JANUARY STOCK REBOUND CONTINUES -- STOCK INDEXES HAVE CLEARED THEIR 50-DAY MOVING AVERAGES -- OVERHEAD RESISTANCE LINES STILL HAVE TO BE TESTED -- INCLUDING THEIR 200-DAY AVERAGES

MAJOR U.S. STOCK INDEXES NEAR TEST OF OVERHEAD RESISTANCE ... All major U.S. stock indexes have exceeded their 50-day averages (blue lines). That still leaves their 200-day averages to contain the rally. But there are a couple of other resistance lines that still need to be tested. Chart 1 shows the Dow Industrials nearing a test of their 200-day average (red arrow). In addition, the falling trendline drawn over its October/December highs should also provided stiff overhead resistance. The Dow would have to clear both barriers to signal a major turn to the upside. The same is true of the other two major stock indexes.

S&P 500 CLEARS 50-DAY LINE: Chart 2 shows the S&P 500 also clearing its 50-day line. It too appears headed for a test of its three-month down trendline, and possibly its 200-day average. The SPX is also climbing above its 50% retracement line measured from its October high to its December low (see horizontal Fibonacci retracement lines). That suggests a possible test of the upper 62% retracement line. That makes for three potential overhead resistance barriers to contend with.

NASDAQ RISES ABOVE RESISTANCE LINE: Chart 3 shows a similar situation for the Nasdaq Composite Index, but with one exception. The COMPQ has already cleared its three-month down trendline. But it too remains below its 200-day moving average (red arrow) and its overhead Fibonacci retracement lines. To chartists like me, the main question is whether the current rally is the start of a new upleg for stocks, or a bear market rally. Longer range charts favor the bear market scenario. The answer to that question, however, depends on how far the January rally carries, and whether it can clear the overhead resistance barriers shown on the charts.

Chart 1

Chart 2

Chart 3