S P Trend Up On Bullish Flag Breakout

By Steve Wyzeck.

Yo my comrade stock trading masters. We may well be at the birth of another strong bull rally.

Could you repeat that?

Yah mon, what ganja I smoke with so many Americans being jobless, banks being shut down, and home building taking a double dip to the downside?

Good question. It does appear out of the question if you are a one-dimensional creature living in the present.

However you are better than that. You were bestowed the capacity to envision yourself living in the future. That higher level of thinking is something that makes you unique from other beasts and living organisms that can just reason in the present. While I admit it's not as cool as Dr. Who time travel, it is capable of making you a lot of money.

One of the most difficult concepts for newbie investors to snatch is that the stock market is the future of the economy somewhere from 3 to 9 months. In other words, all the price action happening on the stock market at present is a gambit on the place we believe the economy will be 9 months from now. The stock market is telling us that in 9 months from now, the unemployment rate will be lower, banks will no longer be failing, and housing construction will pick up. The earnings season that just ended verified that with 69% of all companies posting earnings increases from the second quarter of 2009.

Last weekend I wrote on the subject of how, with the downtrend channel breakout, we do not know what new channel or formation will form as we do not have enough chart data so far. At the present with 1 week more of chart data, and zooming out on the stock chart to look at the larger pattern, a archetype springs forth.

The S&P 500 has accomplished a Bullish Flag breakout.

Now short sellers and gold insects will dispute the pattern and tell us that not enough volume is there for this to be a valid breakout but this is just not correct. Provided you go back and examine the preceding Bullish Flag breakout we had on the S&P 500, you can appreciate that the volume that has accompanied this breakout is over 23% greater!

The Bullish Flag was a picture perfect 38.2% Fibonacci retracement of the bull move that began in March of 2009. A 38.2% retracement is a good retracement for a bull rally.

I am upgrading the Dow, Nasdaq, and S&P 500 to that of uptrend.