Plainly stated, a lot of people doubted this move. I have been getting a surprising number of questions about why this rally should be viewed as different from the three previous (failed) rallies of 2004, which included the moves off the lows in March, May and August.

The differences are numerous and significant. Given my longer-term concerns over the ongoing structural problems of the postbubble environment, I think I have been surprising people when I lay out the technical case for buying this pullback as a trade into early 2005.

Tuesday's weakness was reassuring to those who disbelieved the initial lift off the lows. However, despite that action, I find several significant differences between this breakout and the earlier failed rallies of 2004:

Downtrend: This is the first rally to break the downtrend tracing back to late January 2004. That trend line (more or less) was where each of the prior rallies failed. Its penetration to the upside is a technical event of great significance. The previous trading pattern was selling the market at the top of the down channel and covering and going long near the lower channel line. The breakout changes the entire tone of the market: It shifts the stance of traders from selling rallies to buying dips.

Picture of a Breakout Dow's downtrend broken

Source: Maxim Group