The holidays are fast approaching, and once again the market seems to be acting unpredictable. But one look closer reveals that we could be on the verge of yet another breakout to higher ground. Here’s everything you need to know about a potential holiday stock breakout…

In the spirit of the holiday season, the old holiday carol “Do You See What I See” comes to mind. Why, you ask? Because a big part of being technically oriented is all about line of sight and trading what we see based upon technical analysis. In other words, we trade what we see, not what we think, hear or fear.

That said, let’s start with the short-term index charts and this nauseating trading range for the last two weeks.

As you can see, in the daily chart frequency, the S&P 500 index is showing the same thing over and over again: consolidations, base building etc. Other indexes, like the NASDAQ Composite, are in more of a bullish Pullback Off Highs (POH) pattern, but even that is repeating the same cycles.

Like it or not, the market is consolidating at the highs and digesting its gains. Call it what ever you want — a breakout of resistance is a breakout of a base, and that needs to be honored. In other words, it’s time to pull the trigger to the long side if the S&P 500 breaks above the 1113 price level.

And frankly, that’s the most likely scenario we’re looking at right now, much to the chagrin of the bears.

It would not surprise me one bit to see it happen as it is “Tis the Season” in the States and the last thing that the “powers that be” want to happen is for the markets to get killed here.

Think Herd Psychology 101. If you kill the market, then how is that going to affect the sheep-like spending habits during the holiday season? Can’t have that now can we? We’ve seen it before all too many times into year-end. Chances are we’ll see it again going into 2010.

There are rumors swirling right now that the beginning of 2010 will move the market one way or another, and plenty of very smart analysts are offering plenty of very good reasons to back up their opinions. But as technical analysts, it’s essential not to let opinion cloud your ability to predict the market’s moves. After all, “It’s alright to think, but let the market confirm your thinking first.”

That’s why we trade what we see not THINK.

As for risk, which is always inherent in the market, my number-one concern for a breakout is that it breaks out and fails – that’s something we have no control over, except to know and understand that it’s a potentiality. Being aware of all contingencies allows you trade your plan and plan accordingly should a breakout fail. After all, it’s far better to be aware than to be a deer in the headlights.

Sincerely,
David Grandey
AllAboutTrends.net

December 2, 2009

David Grandey

David Grandey is the founder of All About Trends, an email newsletter service revealing stocks in ideal set-ups offering potential significant short-term gains.  A successful canslim-based stock market investor for the past 10 years, he has worked for Meriwest Credit Union Silicon Valley Bank, helping to establish brand awareness and credibility through feature editorial coverage in leading national and local news media.

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