Dow Breakout Might Not Mushroom

Suspicions that Friday's blackout-tainted session represented a pause in the market's latest power surge were confirmed Monday, as major averages rose steadily.

Much of the discussion among traders was about the Dow Jones Industrial Average, which surpassed some closely watched technical levels, albeit amid still-lackluster volume. The Dow rose 1% to 9412.45, eclipsing its June 17 closing high of 9323 and July 31 intraday high of 9362. It's also the Dow's highest close since June 20, 2002.

While lacking the same technical significance as the Dow's rise, other major averages also posted solid gains. The S&P 500 rose 0.9% to 999.74, while the Nasdaq Composite climbed 2.2% to 1739.50.

The next key resistance level for the Dow is 9450, which represents the downtrend line from its 2001 highs. In addition, 9474 would be a 50% retracement of the Dow's fall from its all-time high of 11,750 in January 2000 to its October 2002 low of 7197.49, as Charles Norton noted in RealMoney.com's Columnist Conversation.

Many Rivers to Cross

Given those technical hurdles still to be tested, many observers cautioned against reading too much into the Dow's technical "breakout" Monday.

"I think you'll get all these technicians bullish now, but I think they'll take this thing up higher, and everyone will get excited just in time for me to short it," said Jeffrey Saut, chief equity strategist at Raymond James.

Saut is currently long the Dow Diamonds(DIA Quote). But while he believes Monday's advance will likely lead to continued upside "for a few more days, maybe weeks," he's "looking for a place to exit and get short."

In explaining his cautious stance, Saut cited "formidable" technical resistance at Dow 9500, skepticism about the sustainability of the economy's recent upswing, and lack of faith in the apparently strong second-quarter corporate earnings. "A lot of companies are still using abracadabra accounting," he said.