Stocks Break Out

The stock market breakout we have been looking for may have arrived on Monday. The SPX popped above its summer trading range, along with the Dow industrials, NASDAQ composite, Midcap 400 and Wilshire 5000. The small caps did not, which is a notable divergence.

Breadth was overwhelmingly positive; volume was light, which is another non-confirmation signal.

Gold rose and the Dollar fell, but bond yields also fell – another bit of divergence.

Adding it all up, we can’t fight the tape. We have a breakout and a positive MACD cross giving us a buy signal. But we don’t have the all clear with volume weak and bonds strong. My take: it’s time to dip a toe in the water and buy partial positions. If the rally sustains itself we can add, if it reverses we can sell and wait for another signal.

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