The Stock Market Breakout Says, “Be Bullish,” But Wait A Week

Last week’s stock market rise produced exciting breakouts, including a Dow Theory bull market signal as both key Dow Jones Averages (Industrial and Transportation) made important rises simultaneously.

While neither reached an all-time high, both made important interim highs. These gains seemingly reversed their lower-highs/lower-lows downtrends. The three graphs below show last week’s favorable actions.

So, is that it? Time to be bullish?

Not in this volatile market. A confirmation of this sudden bullish signal is needed. That means waiting to see if next week exhibits supportive strength.

The reason for wanting two consecutive weeks is that sometimes Friday doesn’t level out the excitement of a week. Instead, it takes a weekend of quiet analysis to either dampen the enthusiasm or confirm its basis.

Other graphs support a positive outlook

It isn’t just the Dow Theory indication that is upbeat. So, too, are other popular patterns that investors track. (However, note that it is last week’s rise that produces the favorable pictures. Therefore, all of these positive indicators require another week for confirmation.)

Performance “channels” (foundations?)

Moving averages (50-day and 200-day)

Percentage decline barriers

The bottom line: Patience is important in this market

The past 4+ months have had many short-term moves, up and down. The powerful-sounding reasoning behind each move seemed to imply a permanent trend was at hand. But, then, the moves reversed as did the reasoning. Last week is no different, except we don’t know what the next move will be. Therefore, patience looks to be the best strategy for the coming week (October 18-22).

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