocks will likely headed higher over the intermediate term. Specifically, both breadth and le
adership (C & D) are confirming the ‘break-out’, with the next key question being how theycompare if & when stocks challenge their early 2010 highs.
A key factor in the strength in equites has clearly been interest rates, which have moved sharply lowerover the past six months. The 10-yr US Treasury now yields roughly 2½% (E), which is well below the nearly 4% it approached several times in 2009 & early 2010. This hasnot only helped stocks move higher, but gold as well.
We last discussed gold on 8/6 (please see “A Quick Review of Gold”), when it held an important up trendline. Last week saw gold ‘break-out’ as well, in this case to new all-time highs (F). While it can be argued gold is also getting overbought over the short term – to which we would agree – we believe that this is also the start of a trend which will likely carry through year end. 0903-IC-9/26/2010
Mike Hurley, CMT is the Chief Investment Officer of Incline Capital. He maintains over 25 years of experience in the investment markets and is a recognized expert in identifying & capitalizing on trends in the financial markets.
Prior to founding Incline he was the Portfolio manager for the Fusion Global Long/Short Fund (FGLSX) which was the #1 ranked fund (of 90) in the Lipper Long/Short category for 2008. He has also served as the Chief Technical Strategist for firms such as E*OFFERING (The Investment Bank of E*TRADE) and SoundView Technology Group.
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