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Breakout or Fakeout: Is the Next Big Move for Stocks Up or Down?


After waiting more than five years for the Dow and S&P 500 to break above their previous all-time highs set in 2007, investors have been eager to learn whether this move was the start of something big, or more like the end of a nice run. The jury is still out, as the new high watermark has yet to put much daylight between itself and the former record holder.

For technical analysts like Jonathan Krinsky at Miller Tabak, the present scenario resembles what happened at the last peak.

"There a couple of similarities between this and the 2007 highs," Krinksy says in the attached video.

While he makes clear that he sees warning signs, not sell signals, he highlights the fact that the components within the indexes are not as robust as the performance of the indexes themselves. "Maybe it's a false breakout," he posits, while pointing to the sub-par percentage of stocks that are currently trading above the 50 and 200-day moving averages. Because these stocks haven't also hit new highs while the indexes did a few weeks ago, "gives us a little bit of a pause."

That said, Krinsky quickly sets his fears aside and segues into the "bigger picture" analysis that looks at signs which suggest that this could be a more sustained rally than what we saw six years ago.

"In 2007 we broke above the 2000 high by less than one percent. We were there for a couple weeks then rolled over pretty hard," he says of the ensuing financial crisis and sell off that cut the market's value in half.

"What makes me more constructive (now) is that we're 13 years into this secular bear market," he says "we've basically been within a trading range for 13 years and we're now just starting to emerge from that, so it does feel a little different to me than in '07."

If he's right and this 5-month sprint continues higher, he thinks there's a chance this could be a repeat of 1980 when he says stocks rallied 15% above the previous peak then went through one final flush out which culminated the start of the bull market that began in 1982.

"From my perspective, we could be setting up more similar to that," he says, "where we get a sustained breakout, but before we put an end to the secular bear (which started 13 years ago) we do we see one more significant decline."