Most readers know that I watch the S&P Emini Futures for day-to-day direction. However, once or twice a month I run through the monthly charts of the SPX, DOW, and NASDAQ just to see the view from 10,000 feet.
The NASDAQ has suffered right along with the other major indices since hitting its peak back in October 2007; though not to the degree it did from March 2000 until its October 2002 bottom.
On the chart below you will see a yellow horizontal line at 2155, as well as a couple white circles and a white rectangle focused on that area. I do not mean to suggest the tech sector is destined to fall off a cliff, but considering that we are in our 7th consecutive up month for the index…a pause (at the very least) seems likely near that resistance zone.
As for the DOW, I have drawn four trendlines stretching back to 1982, when many investors believe our last secular bull market began.
I am not sure what the odds are of another catastrophic fall from our current level of 9600 to the bottom trendline near 5200-5400, but given that volatility and premiums have contracted, buying protective puts or implementing a hedging strategy may be wise.
You can see on the chart below that we are approaching the psychologically important 10,000 level (the red horizontal line)…and you know as we approach that level the folks on CNBC will discuss it ad nauseam. While DOW 10K is sure to get both the bulls and bears all worked up, I think the level that is likely to provide the strongest resistance is 10,850 (the three white circles).
One last thing on the DOW, the underside of the steepest up-trendline comes into play between 10350 and 10550 (the blue circle), so it is very possible that the best shot (for the bears) at a big reversal in the DOW may not come until we are trading between 10350 and 10850.
Next up is the S&P 500. The two moving averages on the monthly chart below are the 13 and 21 period exponential moving averages. I have circled (in blue) several instances where these two averages have acted as strong support or resistance. Currently, the SPX is trading above the 13 and just below the 21 ema…
The SPX put in a triple bottom (white circles inside the yellow square) back in 2002 and 2003…so it was easy for the bulls to argue that a base had been built from which a bull market could emerge. Our current bottom is much more V-ish, and it is that shape that has so many bears up in arms (V-ish or not, if you completely missed out on this 50+% move you are more than a little upset).
Below is a weekly chart of the SPX. We still see the potential for an ascending wedge (bearish) as we continue to approach the down-trendline that begins back in October 2007. The trendline that seems to come out of nowhere is the underside of the up-trendline connecting the lows off the October 2002 and March 2003 bottom (you can see this trendline in its entirety on the monthly chart above).
Currently, there is no technical reason to be short this market. There are a couple potentially bearish patterns developing, but none that warrant immediate action. As the major indices power higher, I continue to think protective puts (if not index shorts against individual long positions) are a wise choice for those investors that want to remain long but protect themselves against an overdue correction.
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Disclosure: No positions were held at the time of publication, though that may change at any time.