Stocks Break Through Key Resistance

03/18/2010 11:24 am EST

Focus: MARKETS

Mary Anne & Pamela Aden

Co-Editors, The Aden Forecast

Pamela and Mary Anne Aden, editors of The Aden Forecast, say several major indices have broken above resistance levels, suggesting the markets could move much higher.

The major trends are the most important. They are up and they have been for one year now. For now, the declines earlier this year have simply been downward corrections following the steep rises in 2009. That’s pretty normal and until proven otherwise, this is the current technical condition of the markets.

Another positive is that most of the stock markets rose this month. In the US, for example, the Nasdaq [Composite index] and the Dow Jones Transportation Average hit new bull market highs. That was also the case for some of the other world stock markets. Could they be leading the way up for the other stock indices?

They sure could, and this will be reinforced once the other US stock indices break above their January highs, which is the next strong resistance level. (The Dow Jones Industrial Average closed above that level Wednesday, and the Standard & Poor’s 500 index has been above its January highs for about a week—Editor.) If this happens, it would be a very good sign for the US economy, signaling the recovery has further to go.

A sustained world recovery would [also] keep the demand for raw materials and other commodities strong. This in turn would keep upward pressure on commodity prices.

The S&P 500 and the copper price have been moving together. The same is generally true of many of the other resource and commodity markets.

[Copper is] known to be a reliable gauge for the world global economy. If the world economy is growing, demand for copper and other raw materials increases because building is picking up, factories are operating at a higher capacity, and so on.

But if world growth is slow, then demand decreases as companies cut back. The copper price then falls, which is exactly what happened during the 2008 global financial crisis. Stocks fell, too.

So, here we’re essentially looking at two markets, which also happen to be reliable economic indicators. And for now they’re telling us that the world economy is on track for future growth. If this continues—and it would clearly continue if the stock indices rise and stay above their January highs—it will improve the odds that stocks could go significantly higher.

Looking at the S&P 500, for instance, this up move could become similar to the one from 2002 to 2007, which would mean there are still good profits to be made. You’d still want to be selective, though, and only invest in the strongest markets and sectors.

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