I Can't Resist
The moves in the equity markets last week, and especially on Friday, were impressive because of broad participation and volume traded on both exchanges.
On Friday, I wrote about the intermediate-term picture and today I would like to look at the near-term view. All three closely watched indices are overbought by just about any measure, but are in different points relative to their overhead resistance.
Dow Jones Industrials: The DJIA basically broke out above very near-term resistance on Friday by a small margin. This should result in enough enthusiasm to bring the index into its overhead resistance zone of 8700-9000. This is the upper end of the trading range that I have been saying the market could get toward but would be unlikely to get through. There is no reason to be a seller yet due to the close proximity of the break above very near-term resistance.
The Dow has been laggard and could play catch up over coming sessions.
S&P 500: The S&P 500 has already moved into its resistance zone, which means that any further gains are likely to meet some overhead supply moving forward. Again, there is no indication of an imminent demise, but clearly tight stops on longs should be used to avoid an overbought decline. There is potential reward to upper end of range, but don't forget the market is rather extended and overbought suggesting increased risk, especially relative to the DJIA.
Unlike the DJIA the SPX is already into it.
Nasdaq Composite Index: The NAZ has clearly experienced the most significant move off the lows, which makes sense given the amount of decline over the past three years, which has likely eliminated a good deal of resistance. From a strictly technical view however, the tech and telecom dominated index has moved right to the upper end of its trading range and looks like a breakout above is a no-brainer. Given the extent of the recent move and overbought condition, chasing doesn't make a lot of sense, barring a very clear breakout, which has not yet taken place. The strength also suggests that shorting -- because it is extended and overbought -- doesn't make a lot of sense either. I wouldn't add new money here and would move stop prices up in order to not get trapped long and to take the emotion out of the process.
The NAZ has been a leader, as it is in process of moving through the top of the resistance area.
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