Is This the Breakout We’ve Been Waiting for?

Looking at the charts, then and now (October 28, 2011)

On the October 14 weekend, two weeks ago, we posted the following chart of the S&P 500 that showed the market had closed right at the upper boundary of a trading range that it had occupied for about 10 weeks, asking ourselves whether we would move up or down from there.

Note: Click on the chart for a slightly sharper view.

The second chart below shows what subsequently has happened and updates the market action until the close on Friday, October 28, as depicted by the S&P 500 index. The chart shows that the breakthrough above resistance has actually occurred, helped mainly by both positive corporate earnings announcements and a lessening of tensions and uncertainty about the European debt crisis concerning the bailpout of Greece. But the problems of Greece, Italy, and Spain are still acting like a cloud hovering over the market, so possible reversals must still be watched for.

The Market currently overbought
The Relative Strength Index (RSI) shown at the top of the accompanying chart indicates that the market is in overbought territory. That usually means we can expect a small correction, so rather than chase the market at the current highs, many traders will await the expected dip before taking a position or two. If there are no negative announcements to roil the market, support should follow, making this a suitable entry point.

With many quality stocks currently at low prices, we are hoping that more big-time players will return to the market providing an increase in volume and a continuing uptrend in stock prices as we head into the year end. If that does happen, our Stock Market Basics Paper Trading Portfolio, shown below, has many of the right stocks that can illustrate typical stock price patterns that occur and that traders can often use to assist them in determining the entry or exit levels at which to take action on stocks of interest. For instance, the recent breakout, shown by the green arrow on the chart, would be considered by many to be an entry signal.

We should review the stock charts of each of the ten stocks in the Stock Market Basics paper trading portfolio to see what signals they provide, if any, and from there we can follow their progress for a while to see whether those apparent signals really were predictive.

A good example of increasing daily volume accompanying an accelerating trend direction can be seen on the charts. It was for a relatively short period and it accompanied a downward trend. The vertical bars along the bottom of the main chart (not the smaller MACD chart) represent the trading volume for each day and from late July until about August 10 thay show that an increase in volume occurred.

Here is the Stock Market Basics Portfolio/Watch List  as of market close on October 28, 2011:
(Our target is to gain an average of 25% by year end or soon after.)
The previous version as of October 14 can be seen here.

Related posts:

1. January 09, 2012 and Still Waiting for the Breakout
2. The S&P 500 Index Breakout We’ve Been Waiting For To Begin Paper Trading
3. Update While We Await a Breakout – October 16, 2011
4. Still Waiting on the Sidelines to Start Paper-Trading Portfolio Number 3
5. Waiting On The Sidelines for an S&P 500 Buy Signal
6. January Breakout Confirmed — An Update on the Stock Market for Beginners
7. The Previous AGCO Paper Trade and a Better Exit Strategy

Filed under: Stock Market Basics

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