An Unexpected Breakout
Posted in The S&P 500 Index (SPX) on July 26th, 2010 by admin – Be the first to commentBy Jim Donnelly, Olson Global Markets
Just when it appeared the equity markets might be forced into an extended period of “the summer doldrums” (typical of the season), the S & P 500 Index broke above key downtrend resistance on weekly bar charts forcing investors to take another look.
Thus far, earnings have been, by and large, better than expected. In addition, this week’s economic numbers out of Europe were refreshingly pleasing, highlighted by a survey of German business confidence that posted a sharp rise. Upbeat news on the French service sector and a surprise increase in British GDP added to the reverie.
In addition, some uncertainties that had shrouded the marketplace did get a bit of resolve last week. The SEC’s securities fraud case against Goldman Sachs was settled and the European bank stress test results were viewed as largely benign.
Notions of reduced consumer credit in the U.S., fiscal austerity initiatives in Europe, and continued worries over the soundness of many U.S. State and municipal balance sheets, nevertheless, have not gone away. Because of this, last week’s turn-around in equity prices initially triggered a round of short-covering. Mild mutual fund allocation shifts away from either cash or low yielding or money market funds and into stocks were also noticed.
Although none of the current economic concerns are likely to go away any time soon, the S & P 500 index (SPX) did manage to break above key resistance with oversold conditions still present on the weekly time frame. This technical set-up suggests that further upside gains are likely to emerge over the intermediate term despite the economic gloom that still looms.