Market Trend Is Still Positive

12/20/2010 9:00 am EST

Focus: STRATEGIES

Thomas Aspray

, Professional Trader & Analyst

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Chart Analysis: As I mentioned last week, as of the close on December 14, the NYSE Advance/Decline (A/D) line (the cumulative total of advancing stocks minus declining stocks) had not surpassed the November highs—but it has now. The daily chart of the S&P 500 shows that the 127.2% retracement target at 1245 has been reached. It was calculated using the decline from the early-November high to the low on November 29. The 161.8% target is at 1264 with further targets in the 1285-1290 area. The weekly chart of the S&P 400 looks very strong as it has moved above the highs made in May 2008. The next significant resistance is at 914, which is about 15% above current levels. The S&P 400 has first good support in the 880 area. The volume is supporting higher prices as the on-balance volume (OBV) broke out to the upside in mid October and continues to act strong.

What It Means: As long as the daily NYSE A/D line continues to make new highs with the major averages like the NYSE Composite and/or the S&P 500, it means that the intermediate-term trend remains positive. The strong action of the S&P 400 shows that the mid cap stocks are still outperforming the large cap stocks so they are favored along with the small caps.

How to Profit: Even though there are signs that the stock market rally is a bit overextended on a short-term basis, the intermediate trend is positive. New buying should be concentrated in mid and small cap stocks that are close to support or only after a correction that could take the S&P 500 back to the 1200-1220 area.

Tom Aspray, professional trader and analyst, serves as senior editor for MoneyShow.com. The views expressed here are his own.

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