MARKET AVERAGES NEAR RESISTANCE BARRIERS AND ARE LOOKING OVERBOUGHT

DOW INDUSTRIALS REACH 10700 BARRIER ... Some of the major market averages have reached important resistance levels which represents a moment of truth for the market. The Dow is a good example. It's trading over 10,700 today which puts it right up against the highs formed from July through September. At the same time, the 9-day RSI line has moved over 70 for the first time since the summer which represents short-term overbought territory. The MACD histogram bars, while still bullish, are also at the levels reached over the summer. That simply suggests that a short-term pullback from the 10,700 level wouldn't be surprising and wouldn't necessarily upset the Dow's advance for long. A decisive close over the summer highs would represent a bullish breakout for the Dow and would suggest a further advance toward its spring high at 10984.

Chart 1

S&P 500 ALSO LOOKS EXTENDED ... The S&P 500 hasn't reached chart resistance at its August/September highs yet, but has reached a resistance line drawn over those two peaks. That may also act as a short-term resistance barrier. The two adjoining indicators look similar to the Dow chart. The 20-day Commodity Channel (CCI) Index is currently in overbought territory over 100. The MACD lines, although somewhat extended, are still positive. The market has had a pretty strong run since the middle of October and may still have a ways to go before the yearend rally is over. Over the very short-run, however, it may have risen too far too fast and may be in need of a pullback or some consolidation.

Chart 2

NASDAQ REACHES OVERBOUGHT TERRITORY ... The Nasdaq has been leading the rest of the market higher which is a good sign. But it too looks somewhat overbought over the short-run. Chart 3 overlays a 9-day RSI oscillator on the Nasdaq Composite Chart. It shows the Nasdaq having moved into overbought territory over 70 for the first time since early August. That doesn't tell us too much about the ultimate direction the Nasdaq will take as it nears the highs reached earlier this year. It does suggest, however, that like the rest of the market, the Nasdaq may be in need of a short-term breather.

Chart 3