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Technical Takes


Catching up on the technical positions of several markets to see how we can position ourselves for the coming summer months.

Let's catch up on the technical positions of several markets to see how we can position ourselves for the coming summer months.

S&P 500: So much for the quick early June pullback! After approaching the all-time intraday high of 1553, the SPX dipped to kiss the 50 day moving average and found support quickly in the 1490-1500 range. As Todd has pointed out, buy stops reside just above the recent highs near 1540, and moving above that level could propel us to test the 1550 handle. Keep an eye on the RSI as we are beginning to see the start of a possible negative divergence setup. A run of the stops above 1540 and move to new highs in the 1550 range accompanied by a failure of the RSI to overcome the downtrend line near 70 could light the fuse for a fakeout breakout and quick move back down into support near the 50 day again. Wouldn't it be convenient for the SPX to run right up into the end of 2Q?

Resistance: 1540 (June high), 1553 (all-time intraday high)
Support: 1521 (20 day), 1503 (50 day), 1490 (June low), 1460 (Feb high)

Click to enlarge

The Russell 2000 has started to play some catch up to the S&P 500 and Dow Industrials, although it is still lagging in percentage terms above the February highs. Notice the RSI negative divergence setup here as well, especially if we see a failing rally into quarter end. A move below 830 that sticks opens the door down to the 200 day moving average near 790.

Resistance: 855 (June high)
Support: 840 (20 day), 830 (50 day and uptrend), 790 (200 day)

Click to enlarge

The Banking Index has continued to lag the market and still has not confirmed the recent push higher, dragging on the larger indexes. The BKX is at a critical juncture here failing at the recent downtrend line and sitting precariously on a shelf of support. Negative RSI divergence here as well…closing below the 115 level the BKX could really pick up some steam on the downside and bring the rest of the market down with it.

Resistance: 118 (May highs), 121 (Feb highs)
Support: 116.5 (50 day), 115 (200 day and uptrend)

Click to enlarge

While the banks have lagged, the oils have picked up the slack and continue to lead the market higher. However, the OSX is probably due for some consolidation here as we are seeing the very first sign of a negative RSI divergence as well as being extended over 30% above the 200 day moving average. Longer term this remains a group to buy on pullbacks especially with increasing tensions in the Middle East.

Resistance: 270 (recent highs)
Support: 255 (20 day), 244 (50 day), 210 (200 day)

Click to enlarge

Of course in looking at a possible pullback in the oil names, we must consider the commodity itself. While the near term trend is up, I keep going back to this longer term chart of crude that is clearly showing a head and shoulders topping pattern. We must consider the trend up for now, but if a crude pullback is indeed in the cards it will need to find support in the mid $60's quickly. Failure there opens the door to the mid $50's.

Resistance: 70 (last Aug low), 77 (last July high)
Support: 66 (20 day), 64.60 (50 day), 61 (200 day)

Click to enlarge

Gold has pulled back recently with decreased inflations fears and also dollar strength. Near term the commodity is attempting to hold the uptrend line from the mid 2005 lows. Support remains in the mid $600's while I would like to see a close above the $675 level before confirming the next leg up is underway. $640 is key for the near term bullish case, with downside to the mid $500's if broken.

Resistance: 672 (50 day), 679.5 (June high), 698 (April high), 732 (2006 high)
Support: 661 (20 day), 647 (June low), 641 (200 day), 560 (live angle)

Click to enlarge

While the dollar has had a decent rally lately (especially against the yen and euro currencies), the dollar index remains locked in an ugly downtrend. Watch out for a rollover here if shorter term trend followers start getting stopped out of longs that up until recently had been working well. The near term uptrend needs to hold.

Resistance: 82.5 (Dec 2006 low), 83 (gap and downtrend), 84 (200 day)
Support: 82 (50 day and uptrend)

Click to enlarge

Bonds have obviously been the focus as of late with yields on the 10 year approaching the 5.25% level. As I have noted on the buzz, there is a very interesting head and shoulders topping pattern right now on the TLT (iShares Lehman 20+ Year Treasury Bond). After achieving the first target of $83, the TLT is right at the neckline of a larger pattern that projects much lower prices in the low $70's. This would coincide with continued strength in rates and could be the catalyst to the stock market rolling over to follow the bond market down. A close below $82 would be the signal that the next leg lower in bonds is underway.

Click to enlarge

Conclusion: Keep a close eye on the bond market as higher rates could leave the equity market vulnerable for a correction here just off these recent highs. We can probably continue to grind higher into the end of 2Q, but rising rates will put pressure on the liquidity bid that has kept this market so buoyantly afloat. I'll watch the financials as a tell, for the market can't make much more headway on the upside without them on board. I'll continue to prune underperforming groups (banks) on rallies, and have my shopping list ready to add stronger groups (energy) on pullbacks.

As always, happy trading!
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