My Technical Perspective on the Market
— “Calling the Trend” Column, by George Leong, B. Comm.
The technical picture looks pretty good at this time, after we hit the one-year anniversary of the March lows in 2009. Small-cap stocks are leading the broader market, with the Russell 2000 up seven percent at a new 52-week high and 57% from its March 2009 low. The NASDAQ and S&P 500 are up 3.12% and 2.23%, respectively, for this year, and up 85% and 71% from its March low. Unlike the last several years, U.S. markets are outperforming Chinese stocks, as the benchmark Shanghai Composite Index is down seven percent.
The overall market is edging higher, with 84% of U.S. stocks above the 200-day moving average (MA) as of March 10, versus 80% a week earlier and 69% a month ago. The rally in stocks in February and March has been a turnaround from the negative January.
The momentum has been driven by excellent market breadth and bullish investor sentiment. Breadth on March 5 was the strongest reading since July 15, 2009. Investor sentiment is extremely bullish. The S&P 500 VIX is low at 17, an indication of market calm and lower volatility.
Now let’s take a more in-depth look at the markets from a technical perspective.
On a positive note, investor sentiment continues to be bullish and this will offer buying support to stocks. Investor sentiment as reflected in the new-high/new-low (NHNL) ratio on the NYSE has been bullish in 224 of the last 229 sessions (98% during this time) back to April 9, 2009. The readings have been extremely bullish at over 90% since July 14, 2009, when the DOW was trading at 8,359 and NASDAQ at 1,799. In the technology area, the NASDAQ had been bullish in 186 of 229 sessions, or 79% of the time.
In technology, the NASDAQ is holding above 2,200 in a “V” shape formation. I expect to see some cautious and perhaps sideways trading in the near term, as the index moves towards 2,400.
The near-term technical picture is moderately bullish with above-average Relative Strength, so we could see more near-term upside moves.
Market breadth as indicated by the advance-decline line (A/D) has strengthened, with eight of the last 10 sessions above 1.0. The chart is near-term bullish.
The NASDAQ is above its 20-day MA of 2,188 and 100-day MA of 2,187. The index is holding above its 200-day MA of 2,049. The index is overbought. The near-term upper target is 2,400.
On the blue-chip side, the DOW is holding above 10,000 and looking at extending higher towards the previous high, as it is within 1.89%.
The near-term technical picture for the DOW is moderately bullish with above-average Relative Strength. The DOW is above its 20-day MA of 10,192 and its 100-day MA of 10,233. The near-term target is the four-week high of 10,719. Watch, as the index is overbought.
In the broader market, the near-term technical signal for the S&P 500 is moderately bullish, with above-average Relative Strength. The S&P 500 is above its 20-day MA of 1,087 and its 50-day MA of 1,108. Lower support is at key support of 1,060 to 1,080. Upper resistance is at a 52-week high of 1,150. Watch, as the index is overbought.
The market leader has been the small-cap area. The near-term picture for the Russell 2000 is moderately bullish, with above-average Relative Strength. The index is above its 20-day MA of 611. Lower support is at the 200-day MA of 575. In the near term, watch for resistance at 696.