RESISTANCE ZONES FOR THE NASDAQ AND S&P 500 -- XLF HITS RESISTANCE -- BAC AND JPM ALSO HIT RESISTANCE -- USO SURGES -- XLE AND OIH SURGE ON LOW VOLUME -- BBH SHOWS RELATIVE STRENGTH -- BIOTECH LEADERS

S&P 500 AND NASDAQ POINT & FIGURE CHARTS... Today's Market Message was written by Arthur Hill. John Murphy will return tomorrow. - Editor

The S&P 500 and the Nasdaq achieved double top breakouts on their Point & Figure charts, but resistance zones are not far and further gains could be limited. Charts 1 and 2 show Point & Figure charts for the S&P 500 and the Nasdaq. Both triggered double top breakouts on 24 Mar. The green boxes show the X's that triggered these breakouts. Notice that the S&P 500 also broke the bearish resistance line (red trend line), which extends down at a 135-degree angle. P&F trend lines are not based on reaction highs or lows. Instead, ascending trend lines are drawn at 45 degrees and descending trend lines are drawn at 135 degrees.

Chart 1

Chart 2

While these breakouts are positive, both indices rose substantially over the last few days and resistance zones are getting close. The Nasdaq is up over 7% from its March lows and the S&P 500 is up over 5% from its March lows. Broken supports and the February highs combine to mark resistance zones (red rectangles). The S&P 500 has a resistance zone around 1390-1410, while the Nasdaq has a resistance zone around 2380-2420. With the S&P 500 currently trading around 1340 and the Nasdaq around 2310, both are 4-5% from these resistance zones. With both up 5-7% already, the resistance zones suggest that this advance is halfway over - provided the advance continues.

XLF BACKS OFF RESISTANCE... The Finance SPDR (XLF) led the market lower by losing over 3% on Wednesday as Oppenheimer cut earnings estimates for four of the biggest banks. The decline over the last few days reinforces resistance and keeps the overall downtrend in place. After gapping higher last week, the ETF surged above its 50-day moving average with a big move over the last few days (Chart 3). XLF has resistance around 27 from the falling 50-day moving average and the late February high. In addition, the trend line extending down from the December high marks resistance around 27.5. The ETF stalled on Monday-Tuesday and then declined on Wednesday. The overall trend is clearly down as long as resistance at 27 holds.

Chart 3

BAC AND JPM FAIL AT RESISTANCE... Two key components of the Finance SPDR also met resistance earlier this week and fell back over the last two days. Bank of America (BAC) surged above 42 on Monday, but met resistance from the falling 200-day moving average and February highs around 43-44 (Chart 4). The pullback over the last two days reinforces resistance at 44. Despite last week's show of strength, a breakout is required to fully reverse the current downtrend. JP Morgan (JPM) is in a similar boat. Chart 5 shows the stock surging to resistance for the third time in the last five months. Even though the stock cleared its 200-day moving average, the resistance zone around 48-49 is the real hurdle for the bulls. The stock forged a lower low in March and it will take a higher high to signal a trend reversal.

Chart 4

Chart 5

OIL SURGES... Weakness in the U.S. Dollar Index ($USD) and a report showing a drop in gasoline inventories sparked a big rally in crude. Oh yeah, perhaps I should also mention that the United States Oil Fund ETF (USO) hit support from broken resistance. Last week, I showed a chart for USO with a support zone that stemmed from broken resistance. On Chart 6, the ETF hit the top of that support zone, firmed and then surged higher today. This reinforces support around 80 and keeps the uptrend alive.

Chart 6

XLE AND OIH SURGE ON LOW VOLUME... Unsurprisingly, the Energy SPDR (XLE) and the Oil Service HOLDRS (OIH) also surged on Wednesday. However, a bit of caution is warranted because volume in both ETFs was relatively low. On Chart 7, XLE moved back above its key moving average with a surge over the last three days, but volume was below average each of the last three days. The ETF also remains below the trend line extending down from the late February high. Volume and a breakout are needed to lend some validity to this surge. Chart 8 shows the Oil Service HOLDRS (OIH) forming a falling flag over the last few weeks. The surge over the last three days is quite impressive on price, but lacking in volume. As with XLE, volume and a breakout are needed to validate the bullish case.

Chart 7

Chart 8

BIOTECHS SHOWS SOME STRENGTH... After holding up quite well in late February and early March, the Biotech HOLDRS (BBH) flexed its muscles with a surge over the last four days (Chart 9). The surge started with a gap and high volume advance in late February. With the four day move, BBH is back above its key moving averages and showing good relative strength. The bottom indicator is the price relative, which shows the performance of BBH relative to SPY. BBH shows relative strength because this indicator has been moving higher since January. The top indicator shows On Balance Volume (OBV), which adds volume for up days and subtracts volume for down days. The sharp move higher over the last 4-5 weeks shows strong buying pressure that validates relative strength in the ETF. Support is set at 164 and a move below this level would throw cold water on the bullish case.

Chart 9