Stock Market Update: October 23, 2006

With the Dow breaking out over the key 12,000 mark the time has come to determine the health of the overall markets. In performing this analysis it is important to also evaluate other indices such as the NASDAQ and the S&P 500.

>>> Dow Jones Industrial Average (DJIA) – The Dow Jones has continued to perform well recently which is in line with our prediction that leading large cap firms would lead the charge throughout the rest of this decade. macd histogram On a five-year monthly chart you would notice that the Dow has broken out from its consolidation period and is splitting the upper and lower Bollinger Bands apart. When the Bollinger Bands tighten we are to assume that the index, or stock, is trading within a consolidation range. For the Dow, this range was between 10,000 and 11,000. So, when the pressure was finally released, the Dow Jones broke to the upside. I believe the market is only in the beginning stages of its next powerful move to the upside. The reason for this assumption is due to the fact that the MACD and DMI indicators continue to signal investors to buy. Until one of these two indicators fails, I would recommend that you take advantage of what the market is telling you.

>>> S&P 500 Index (SP500) – The S&P500 is a leading index, so the question I would ask myself is, “Are the recent highs of the Dow Jones justified?” Again, from looking at a five-year monthly chart, the answer is an obvious yes. This index continued to trend north and is supported by a recent breakout from consolidation. In addition to this, the MACD and DMI also hint that this is a buying opportunity for the long-term.

>>> Nasdaq Composite Index (NASDAQ) – The NASDAQ’s five-year monthly chart tells the same story, but in a slightly different way. In this case only the DMI has signaled buy, while the MACD has yet to turn positive. While the Dow Jones and the S&P500 jump out to an early start, they will not experience the explosion out from the gate that the NASDAQ will. The NASDAQ is still trading within its range between 2,000 and 2,500. Also, the Bollinger Bands have not split open yet (signaling volatility), but I would not expect that to happen until the NASDAQ surpasses the 2,500 mark. Until then, I am pleased to know that the NASDAQ will eventually breakout and with great conviction. This is due to the fact that the longer an index or security trades in a tight range, the more pressure and momentum will be present when the big move finally does occur.

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