Stock Bulls Make Important Stand


The Global Dow – among other indices – successfully defended its breakout level of last month.

About 6 weeks ago, we suggested that in order for the post-February global stock rally to extend much further, it would need the assistance of some of the previously lagging areas of the market. At the time, many of the rally leaders had become extended and tired. Thus, the rally was in need of fresh fuel. The laggards at the time (e.g., global stocks, high-beta, commodity-related equities, et al.), were not nearly as extended, but were pressing against staunch resistance. They needed to somehow break out to deliver the rally a fresh jolt. Within a few days, these laggards indeed delivered, breaking out and leading another thrust higher in the market.

The jolt proved short-lived, however, as by early May, these laggards had dropped back down to test their respective breakout levels. Now, this was not an unusual development by any means. Breakouts and breakdowns over the past few years have led to tests almost without fail. The question was would this test be successful?, i.e., would the breakout area hold? The answer to this bull vs. bear battle, we surmised, very well may determine the fate of the post-February rally.

Well, the rally of the past 2 days provided the answer, at least for the time being, i.e., a hold. One example of a former laggard testing – successfully – its April breakout level, comes from the Global Dow Index. Again, the Global Dow is an equal-weighted index of 150 of the largest stocks in the world. If you follow our blog at all, you probably know that the Global Dow is one of our favorite indices in instructing us as to the health of the broad global equity market. Additionally, it adheres very closely to technical charting analyses.

And speaking of, the Global Dow bounced right off of multiple support near its breakout area over the past few days, as the chart below shows (fyi, we could have chosen any number of laggard indices to illustrate this successful test as it was widespread.)


So, are these indices – and stock investors – out-of-the -woods now? Hardly – the risk-management never stops. Prices could turn around again and immediately drop back down below the breakout levels. However, at least for now, the bulls have won this important battle, and right where they needed to.

Thus, while things are subject to change at any time, the bulls have gained the higher ground for now. We will see if the post-February global stock rally will follow suit.


More from Dana Lyons, JLFMI and My401kPro.

The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.