The Nasdaq is riding the upper channel line. Like the Russell 2000, Nasdaq stochastics are heavily overbought. On-Balance-Volume has also been consistent with accumulation. Although my #sectorbreadth studies are showing weakness in Technology stocks.
Nasdaq Breadth will see a challenge on bearish divergences in the Percentage of Nasdaq Stocks above 50-day and 200-day MAs. Should these break higher next week it will set up for similar upside moves in the Nasdaq Bullish Percents and Nasdaq Summation Index. Although a failure to do so would suggest Friday's recovery was just a sympathetic move to Small Caps gains, and not a strong move on the part of sideline money to buy Technology stocks.
In more mixed news for bulls is the Percentage of New Highs and Lows for the indices. For both the S&P and Nasdaq the percentage of new highs has dropped considerably, something consistent with a mid-phase rally, not something which typically marks a major top. Likewise, the decline didn't bring a spike in new lows - so no major bottom either.
The S&P has been riding channel support. It too has excellent long term technicals (Stochastics and On-Balance-Volume), although the MACD trigger histogram is negative. But traders looking for a buying opportunity could play for a long trade from channel support to channel resistance.
Despite been a rally which is long in the tooth, last week's action suggests bulls have more to offer. Until proven otherwise (i.e. confirmed breaks of the 2012-phase trend), it's hard to justify a position against this flow.
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Dr. Declan Fallon is the Senior Market Technician and Community Director for Zignals.com.
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