Monday, May 21, 2007

Inflection point

The market rally last week seemed a bit thin, with weaker breath and volume and struck me more as a consolidation week, not really resolving any market direction questions. The S&P 500 is looking to break out to an all time high. If it can push to new highs with stronger volume and breath, this would signal substantially higher markets in my view, however past pushes by major market indexes to new highs have been accompanied by significant short term consolidation periods.

In the long run I am very bullish, but in the short run we are at one of those points that could set the tone of the market for the next several months. My bet is a big push in volume and a move to the upside. Low risk investors may do well to keep their powder dry or take some gains. Longer term and high risk investors should use any setback as a buying opportunity. A move upward accompanied by significantly higher volume would be a very bullish signal, continued muddling along under low volume would suggest more time is needed for bullish technical formations to develop.

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