A LOT OF LEADING GROUPS HAVE REACHED OVERHEAD RESISTANCE BARRIERS INCLUDING THE NASDAQ, SEMICONDUCTORS, BASIC MATERIALS, AND CONSUMER DISCRETIONARY -- THAT SUGGESTS THAT SPRING RALLY MAY BE NEAR COMPLETION
NASDAQ AND CHIPS UP AGAINST RESISTANCE ... The rally from March 9 has reached a phase where further advances are going to be more difficult. That's because a number of groups that have led the spring rally have reached overhead resistance barriers. Technology is a good example. I've been writing about the likelihood that major market indexes could reach their January highs before this rally runs its course. Chart 1, however, shows that the Nasdaq Composite Index has already reached that target. Since the Nasdaq has been the strongest of the major market indexes this year, that represents an important test for it and the rest of the market. One of the strongest technology groups has been semiconductors. Intel has been one of the influential leaders in that group. Chart 2 shows Intel starting to meet resistance at its 200-day average. The 12-day Rate of Change (ROC) line below Chart 2 shows some loss of upside momentum. The same is true for the Semiconductor (SOX) Index shown in Chart 3. If the technology group, which has been helping lead the market higher, runs into selling, that's going to make further gains by other stock indexes more difficult.
Chart 1
Chart 2
Chart 3
MATERIAL AND DISCRETIONARY ETFS LOOK THE SAME... Two other spring leaders have been basic material and consumer discretionary stocks. Charts 4 and 5, however, show the Materials SPDR (XLB) and the Consumer Discretionary SPDR (XLY) trading at or very close to their January high. The XLY is also just shy of its 200-day moving average. Both remain in a short-term overbought condition as shown by the Commodity Channel (CCI) lines below both charts. Both CCI lines show short-term "negative divergence" as well. That suggests that most, if not all, of the spring rally is already complete. I'm doubtful that either of those two groups is strong enough to clear its 2009 high and 200-day lines at this juncture. Today's report that retail sales fell in March for the first time in three months is causing some profit-taking in that leading group. Chart 6 shows Retail Holders up against resistance at its Janury high and its 200-day line.
Chart 4
Chart 5
Chart 6
GOLDMAN SACHS UP AGAINST MAJOR TRENDLINE ... One of the stocks that typifies the recent runup in financial shares is Goldman Sachs. The stock has more than doubled in price since last November in a classic case of "buying the rumor and selling the news". Goldman ran up while the news was bad. The big brokerage stock is selling off today (on very heavy volume) right after last night's surprisingly strong earnings report (Chart 7). Although GS is still trading above its 200-day line, I doubt that it will stay there. Part of the reason why can be seen in Chart 8. The weekly bars show Goldman having reached a major resistance line drawn over the highs of the last eighteen months. It's also dangerously close the resistance at the low of last March near 140. It's retraced 50% of the decline from last spring and 38% of its decline from late 2007. That increases the odds that the spring rally in GS may be about done. That wouldn't bode well for the financial sector and the market as a whole. That doesn't rule out the possibility that the stock market is forming a major bottom. It means that there may not be much more more left in the current rally. The real test of the bottom hypothesis will come when stocks turn back down again and go through the inevitable retesting process. We may still be in the early stages of that bottoming process. As I suggested recently, seasonal factors turn more negative during May if the market holds up that long. The main message here is that this probably isn't the best time to chase the current rally if you're not in it already. There may be better opportunities at lower prices in the months ahead.
Chart 7
Chart 8
