Market Bias Bullish, but Resistance Won’t Be Easy

By Monday, January 21, 2013

But Resistance Won’t Be EasyIt’s amazing how resilient the stock market has been in spite of the concerns toward the U.S. budgetary cuts and debt ceiling, the eurozone’s economic stalling and debt, and the overall earnings risk.

The New Year has started off with a bang, with small-cap stocks leading the pack, as the Russell 2000 is up 4.5% as of January 17. Small-caps will do well if the economy strengthens.

In technology, the NASDAQ was displaying a bearish death cross, with its 50-day moving average (MA) below its 200-day MA. But, with the recent moves, the NASDAQ is showing a bullish golden cross, as the 50-day MA moved above the 200-day MA, based on my technical analysis. In my view, technology stocks will continue to be a top growth area going forward. (Read “When You Need to Buy Technology Stocks.”

$COMPQ Nasdaq Composite stock market chart

Chart courtesy of www.StockCharts.com

The safer money will be with the blue chips, given the uncertainties, as the Dow is up nearly four percent in January.

The charts are showing promise and potentially more gains to come.

The NASDAQ, Dow, S&P 500, and Russell 2000 are all showing a bullish golden cross on their charts, with the 50-day MA above the 200-day MA.

The overall U.S. stock market is trending higher. About 72.3% of U.S. stocks are above their respective 200-day MAs, versus 60.8% a month earlier. On a short-term basis, 84.1% of U.S. stocks are above their respective 50-day MAs, versus 67.3% a month earlier.

Since breaking 1,400, the S&P 500 has been strong and is within 1.5% of a key level at 1,500.

Take a look at the upward move of the S&P 500 stocks to above the 200-day MA, more than 84.0% as of January 17, versus the 47.0%-level in mid-November.

$SPXA200R S&P 500 percent of stocks above 200day stock market chart

Chart courtesy of www.StockCharts.com

Plus, based on the seasonal trends, the November to April period has resulted in the biggest gains for the DOW and S&P 500, according to the Stock Trader’s Almanac. Technology has been better, with stocks advancing in the eight months from November to June.

The near-term target for the S&P 500 is 1,500, followed by its record high of 1,565, last reached on October 9, 2007. Since that time, the S&P 500 has failed to hold at 1,500 on several attempts as shown on the chart. I also sense it will not be easy this time around.

$SPX S&P 500 Large Cap Index stock market chart

Chart courtesy of www.StockCharts.com

So while there is market risk and volatility, if you trade the historical patterns, ride the gains, but make sure you take some money off the table.

The ability of stocks to hold is encouraging, but any major upside move will be met with resistance; a strong break could make 2013 another decent year of returns.

About the Author, Browse George Leong's Articles

George Leong is a senior editor at Lombardi Financial. He has been involved in analyzing the stock markets for two decades, employing both fundamental and technical analysis. His overall market timing and trading knowledge are extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi Financial’s popular financial newsletters, including Red-Hot Small-Caps, Lombardi’s Special Situations, Judgment Day Profit Letter, Pennies to Millions, and 100% Letter. He is also the editor-in-chief of a... Read Full Bio »