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The battle rages on. The bulls aren’t giving in as they hold onto the gains they built since mid-November. But neither are the bears, who are trying their best to protect the combination of price resistance and 50 day SMAs.
On the S&P 500, the reaction closing high at 1428 needs to be cleared to encourage more sideline money into the market. On the NASDAQ, last week’s gap open at 3000 represents short-term resistance, though the much bigger level from a technical perspective resides at 3033. Today’s earlier high at 2998 closed in on the first resistance level and has thus far failed. Apple (AAPL) is in the spotlight as it remains under pressure. It gapped lower earlier, opening in its support zone at 525 before rebounding. That 520-525 area is VERY significant. If it’s lost, the overall market is likely to suffer as well.
The daily MACD is pushing higher and making a bullish centerline breakout on the NASDAQ, a positive development. Should the market pull back one more time, the MACD is very likely to provide us clues as to the duration of such a pull back.
The stochastics and RSI are as follows on our major indices:
Dow Jones: 98-59 S&P 500: 90-57 NASDAQ: 72-53 Russell 2000: 93-60
From the numbers above, it’s quite obvious that the NASDAQ is lagging, never a great short-term sign.
The VIX is up approximately 1.5% today as the market meanders back and forth. This index that measures potential volatility ahead is providing us few clues at the moment.
We’ll take another look at max pain at the end of next week.
The Bowley Trend is our historical indicator that alerts us to specific periods throughout the year when three of our key indices (S&P 500, NASDAQ and Russell 2000) tend to trend in one direction or the other.
UPDATE: ALL OF OUR MAJOR INDICES ARE NOW BEARISH AND WILL REMAIN SO UNTIL FRIDAY’S CLOSE.
Transports ($TRAN) are having a solid day as they make another stab at key resistance near the 5200 level. Since June there have probably been 20 attempts to clear the 5200-5300 resistance zone. Obviously, a break above this area in time would be quite bullish, leading to a significant inflow of technical money. Until it happens, however, we must view this 5200 area as an exit point, not an entry.
Biotechs ($DJUSBT) are having a solid day, but I posted a few weeks ago that any fresh breakout here would result in a long-term negative divergence, a sign of slowing upside momentum. The big problem here is that this negative divergence would be appearing on the WEEKLY chart, not daily. Therefore, as we head into 2013, this is one industry group that I’d consider avoiding. There is more potential for upside near-term, but just keep in mind that serious long-term negative divergences are just around the corner.
Technology and healthcare are leading the advance, while financials are amongst the laggards. The rotation back and forth between sectors and the whipsaw action we saw last week is continuing. Because we’re seeing little commitment from either the bulls or bears at this juncture, reigning in your risk probably isn’t a bad strategy. We need to let the market tell us if this rally is for real. Constant rotation in a narrow trading range just beneath key levels of resistance doesn’t provide us any sort of confirmation.
ECONOMIC AND EARNINGS REPORTS:
There are no economic reports of significance today.
INDIVIDUAL STOCK ANALYSIS:
The quick GLD trade discussed in Friday’s Market Chatter proved to be a good call. Short-term GLD traders could walk away from the trade with a quick 0.5%-1.0% profit.
Today, HUN looks interesting. Volume appears to be accelerating as it attempts a descending triangle breakout to the upside. A close below the 20 day EMA should be respected. But a strong finish this afternoon with commensurate volume would be bullish.
If history plays out here, look for a bit of selling this week. Obviously, if we can clear the key price and gap resistance levels discussed earlier, not to mention 50 day SMAs, it would bode well for the bulls.
My guess is that we’ll struggle at these key levels, barring some sort of agreement amongst lawmakers to avoid the fiscal cliff that is quickly approaching. I wouldn’t be surprised by a surge into yearend, however.
Tom Bowley Chief Market Strategist Invested Central