The S&P 500 appears to be setting up for a breakout. Although it has not yet breached its 20-day high, the market has been forming higher lows and challenging its recent highs, holding in the upper end of its recent trading range, after breaking a downtrend line from the false breakout high. A trend line, properly drawn, should only connect the highs preceding lower lows.
Volume on up days still appears weak, but support appears to have moved up to the 144 area.
It the market decisively breaks above 150, then another leg, perhaps to the 156 high, could follow. This would surprise everyone which is what the market tends to do most of the time.
Individual sectors that look interesting include energy (XLE) which has broken out again and is perhaps short-term over-extended, technology (XLK), and basic materials (XLB). Financials (XLF) remain in a downtrend, but the 31.5 climax low may hold for awhile at least. A close above the down-sloping 50 day, currently at 34.29 could be good for a nice trading swing.
The macro economic picture remains horrible and we are in a seasonally weak spot, but pre-election Novembers are usually strong. The market may breathe a sigh of relief if the President indicates he is finally changing course in Iraq, which would eliminate a major financial and credibility hemorrhage to the United States. We currently spend about 12 billion dollars a month there, so any sign that this might be the beginning of the end could be greeted positively, particularly by the credit markets.
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