Now that all the market indexes have broken out to 3 year highs, and an all time high in the Russell 2000’s case, where will the markets go from here? We here at stockhaven.com remain bullish. In this write up we’ll break down the technical picture for all of the indexes, and site a couple statistics that support our bullish enthusiasm.
The Dow Jones Industrial Average appears poised to test psychological resistance at 13,000, a level it hasn’t closed above since December 2007. In the event that the index pulls back before doing so, look for strong support to materialize in the 12,500-12,600 region.
The SP500 was a little late to the breakout party but it too is now at fresh multi year highs. At 1,363, it’s likely the index will have to deal with strong resistance in the 1,375-1,400 range before moving higher. Reason being is that that level was home to one of the last consolidation channels from January 2008 – June 2008 before the market started to crash. Because it tried to provide support for the index before the crash, we expect it to now act as stiff resistance. Watch for the index to find support in the 1,340-1,350 range.
The tech heavy NASDAQ Composite is at levels not seen since over a decade ago. The index is in full bull mode, and it comes absent of any dot-com like bubble. This is a very good sign because it shows the index is moving higher on fundamentals. Similar to the Dow, the NASDAQ looks like it wants to test a psychologically important level at 3,000 in the next few months. Look for support to materialize between 2,825-2,850.
The Russell 2000 index is the only index to have broken out to a new all time high with Fridays close of 865. This is an important technical point to note because the index is comprised of small caps. Small caps are seen as especially sensitive to economic growth, so the that fact the index has broken out to new all time highs indicates investors are willing to take on more risk. Look for resistance in the 875-900 range, while support should transpire between 840-850.
We would like to wrap up this post with two statistics that we think support our bullish bias. The first comes from the Investment Company Institute (ICI). Their data shows that from 2007 through 2010 there were fund outflows of $327 billion. Since the start of 2011 through April, roughly $30 billion has flowed back into those funds, or a paltry 10% of the $327 billion that flowed out. The implication of this data is extremely bullish as it means there is still alot of cash on the sidelines. Should this cash decide to return to the equity markets, it could provide a powerful boost to stock prices. Finally, Schaeffers Investment Research had a great statistic we wanted to share with all of you. Since the 1970’s, of the 21 times the market has been positive through the Easter holiday, as it is this year, the market has gone on to finish higher for the year 20 times, or 95% of the time. With history on our side, we feel confident the market will be higher than where it is now come December 31st 2011.
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