Tuesday, August 25, 2009

Midday Briefing for August 25th: Sustaining the Bull

We can see from the 30-minute chart of the ES futures that we have been consolidating in a range since breaking out to bull highs on Friday and adding to those gains early on Monday. Note that we're continuing to trade above Friday's breakout point, which means that we're accepting value at this higher level. One of the best indicators I know that differentiates false breakouts from the real deal is simply time. If a market is going to spring a trap for bulls, it will reverse relatively promptly and force the covering of positions. The longer we spend in a new range, the more likely it is that participants have accepted value there and we will stay there as a new valuation.

So far, pullbacks in stocks have been relatively short and shallow. Money managers cannot be caught without positions in a recovering market. As long as that dynamic persists, we should see pullbacks at successively higher price levels and a willingness to accept value on upside breakouts.