Market Brief: Monday, September 20, 2010

The stock market finally found good volume on Friday’s stalled action.  It is a sign that the consolidation that the stock market began on April 26th, 2010, is trying to end.  The last twelve days have seen a very nice rally, and here we are again - right at the shoulder level of that mini-reverse-head-and-shoulder correction pattern after we made a very nice higher low on the right shoulder. 

Another positive part of this, as we review what is leading the upward move of the last few weeks, is that growth stocks, rather than value stocks, have been acting better. 

This will be an interesting few days to determine if the US market will start its ascent now with a breakout above this zone, or if it will need to digest our current overbought condition before it starts the rally into the elections that we anticipate.  

Though Psychology is still very good at our second highest rating of P2, it has deteriorated slightly on the last rally just as we bump up against technical resistance.  But it is very promising that today, even as the Psychology Indicators have deteriorated just a little, the Monetary Indicators are making almost the same move, but in the bullish direction.  When the Yield Curve is going up sharply, it means short-term rates are dropping fast (high Fed fear of recession).  But when the trend reverses from that very high level, it means fears (inflation and recession) are subsiding.  You can see we still have a long-way to go, but the trend is certainly moving in the right direction. 

So whether the breakout occurs now, or even in the next 3-6 weeks as it did in 1994 and 2004, the potential remains very exciting for long-term investors.

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Don Hays