Saturday, October 17, 2015

Wedging Into Resistance

The Market Trend Model (data sheet) maintains its positive bias as the stock market continues to wedge higher on ever decreasing volume. As I stated nearly three weeks ago when the current rally began, "At the moment the stock market has stabilized at current price appears the sellers of stocks are all sold out.  I would expect a natural 'reaction rally' to occur over the next few weeks with the market indexes drifting higher into areas of resistance."

Now that the stock market indexes have moved higher and closer to the price levels where the August "break" occurred, I would expect the current rally to stall out in fairly short order as market indexes like the Nasdaq and the S&P 500 move into their respective 200-day moving averages.

A lack of true leadership adds to the prospect that this three-week wedging rally may be about to run out of juice.  According to Louise Yamada Technical Research Advisors founder, "What we are seeing now is leadership in a lot of depressed stocks...while we're rallying we're seeing deterioration in some of the [former] leaders, one would suggest those rallies are not sustainable..." (aritcle).

The Nasdaq (weekly chart) shows 4,960 as an area of resistance, the Nasdaq-100 (weekly chart) shows 109 as an area of resistance, the S&P 500 (weekly chart) shows 2,080 as an area of resistance, and the Russell 2000 (weekly chart) shows 120 as an area of resistance.

The next few weeks should certainly be interesting as the meat of earnings season gets underway. While positive seasonality, current earnings, and future guidance remain as possible positive catalysts for stocks, slowing economic growth and overhead resistance continue to cause concern for any prolonged market rally. As always I remain mindful that anything can happen from one day to the next.