Wednesday, May 25, 2016 3:56 PM EDT
After a consolidation period of almost two years, it seems that the U.S. stock market is ready to start trending again. Since the summer of 2014, the stock indexes in the U.S. have basically gone nowhere. In May 2014, the S&P 500 peaked at 2000 points, while last Monday the index was trading around 2030 points.
As seen on the chart of the S&P 500, still the bellwether of U.S. stocks, the consolidation period is reflected in a wide horizontal trading range.
However, things seem to have changed now. The index is about to break out as it is testing its resistance line. There have multiple attempts to breakout over the course of the last two years, which all failed, but this time seems to be different for two reasons:
- The current breakout attempt takes place after a period of 3 months being above the 90 week moving average.
- There has been a consolidation period of several weeks right below the highs.
Those two aspects are different, and that type of price behavior definitely favors stock bulls.
Investors should watch whether the S&P 500 remains for a full week above 2092 points for a final confirmation that the breakout is for real. From our perspective, we see enough signs that this is about to happen. In other words, this is not a typical “sell in May” month.
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