A Look at the Index Charts Following Thursday's Rally (SPY, QQQQ, DIA)

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Includes: DIA, QQQ, SPY
by: Tate Dwinnell

The market knows all and forecasts the future, pricing in fears and optimism along the way. Over the past few weeks the market has been pricing in rate hike, slowing economy and inflation fears and today was a clear indication that the bulk of rate hike fears had been priced in, leading to a relief rally.

There has been some speculation that traders read too much in to todays Fed statement and that there is no clear indication that the rate hikes are near an end. At any rate, shorts covered and buyers rushed in for what technically amounted to a confirmation of a new rally. The major indices spiked 2% or more on volume higher than the day before. No doubt, you'd like to see volume more impressive with a move like we got yesterday but it was a significant step in the right direciton.

But (you knew that was coming)... important resistance levels remain and this market still has much work to do before we begin a new sustained rally. Lets keep in mind that it is the end of the quarter, a typically volatile move after a Fed announcemnet and a holiday weekend coming up (sort of). Today's move without a doubt signals the go ahead to pursue long positions with a bit more aggression, but with resistance looming and earings season fast approaching, jumping in with both feet remains an unwise decision. Once the bulk of earnings begin to roll in around the middle of July, we’ll have a much better idea of just how well the economy is doing or isn’t doing as well as how inflation is faring.

On to the charts….

The weakest of the major indices, the Nasdaq cleared first level resistance areas Thursday with volume above average and above yesterday’s level indicating accumulation. Volume was good but not outstanding. Institutions may have begun putting money to work, but they aren’t jumping in with full force and you shouldn’t be either. Today’s move most likely gives the Naz the momentum it needs to test the next level of resistance where the 50 and 200 day moving averages converge. Note: the 50 DMA has crossed below the 200 day moving average which is a bearish indication. It’s a reminder that MUCH work remains as the market works through significant technical damage.

With Thursday's move, the S&P managed to clear both 1st level resistance of the downward trend line AND resistance of the 50 day moving average. Again, resistance looms at the 50 day moving average. Also, notice the unspectacular move in volume. With a move of over 2% you’d expect volume to be significantly higher than it was.

The Dow is the strongest of the major indices and is already testing 2nd level resistance levels. It cleared first levels resistance back on June 21st and has since been finding support along the downward trend line, ultimately bouncing off of the 200 day moving average.