Dow Trapped – Poised for Breakout

Dec 28, 2007: 8:16 PM CST

The expected “Santa Rally” has not gained much traction in the overall markets as anticipated. The stock market is winding down in volatility for the end of the year and is setting up for a potential larger breakout.

Observe the ‘triangulation action’ in the market, as evidenced by the converging trendlines that form a semi-triangle.

The moving averages are absolutely flat and converging, and form a most interesting pattern through the center (midpoint) of the triangle formation.

Larger breakout moves often occur following such periods of consolidation (indecision) as one side becomes dominant and the other side is forced to play defensively or join the large momentum move that often ensues.

Keep in mind that a “January Rally,” especially in the smaller-cap stocks, is not uncommon and may temporarily throw off the “technical” or charting picture.

Here’s a look at the other broader markets:

S&P (same as the Dow Jones):

NASDAQ:

Russell 2000:

The only chart that differs greatly from the other major indexes is the Russell.

The small cap stocks have shown a slight bit of relative strength in the last week or so, and have actually carved out an ‘uptrend’ style pattern while the other indexes have not.

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