S&P 500 AND NASDAQ CLOSE IN ON RESISTANCE NASDAQ SHOWS RELATIVE STRENGTH SMALL-CAPS START TO LEAD LARGE-CAPS NEW LOWS CONTRACT AMAZON AND APPLE NEAR RESISTANCE
S&P 500 AND NASDAQ NEAR RESISTANCE ZONES... Today's Market Message was written by Arthur Hill. John Murphy will return tomorrow. - Editor
With the advance over the last few weeks, both the S&P 500 and the Nasdaq are closing in on important resistance zones. A lot is riding on these resistance challenges and, once again, I am turning to the Point & Figure charts for a clear picture. Chart 1 shows the S&P 500 with a lot of resistance around 1400 from the two prior highs (red arrows). A move above this resistance level would forge a triple top breakout. In addition, the red trend line extending down from the December highs confirms resistance in this area. This is also known as the bearish resistance line.
Chart 1
Chart 2
The Nasdaq broke above the red trend line extending down from the December-January highs, but still has considerable resistance just ahead. This resistance around 2400 stems from the two prior highs (red arrows). A break above this resistance level would also forge a triple top breakout. Also notice that the Nasdaq now has a rising blue trend line on its chart. As the bullish support line, this is the first level to watch for a break down. A bullish support line will emerge when/if the S&P 500 breaks its bearish resistance line (red trend line).
TECHS SHOW RELATIVE STRENGTH ... After leading the way down from November to February, the Nasdaq started showing relative strength in March. Chart 3 shows the Nasdaq (black), the NY Composite (pink) and the price relative, which compares Nasdaq performance against the NY Composite (red). These two indices make for a good comparison because there is very little overlap. Only a handful of stocks have duel listings. The Nasdaq is weighted towards the technology sector, while the NY Composite is heavily influenced by the finance sector.
Chart 3
Both indices moved to new lows in early March, but the Nasdaq recovered much better over the last three weeks. The NY Composite remains below its late February high, but the Nasdaq moved above this corresponding high (red arrow). In addition, the price relative ($COMPQ/$NYA) bottomed at the end of February and shot higher in March. The price relative rises when the Nasdaq outperforms and declines when the Nasdaq underperforms. This sharp rise shows relative strength in the Nasdaq, which indicates that techs are leading the charge over the last three weeks and the appetite for risk is growing. You can click this chart to see the settings and save it to your Favorites lists.
SMALL-CAPS ALSO STARTING TO SHOW RELATIVE STRENGTH ... Chart 4 shows the price relative comparing the performance of the Russell 2000 ETF (IWM) against the S&P 100 ETF (OEF). The Russell 2000 represents small-caps, while the S&P 100 represents large-caps. There is no overlap in these two indices. The price relative peaked in early 2007 and formed a lower high in early July. After a break down in late July, the price relative moved sharply lower as small-caps led the way lower. Small-caps were relatively weak until January, when the price relative reached its nadir.
Chart 4
The overall trend remains down, but the price relative is showing early signs of a trend change. First, the price relative surged to resistance from mid January to mid February. Second, the pullback held above the January low. Third, the bounce over the last few days was quite strong. A break above resistance would show renewed leadership from small-caps and this would be bullish for the market as a whole. You can click this chart to see the settings and save it to your Favorites lists.
NEW LOWS CONTRACT... New 52-week lows are still outpacing new 52-week highs, but the margin is shrinking. Charts 5 and 6 show the 10-day SMA of Net New Highs for the Nasdaq and the NYSE. Net New Highs equals new 52-week highs less new 52-week lows. A 10-day SMA was applied to smooth the data series. There have been four deep dips into negative territory since August. The deepest dip occurred in January - for both the Nasdaq and the NSYE. Despite further market weakness in March, the indicator held above its January lows in March and formed a positive divergence. Both the Nasdaq and the NY Composite moved to new (closing) lows in March. The higher low in the indicator shows that there were fewer new lows in March (less selling pressure). With the surge over the last three weeks, the indicator is making another run at the zero line. Look for a break into positive territory to show expanding new highs and lend some credibility to the current rally. You can click this chart to see the settings and save it to your Favorites lists.
Chart 5
Chart 6
APPLE AND AMAZON NEAR RESISTANCE... Apple (AAPL) and Amazon (AMZN) are two key components of the Nasdaq and the Nasdaq 100 ETF (QQQQ). Both are up sharply over the last few weeks, but both are also nearing resistance and the going could get tougher. On Chart 7, Amazon broke support with a sharp decline in January-February. The stock bounced in March with a return to the support break. This bounce also retraced 50% of the prior decline. There is a resistance zone around 75-80 and Amazon entered this zone over the last two days.
Chart 7
Chart 8
Chart 8 shows Apple with a similar setup. The stock broke support with a sharp decline in January and then bounced back to broken support in March. There is a resistance zone around 150-160 from broken support and the 38-50% retracements. Apple hit this zone over the last two days and this is the first big test since the March rally.
