iInvest® Stock Market ALERT
In our June 7th iInvest® Stock Market Alert, we pointed out that the consolidation pattern that was occurring since early February was ending, with many breadth indicators such as the S&P 500 Advance-Decline Line and the Russell 2000 Small Cap Index having bullish breakouts to new highs.
In the chart below, you can see a positive divergence between the Advance-Decline Line and the S&P 500 itself.
S&P 500 Advance-Decline Line/S&P 500:
Once the overall stock market moved into severe overbought territory earlier this year (as described in our February 6thiInvest® Stock Market Alert), over the coming weeks/months the major indices (such as the S&P 500) formed a consolidation or Pennant formation. A pennant is a continuation pattern within an uptrend and typically has 5 waves within it. This is exactly what has happened, and we have now broken out of the pattern, meaning the larger uptrend should now continue.
S&P 500 5-Wave Pennant and Upside Breakout
Quantitative Analysis Study
For further confirmation of the recent bullish breakouts in the stock market, iInvest® often turns to Quantitative Analysis, which is basically looking at past events to determine the likelihood of future events.
In a recent study released by Market Tells, they point out that the S&P 500, after weeks of running into resistance around the 2740 level, “has moved decisively above that level” lately, and has posted a “rare unfilled upside gap on its weekly chart”, sometimes called a Breakaway Gap.
“From 1990-2008, this pattern essentially never occurred. But, since the 08’ crash, we have seen 13 separate cases. Most led to further upside over the next 4, 8 and 12 weeks.”
Written by Craig Dillon
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