Sunday, January 13, 2013

Weekly Market Commentary: Getting A Little Toasty

In the short term, we are fast approaching a swing high for new 52-week highs in the NYSE and NASDAQ; the latter exchange to a lesser extent.  When this happens markets typically ease back, but this does not necessarily mark a major top (major tops tend to develop after a divergence in this breadth indicator, which is some way off here).


The Nasdaq Percentage of Stocks above the 50-day MA is also heavily overbought, although this indicator can peak weeks in advance of the actual top in the Nasdaq.


The Nasdaq Bullish Percents takes out the last swing high, but hasn't yet challenged declining resistance.  Technicals not overbought either (=> the Nasdaq rally still has room to run).


Similar story for the Nasdaq Summation Index. Major swing highs typically occur when this breadth index cracks above 500, although a sub-zero high last summer did lead to big downdraft. However, action in this breadth index still favors bulls.


The Nasdaq is on course to challenge 3,200 resistance before the inevitable downleg develops (assuming 3,200 plays as resistance...)


The Russell 2000 remains the index of choice for bulls. The breakout is nicely holding on improving technical strength.


The S&P is on the verge of a breakout.  Technicals are net bullish.


While the Nasdaq is getting close to a top as measured by the number of 52-week highs and the Percentage of Nasdaq stocks above the 50-day MA, there is still room for further upside in the index.  Resistance doesn't kick in until 3,200, and even then, momentum is very much on the bulls side.  As long as the Russell 2000 holds its breakout, both the Nasdaq and S&P are likely to follow.  The S&P could break higher next week - any move higher will do it!

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Dr. Declan Fallon is the Senior Market Technician and Community Director for Zignals.com. I offer a range of stock trading strategies for global markets which can be Previewed for Free with delayed trade signals. You can also view the top-10 best trading strategies for the US, UK, Europe and Rest-of-the-World in the Trading Strategy Marketplace Leaderboard. The Leaderboard also supports advanced search capability so you can tailor your strategies to suit your individual requirements.

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