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Where Is Next Major Resistance For The Broad Market? ($SPX, $COMPX, $DJI, $SOXL, $IYZ, $PPH, $IYT) - February 6, 2012

Wall Street was smiling last Friday, as stocks ripped higher and the Nasdaq Composite claimed an 11 year high. All five major indices posted impressive gains, with the small-cap Russell 2000 leading the march higher, to a 2.2% gain. Both the Nasdaq and S&P MidCap 400 indices tacked on 1.6% while S&P 500 surged 1.5%. The Dow Jones Industrial Average couldn't keep up with the hot pace of the other indices, but still managed a 1.2% gain. Sectors showing the most strength included solar energy, real estate, software, internet, oil services, networking and banking. Precious metal, healthcare and pharmaceuticals all underperformed.

Internals ended the week on a bullish note. Volume surged by 12.4% on the Nasdaq and 13.2% on the NYSE. Advancing volume easily overpowered declining volume by 6.1 to 1 on the NYSE and 5.1 to 1 on the Nasdaq. The confluence of price action and market internals makes a clear case that institutional buying amongst mutual funds, hedge funds, and banks supported the market last Friday. Consequently, last Friday was a bullish "accumulation day" for the broad market.

Given last Friday's strong breakout price action, this is a good time to review important resistance levels for the main stock market indexes. Last week, we stated that the market appeared likely to rally and "overcut" last summer's highs. As you will notice on the charts of the Nasdaq Composite, S&P 500 and Dow Jones Industrial Average below, we are now at or near key resistance levels on all three indices. It is impressive that the Nasdaq set a fresh 11-year high last Friday, but it is also important to note that none of the other major indices can make the same claim, and remain below pivotal resistance levels. Since we are close to testing and/or overcutting key resistance levels right now, it is very important to exercise caution and only take on potential long entries in ETFs and stocks with the most relative strength to the broad market:

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