Friday, January 06, 2006

The Bulls Break Out

Well, there's no arguing with prices, and the market pushed through across the board to new highs.

Some of the ETFs - like the MDY - reached never-before-seen highs. Others, such as the QQQQ, reached multi-year highs. Gainers trumped losers by about 2-to-1, and there is a very bullish tone to the market in general.

Let's take a look, for instance, at the big breakout QQQQ had recently. Notice the former resistance line and how powerfully the QQQQs have burst through it (the arrow indicates the year-end pullback, which was a bear trap, and the subsequent rise in the market).

Now before we get totally carried away, let's take a look at a graph which you'll have to admit looks awfully similar. It's also the QQQQ, and a virtually identical breakout is shown. (This happens to be from a year ago).

But look at what happened next (I've left the rectangle drawn so you can see the relative point of reference).

As you can see, the breakout didn't have a follow-through.

What's going to happen this time? Will the markets continue to surge upward? Or will the magical Dow 11,000 number be crossed only to be crossed back on the downside once more? I have no real way of knowing. At this point, the markets are clearly pointing skyward. Whether it can be sustained or not will be revealed over the balance of the month.

I will offer some evidence of froth, however. Google - which continues to blast upward - keeps drawing higher and higher target prices from analysts. Remember back in the late 90s how Qualcomm, which peaked at about $100, fetched an analyst target of $1,000? That's often held us as an example of how bonkers everyone went during the bubble. Today a report came out suggesting a Google price of $2,000. And - amazingly - the report stated how it was "different this time" (compared with the bubble). People never learn, I guess! Anyway, if you're interested, the article is here.

1 comment:

Anonymous said...

When investment banks speculate, market goes crazy. I agree with you on VIX reading. But VIX can keep on going lower and Indexes keep on going higher, probably for the first half of 2006 or till price of Google busts. Looks like the reverse of 2002? So 2007 will be the year market goes down?