THE S&P 500 IS WITHIN 2% OF 1000 RESISTANCE BARRIER AT NOVEMBER HIGH AND IN A SHORT-TERM OVERBOUGHT CONDITION --SO IS THE QQQQ WHICH HAS LED THE RALLY

S&P 500 NEARS 1000 RESISTANCE BARRIER ... I wrote recently that an upside breakout in the S&P 500 could push it back to the high of last November near 1000. It is now trading within 20 points (or 2%) of that potential resistance barrier. There's another reason why the 1000 level carries some significance for the SPX. The Fibonacci retracement lines in Chart 1 show the 1000 level to be a 38% retracement of the entire bear market from its October 2007 peak to its March 2009 bottom. In addition, the 1000 level would represent a 50% rally from its March bottom (which is the historical average for cyclical bull market rallies). Chart 2 shows another reason to be a bit more cautious at current levels. It plots the 14-day RSI line over daily SPX bars for the last year. It also shows the RSI line moving into overbought territory (over 70) for the first time since the spring rally started (from an oversold reading below 30). At the very least, the combination of those factors suggests that the market rally is getting a bit stretched on the upside.

Chart 1

Chart 2

POWER SHARES QQQQ NEARS MAJOR RESISTANCE... Last Friday, I wrote about the Power Shares QQQ Trust nearing potential overhead resistance around the 40 level. That level corresponds with the temporary bottom that formed during the first quarter of 2008. Broken support levels usually become new resistance levels on subsequent rallies. The QQQQ is based on the Nasdaq 100 which has led the rally since the March bottom. If it does run into resistance near 40, that might be enough to at least stall the market's summer advance.

Chart 3

COMMODITY CHANNEL INDEX SHOWS OVERBOUGHT CONDITION ... The Commodity Channel Index (CCI) is used to help determine short-term overbought and oversold conditions. An overbought reading exists above 100 which is the case for both the QQQQ and the S&P 500 as shown in Charts 4 and 5. A CCI close below 100 often coincides with a market pullback. Both charts also show that the best times to commit new money is when the CCI is in oversold territory below -100. At the very least, the current overbought reading on the CCI lines (along with other technical factors already mentioned) suggest that the current rally is over-extended and in need of a breather or a pullback. I'd be careful about committing new funds into either index at current levels.

Chart 4

Chart 5