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The Next Breakout to the Upside

Kevin Cook here to start the week off for Steve...

Last week we learned that institutional investors are fairly confident the sequester won't do material damage to the economy. And the strong ISM Manufacturing Index and U of Michigan Consumer Sentiment told us those areas seem capable of absorbing whatever fallout comes.

So what is the market's next move after the strong price action that kept the S&P within 4% of its all-time high? Clearly the next breakout to the upside is right before our eyes at the highs for the past 3 weeks, 1525-30. Once we get through there, my target for Q1 of 1550 is a done deal.

But what if we just fall back into the range? Since the push above 1500, the low has been 1485 and the 50-day moving average sits right down there too. The real line in the sand for bulls is 1475 because that's where the last breakout occurred on the crack of the September highs.

Bottom line: The market has gone through some selling distribution and fear-driven volatility typical of a medium-term top. But the bulls have both positive economic surprises and good price action on their side. And that's why it still pays to buy the dips looking for the breakout above 1530.

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Kevin Cook

Senior Stock Strategist

Zacks Investment Research

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