The S&P 500 retrenched below a chart top at 1,225 to 1,130 last Thursday, but managed to bounce back on Friday. The DOW and NASDAQ are managing to hold just above their chart tops. Markets are trading at a critical juncture. Should the chart tops be broken, we could see a downside move back towards the 200-day moving average (MA).
The bullish investor sentiment is clearly helping stocks, but you need to watch the overbought condition. A “Death Cross” continues to be in effect, where the 50-day MA is below the 200-day MA.
The near-term technical picture remains bullish, but watch for some selling pressure due to the overbought condition.
The trend of the NYSE New-High/New-Low (NHNL) had been bullish, with 50 of the last 54 sessions bullish. The near-term trend is positive. In the technology area, investor sentiment on the NASDAQ has been mixed, with only 28 bullish readings since May 6; but the past 12 straight sessions have been bullish.
My near-term technical assessment based on September 23 data is as follows:
The near-term technical picture is bullish, with above-average Relative Strength (RS), so there could be further upside moves in the near term. The index is holding at the chart top at around 2,320. Market breadth has been edging higher.
The NASDAQ is above 2,300, along with its 50-day MA of 2,226 and 200-day MA of 2,276. Be careful, as the 50-day MA remains below the 200-day MA. The index is overbought.
The near-term technical picture for the DOW is bullish, as is the RS, so watch for additional upside moves.
The index is above its 50-day MA of 10,370 and its 200-day MA of 10,455. Be careful, as 50-day MA is below its 200-day MA. There is a bottom at around 9,800 on the chart. The index is overbought.
In the broader market, the near-term technical signals for the S&P 500 are bullish on above-average RS, so there could be more gains in the near term.
The index is above its 50-day of 1,093 and 200-day MA of 1,116, along with a chart top at around 1,125. Watch the key support at around 1,040 on the chart. Be careful, as the 50-day MA is below its 200-day MA. The index is overbought.
The near-term picture for the Russell 2000 is bullish on above-average RS. The index trades with the economy. The index has rallied back to above the 50-day MA of 632 and 200-day MA of 647. There is some topping on the chart at around 675. The index is overbought.
In all, while the near-term picture is bullish, watch for continued resistance as stocks move higher. For any hope of sustainable gains, we need to see stronger trading volume and higher moves to validate the breakout. Some technicians are calling the breakout a bullish inverse “head and shoulders” formation, which is evident on the chart of the S&P 500. Absent are the strong volume and a three-percent move above the neckline, which defines a valid breakout. Be careful and let’s see what unfolds over the next few days or weeks.
Continue to be careful here and do not chase stocks.