If the most important indicator in measuring and weighing market structure is price confirmation then there is nothing more important than a positive price breakout. Whether we have had the Jan effect (the first 5 day positive price effect) or not, the monthly close is suggesting some conspicuous price confirmations. As Indices around the world are breaking some significant true trendlines. For example the DOW 30. It has broken a significant true trendline of five years.
Did you know that DOW is barely 7% from an all time high, which it has not distinctly broken in 12 years. The basic rule of market structure suggests that the more a resistance is tested, the more likely it’s to break. Any 7% upside gives DOW a chance to test the 12 year resistance. How large is a 7% move?
This is what seems to happen now. This can of course be a false breakout. But how many false breakouts do you need? World Index, Russell 1000 broad index, Nasdaq 100, ISE home builders, Dow transports, and IYE real estate. True trendline breaks are all over the place. We need a failure across the board for the various sector indices to fail here and markets to come down. Well like I said, the bears are asking the bulls for the price confirmation or “show me the money”. Unfortunately “money” (price confirmation) is staring the bears in their face suggesting them to review their stand.
From the Indian perspective, the price confirmations are absent. You can’t expect India to lead everything. The whole idea of leadership is cyclical. Assets outperform and underperform their global peers cyclically. It’s time for India to lag hence no price confirmation. But if you observe closely all of CNXIT, BSE500, Sensex, CNX100, BSEAUTO, BSEPOWER are testing multi month resistances. A break would set the Indian Bull free to perform in 2012 (despite the odds). At the end of the day a few months or a 12 month Bull can happen in a large 90 year bottoming cycle.
Mukul Pal, CMT, Orpheus Capitals, Global Alternative Research