If this bearish resistance line gives way, the intermediate trend will change

An absence of economic data and a lack of news from Europe kept a lid on trading until mid-afternoon yesterday. Then a story surfaced that two separate bailout funds were being considered and that there might even be an American-style increase in the money supply. The Dow jumped 60 points in 15 minutes to the high of the day at 12,216. But the entire gain was lost in the last hour of trading and stocks closed mixed.

For the day, the Dow closed up 0.43%, the S&P 500 rose 0.11%, and the Nasdaq fell 0.23%. Volume on the NYSE was light at just 801 million shares, and lagged on the Nasdaq as well at just 387 million shares. Breadth on the Big Board was even, but the Nasdaq had more decliners than gainers by a margin of 1.3-to-1.

The S&P 500 has been hammering at the 200-day moving average for almost two months. More recently, buyers have also been attacking the bearish resistance line that connects the May and July highs with the October high. That line represents the intermediate downtrend. If it gives way, the intermediate trend will turn to neutral.

With momentum positive, the bulls are increasing the odds that they will poke through this resistance line. No line can resist forever, and the longer buyers can sustain the attack on this level the more likely it will eventually give way. It is simply a matter of numbers since there is a fixed number of sellers, and once they are removed, prices will move higher.

But like a defensive position in battle, there are reserves available to plug the breach. So even if 1,266 and then 1,293 were to be surmounted, buyers that took positions from April to July will be jumping in to sell stocks that they��ve held for four to eight months. And others that bought close to the 1,330 line may increase the potential sellers and, thus, the difficulty to sustain a meaningful rally.

The Europeans are receiving a lot of advice from the United States, and behind the scenes, from China and India. No one will benefi! t from a weakened European economy. And yet the difficulty of getting 17 countries with very different histories and internal makeups to agree seems almost insurmountable.

We may know something more definite before the week is done, but it is more likely that the outcome will not be known for many more months. And this situation is what is currently driving the market.

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