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Have the Presents Been Delivered?


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"Both sides of a question do not belong to the question at all, but to the opposing views which bedevil it."

(Henry S. Haskins)

Key Points:

  • The S&P pushed through short term resistance at 1240 we mentioned last time and quickly tested key longer term resistance at 1270.

  • Conditional elements including the Arms Index, RSI / stochastics, volume and breadth are not confirming.

  • Again, if by some chance the markets break through the MASSIVE resistance points that have held them captive for the last 2 - 4 years - please wait for a confirmation (low volume re-test) before diving in.

Good morning and welcome back from the turkey-day holiday. I genuinely hope you enjoyed a spot of quality family time as I did. In today's 'Jo' I wanted to put out a quick note about the recent run-up in the markets during the holiday week. In the last 'Jo' we talked about the ST (short-term) and IT (intermediate-term) resistance for the S&P 500 (SPX). Hence, today's quick discussion is to visualize where the SPX currently resides.

Looking at the 2-year chart below you can see that the ST resistance level of 1240 was penetrated like a hot knife through butter and the possible retest of the 50-DMA is just a memory - for now. However, as previously stated many times in past 'Jo's', "...if the ST resistance is breached it could bring the SPX up to the LT resistance of 1260-1270. Well, voila! The day prior to Thanksgiving the SPX slammed into 1270 right on the nose.

One question still remains, "Is Rudolph's nose still shining bright or have all the presents already been delivered?" If we dig a little deeper technically, the probabilities lie with the latter scenario. Our current concerns lie with the secondary market indicators. Let me explain.

1. The long-term Arms Index (55-DMA) is at the highest level since 1999 / 2000.

2. The A/D line and the new highs / new lows are not showing strength as the markets have advanced (a divergence).

3. The Stochastic and RSI are both at extreme overbought levels.

4. Last, but surely not least, the volume pushing the market higher has been declining as the market has advanced.

This being said, this IT resistance line could continue to be tested. Looking back to Jan / Feb of 2004; Dec / Feb of 2005 and July / Aug 2005 you can see that, after a short hiatus, there has been a re-test of resistance before dropping to the bottom side of the large rising wedge pattern.

Nonetheless, as continuously stated within all the 'Jo's' referring to the rising wedge pattern, "If by some chance the markets break through the MASSIVE resistance points that have held them captive for the last 2 - 4 years - please wait for a confirmation before diving in." Ya know - that whole water in the pool thing.

On a side note...

Yesterday afternoon CNBC's "Street Signs" anchor, Ron Insana, did another segment supporting our 100-year Dow chart theory. John Bollinger (Bollinger Bands) and Dick Arms (Arms Index) - two of the top market technicians - spoke about the major macro consolidation pattern taking place within the Dow. Both technicians, using different indicators, agreed with our theory of an extended channel in the markets over the next 10 to 15 years. I almost fell out of my chair when they both gave - to some extent - the same numbers for the channel (11,500 - 12,000 for the top and 7,500 - 8,000 for the bottom). Sound familiar?

We are attempting to get these segments linked on our web-site for you to view.

Until next time...


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No positions in stocks mentioned.

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