Scanning the headlines is always entertaining! The diverse advice offered to investors is what makes the markets… well, the markets. For every seller there has to be a buyer, and for every buyer there has to be seller. Differences of opinions is what makes the market work essentially. If everyone thought the same way there would be a lot fewer transactions and volatility would never exist. As another week of trading comes to an end I want to look at a few charts that are at key decision points relative to the current trend. It is important to note there is plenty of room for the markets to test or pullback and remain in the current trend. Thus, the upside opportunities are still there, but the risk of the opportunities has risen in proportion to the trend.
The first chart below is the Dow Jones Industrial Average. The uptrend remains in play off the October lows and the volatility has dampened considerably over the last eight weeks. The 30 day moving average is tracking the trendline and the outlook is positive. There is plenty of talk about moving through the 13,000 level, but that is more a number than a resistance point for the index currently. 13,130 is the level I am watching for now. Respect the trend and if the broad markets do pullback, look to hold the trendline or 30 day moving average as support. That would offer an opportunity relatie to the index.
The chart of the S&P 500 index does show resistance at the high water mark from 2011. This is like watching and waiting for water to boil. The index is close to breaking higher, but the real question… what is the catalyst or driver to keep it moving higher? The trendline is similar to that of the Dow and volatility of the move has been slow and steady since the mid-December test. The break higher is where all eyes are focused short term. Mine are more concerned about why and what will be the driver for the upside to continue? Test of the trendline or the 30 day moving average is the opportunity.
The chart of the SOXX index is of interest as technology has been one of the primary leaders in move off the October lows. The large cap technology stocks, i.e. Apple have been the drivers for the broader NASDAQ index. However, the test of the trend in December shows the Semiconductors as the key leadership for the advance of technology over the last eight weeks. The challenge is they have been struggling of late as the chart below clearly shows. The trend has slowed, but it couldn’t maintain the degree of the vertical move. There hasn’t been any major technical breakdowns only slowing momentum. The test of support near the 418 level has held and the trend remains in play. However, you do have to set your stops and worry about a trend reversal. Be patient, give it room and look for the sector to hold support and continue the uptrend short term.
Finally the small cap index is clearing showing resistance at the 465 level. The index has provided solid leadership and the January effect of the sector has been solid and true in 2012. The resistance at the 465 mark is key as the index would set a new high. Stepping back and looking at a weekly chart shows the significance of this level to the sector overall. The volatility has picked up over the last two weeks of trading due to some shorting activity, but it is still a key player in the current trend. A break through this level would be key for the broad markets overall.