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Markets Are Running Out of Time

It is taking far too long to break out of a rather shallow zone of resistance in each of the major indices


Losses in China’s markets, as a result of the government’s attempts to cool the rapid rise in housing prices, led to a slow start on Monday for U.S. stocks. The Dow ended the day up only 0.3%, but with its second highest close ever and just 37 points below a new high.

Most of the news was from Asia with the Shanghai Composite plunging 3.7%, its biggest fall since August 2011. The measures designed to cool down a housing bubble include higher down payments and higher mortgage rates. In response, the Fed vice chairwoman said that she “supports keeping economic stimulus efforts in place for the foreseeable future.”

At the close, the Dow Jones Industrial Average was up 38 points to 14,128, the S&P 500 rose 7 points to 1,525, and the Nasdaq closed up 12 points at 3,182. The NYSE traded 692 million shares and the Nasdaq crossed 411 million. Advancers outpaced decliners by 1.2-to-1 on both major exchanges.

DJI Chart
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Trade of the Day Chart Key

At the risk of being downright boring, I’m again including this chart of the Dow Jones Industrial Average. It is so close to a new high that the chart action is worth reviewing.

What I’d like to see is a massive leap through the top of the bearish horn supported by volume of over 1 billion shares and breadth greater than 3-to-1. I’d also like to see the RSI internal indicator confirm that new high. Needless to say, not a single supportive breakout feature may be found on this chart.

NYSE Chart
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Following December’s breakaway gap, the NYSE Composite headed to a new high, which was confirmed by its RSI. However, at the top the index consolidated into a rectangle and then fell into a pennant — all the while breaking its near-term bullish support line.

SPX Chart
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Focusing on the last two weeks of the S&P 500, note first the tops at 1,530.94 — exactly the same high in successive days, the first on the close, the second an intraday reversal high. That is now a significant resistance point.

Now note the third test of what has become a significant point of resistance at 1,525. Tests of specific numbers usually occur three to five times. The market has two more tries at this number, and then 1,530.94. If it fails to jump through this area with gusto, look out below.

Conclusion: It is taking far too long to break out of a rather shallow zone of resistance in each of the major indices. The NYSE has broken its near-term support line, as has the Nasdaq (not shown). Although the intermediate-term and long-term trends are in bull markets, the near term is in doubt. Further, the Dow and the S&P 500 are running out of time. If they fail now look for a fall and quick test of the intermediate-term trendlines, which we will examine tomorrow — unless they leap forward today.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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