MarketWatch technician raises 'bullish flag'

"The Dows spiked atop both major moving averages this week, notching one-month highs. At the same time, Thursday's break atop the early-July peak wrecks its head-and-shoulders top, inflicting serious damage to the bear case.

"And not surprisingly, the Nasdaq remains the strongest benchmark. From Thursday's close of 1,885, its first significant support holds at the early-July peak of 1,861.

"The Nasdaq not only cleared the early-July peak, but also edged atop the June high, notching its best level in nine months. Though near-term extended - and due to consolidate - its longer-term outlook remains bullish.

"Still, the upturn comes immediately after a previously ominous backdrop. efore this week, the technical playbook had been that the S&P 500 would chop around through the summer - perhaps even break to the low 800's - setting the stage for a seasonal fall breakout.

"Yet as it turns out, the S&P held support around the 200-day and the 875 area, staging two 10-to-1 reversals this week. So the question now is whether the S&P follows the playbook, consolidating until the fall, or instead, surprises technicians with a break atop the neckline this month.

"And ultimately, the markets will decide. Ideally, the S&P 500 would pull back to the 910 area, offering a higher risk/reward entry. (Which, of course, means this won't happen.)

"Yet setting aside tactical views, the U.S. markets' technical backdrop has strengthened this week, and the question now is how the S&P responds to its neckline, in the 970 area.

"We have also highlighted some names well positioned technically. These are intended as radar screen names - sectors or stocks positioned to move near term.

"Brocade Communications (NASDAQ: BRCD) is a mid-cap name positioned to rise. It's gapped from a well-defined two-month trading range, opening the way to an extension of the uptrend. From current levels, first support holds at $7.75, matching the top of the gap.

"America Movil (NYSE: AMX) has returned 14.7% and remains well positioned. It's established a two-month trading range, recently finding support at its 50-day moving average. A pullback to the breakout point, around $39.50, would mark an attractive entry.

"Posco (NYSE: PKX) is a large-cap steel name based in South Korea. Very simply, it's cleared resistance on increased volume, and its outlook remains higher barring a violation of the breakout point."

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