On Thursday I noted that the key 1220 on the S&P had been compromised and had looked like yet another bull victory. However this morning, the bulls found the resistance at 1226 despite many attempts to drive the market higher. Later on in the day, with just ten minutes left to trade they attempted yet again to break the resistance, but to no avail. It was quite a show. I might be called names for saying that this market could be at a peak right here.
The buying volume in the last ten minutes was significant. (No I’m not talking about the spike when the market closed, but the 4 bars leading up to that.)
It is tough to go against the grain here while everyone else is bullish but the fact still remains that this is the most technically overextended move we’ve had in a long time. I haven’t seen anyone who is bearish getting any air time, it seems to me that anyone who is being interviewed is a bull which sends up a red flag to be cautious of the recent upward gaps.
The IXIC or Nasdaq is easily the most overextended of the three major indices. Notice how it is outperforming the DJIA and S&P 500 and at the same time is doing so on the lowest volume and has been creating bearish divergences along the way on the slow stochastic. The rally also looks similar to the previous one this year which was on low volume, as is this one, but on even lower volume.
The long term chart of the S&P 500 reveals a lot about where this index has been, and where it may be going. Despite what you may be hearing, the technicals always matter even though some would have you believe that this rally in equities will last for centuries. The stimulus and the Fed’s QE moved the S&P 450 up by points back in 2009, at the expense of sacrificing the 14 points on the USDX, but the most shocking part here is that this year, it recently had to take 12 points off of the dollar index to make the S&P move just 200 points. Granted it has been over a shorter period of time but with the plan for QE II already set in place for the next 9 months, it appears that this market may be on its own for a while which calls for less speculation about the Fed, and perhaps a more sound analysis of the market. Before the Euro Debt Crisis the dollar began to cup up from the bottom and shortly thereafter the stock market sold off. I think that any retracement in the dollar could be a leading indicator of a selloff in equites.
Another thing that stands out is gold. Gold has the biggest fundamental reasons for being higher during times of expected inflation, but then why did gold and silver create a cup and handle, when the regular markets did not? I think that gold could be a leading indicator for the rest of the market, as it has been for the past 18 months.