$SPX MAKES ANOTHER NEW HIGH -- $COMPQ TESTS RIGHT SHOULDER LEVEL -- $NDX TESTS MARCH 6 HIGHS -- $INDU HOLDS ABOVE 16600 -- $RUT IS AT A MAJOR SUPPORT/RESISTANCE LINE -- APPLE BUYS BEATS FOR $3B, SPLITS STOCK, WWDC NEXT WEEK

THE S&P 500 MAKES A NEW HIGH. ... The S&P 500 ($SPX) shown in Chart 1 is climbing to a new intraday high for the third day in a row. This new high is supported by the French ($CAC) and German ($DAX) markets also making new highs this week. The Australian ($AORD) market has not made a new high this week but is also very close. The push higher on the S&P 500 above 1900 has forced short positions to be closed as the market moves higher. Now we need to see if we can get new buyers to add into the upside move.

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Chart 1

$COMPQ TESTS RIGHT SHOULDER LEVEL... One of the key principles of Technical Analysis is the principle of higher highs and higher lows as the definition of an uptrend. Downtrends are started by lower lows and lower highs. When the market reaches key levels after making lower lows, we need to focus on the price action around those previous levels. The Nasdaq Composite ($COMPQ) shown in Chart 2 typically leads in up trends but the investing community moves to the more stable S&P500 ($SPX) equities near market tops. One way to track those changes, is watching the divergence of the highs between the $SPX which is making new highs and the $COMPQ. Today, the Nasdaq Composite is at an important level because it is at the level where the Nasdaq topped in January, which makes it an important area for resistance. The price is testing the 'right-shoulder level' of the commonly seen head/shoulders formation. We do not know how the market is going to resolve the divergence, so it is an important time/ level on the chart to look for direction. We have a lower low, so now we are watching to see if a lower high forms. If not, everything is fine! If the market meets resistance here, it would add to our caution. Then we would watch to see if support continues to show up at the neckline.

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Chart 2

$NDX TESTS PREVIOUS HIGHS... Today, Chart 3 shows the Nasdaq 100 ($NDX) testing the previous highs, so this is a very important level. The Nasdaq 100 is an index of the top 100 Nasdaq stocks. A breakout on the $NDX would confirm the breakout in the S&P 500 to new highs if it can break out and hold.

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Chart 3

$INDU HOLDS ABOVE 16600... The Dow Jones Industrial Average ($INDU) on Chart 4 is trying to hold above the previous resistance level of 16600. This is a very important point because the market moved above the resistance level in mid May, but was not able to hold there. The trading range of 16400 to 16600 is now supportive. Should 16600 fail to hold, we would expect support at 16350 to 16400. That would be below the up trend line marked in blue, and below the 50-Day Moving Average (50 DMA). A break and hold above 16735 looks very bullish. This would also confirm the S&P 500 breakout.

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Chart 4

$RUT SITS AT MAJOR SUPPORT/RESISTANCE... Looking at one more index on Chart 5, the Russell 2000 ($RUT) is also at a major support/resistance level marked in orange. During the up trend of 2013, the 50 DMA was support. In February, the market made a much lower pullback below the 50 DMA. Now the 50 DMA has been the resistance level for the $RUT. With the 50 DMA pointed down with a negative slope, watching the price action at this level is particularly important. A break above the 50 DMA would be very valuable.

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Chart 5

The first day of the month has been a minor turning date on the $RUT almost every month since October 2013. As we head to June 2, 2014 on Monday, we need to watch Chart 6 closely for potential reversals. I have drawn a line at 1140 as the resistance line on the chart above, which is close to the centre line between the 1220 high (+80) and the 1080 low (-60). The battle for market direction is clearly in play. The arrows highlight the first of the month turns. With all of the indexes at such important support/resistance levels, the next few days should provide strong clues to show if the Nasdaq 100 and the Dow Jones Industrial Average can break out and hold new highs. We can see the March 1 and April 1 moves were particularly large.

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Chart 6

APPLE BUYS BEATS, SPLITS STOCK, WWDC NEXT WEEK... Apple (AAPL) will split on Monday 7:1. For every share of Apple, investors will now have 7 shares on Monday. Apple also announced their acquisition of Beats for $3B yesterday and Apple has their World Wide Developers Conference next week also. The price plot of AAPL in Chart 7 clearly has left the resistance area and is going higher. There is some resistance overhead at the dividend adjusted all time high of $676. Actual value was $705. This stock is currently under-owned by institutions according to recent filings. With Apple up 20% in the last month, there could be a lot more institutions adding it to the portfolio. I liked the move on the SCTR above 75, and now it looks promising to stay there for a while. June has historically been a good month to enter Apple.

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Chart 7

With the $NDX and the $INDU sitting close to all-times highs, a big thrust would really help the market here. I am focused on staying alert for directional moves in either direction. With the negative GDP print, it might be time to move up stops in the portfolio.
Good trading,
Greg Schnell, CMT