Market Indices Rally, but You Should Remain Cautious
Monday was an impressive day for stocks with the S&P 500 and NASDAQ on a technical level, as both indices rallied back above their respective 200-day moving averages (MA) and the highest level in a month. All four of our key stock indices are now back above their respective 50-day and 200-day MAs and are positive on the year. While the indices continue to be down from their 52-week highs, between 5.61% for the DOW and 11.28% for the Russell 2000, the ability to rally and hold is encouraging. However, you need to be careful, as the 50-day MA remains below the 200-day MA with all four indices. Also watch, as there is some topping on the market charts. A strong break above on rising volume is critical.
The chart tops are as follows:
Russell 2000 — 675
NASDAQ — 2,320
DOW — 10,650
S&P 500 — 1,125
The trend of the NYSE new-high/new-low index had been edging higher, with 17 of the last 18 sessions bullish. The near-term trend is positive. In the technology area, investor sentiment on the NASDAQ is mixed, with only 17 bullish readings since May 6.
The near-term technical picture is bullish on above-average Relative Strength (RS), but the index needs to break 2,320 in order to gain ground.
The NASDAQ is above 2,200 and its 50-day MA of 2,225 and 200-day MA of 2,263. Be careful, as the 50-day MA remains below the 200-day MA.
The near-term technical picture for the DOW is bullish, with above average relative strength (RS), so there could be further upside moves in the near term. The DOW is holding above its 50-day MA and 200-day MA. Be careful, as the 50-day MA is below its 200-day MA. There is a bottom around 9,800 on the chart.
In the broader market, the near-term technical signals for the S&P 500 are bullish, with above average RS, so there could be more gains. The S&P 500 held above the key 1,040 level and rallied above its 50-day of 1,082 and its 200-day MA of 1,114. The upward break is positive. There is key support around 1,040 on the chart. Be careful, as the 50-day MA is below its 200-day MA.
The near-term picture for the Russell 2000 is moderately bullish on above-average RS, so the index could see upside moves. The index trades with the economy. The index is above its 200-day MA of 640 as well as its 50-day MA of 638. Watch for key support at 600. There is some topping on the chart around 675.