Friday, January 12, 2007

Breakout or Fakeout?

Yesterday, the COMP broke out to new highs, clearing a roughly 7-week consolidation. Volume was very strong, making for an accumulation day as well. This makes for a solid breakout.

If this were last year, it is likely that we would see the breakout quickly reverse itself, and make those who bought on the breakout feel foolish.

But I think this year will be different, and that this breakout will stick. As we get into earnings season, volatility will obviously pick up, but I think there is just enough bearish sentiment still around to help us push higher before a correction sets in.

I think the fund flows out of energy/commodities/emerging markets and into growth/tech are just beginning, and we should see additional rounds of this type of sector rotation as the year progresses.


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