A Struggle at Resistance

 | Jan 18, 2012 | 6:00 AM EST
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At least now we know why the bulls shouldn't have been too complacent on that move up.  

It is now clear that, for the S&P 500, the overhead resistance I have been discussing of late -- at 1300 -- continues to be an issue on the index's first time up. But, while it is struggling, the Dow is having even more trouble getting through the 12,500 area, which I have noted for the past two weeks.

What I find even more interesting is that the number of stocks making new highs just simply cannot expand. Again, during Christmas week there were 213 new highs on the NYSE. One week later, with the S&P at a higher high, there were 202. The week after that, there were 150. On Tuesday, finally, there were 139 new highs.

I am certain you don't need a chart to see the trend, but clearly this is not the direction in which this indicator should be heading. So the S&P has rallied 3% since late December, and there has been a decline in the number of stocks making new highs. I believe this says individual stocks are having trouble at resistance along with the major averages.

Number of Stocks at New Highs -- NYSE

The market remains in overbought territory. I continue to believe that this particular reading is more similar to the one we saw in November than it is to any of the other recent overbought conditions.

Overbought/Oversold Oscillator -- NYSE

The 30-day moving average of the advance-decline line is also moderately overbought. I expect this will head down for three to five more days, and then get back toward the upside. It is not yet at maximum-overbought; that situation is set to arrive sometime after the Federal Reserve meeting next week. If, by then, this indicator cannot boast reading that's higher than the November reading, then this intermediate-term indicator will be flashing a negative divergence.

30-Day Moving Average of the Advance-Decline Line

Meanwhile, the McClellan Summation Index continues to rise. Still, note that this indicator -- just like the 30-day moving average of the advance-decline line -- has not yet made a higher high vs. November. We have not seen a harsh down day in the market since late December. But if one does occur, along with an advance-decline-line reading lower than negative 1500 (advancers minus decliners), that will halt this indicator's rise. We'll watch for a higher high or a lower high if and when it turns down.

McClellan Summation Index

Keep in mind that breadth continues to make higher highs, which is bullish. Another indicator that  just made a higher high, as I noted Tuesday, was the Nasdaq High-Low indicator -- and we know higher highs need to be retested at some point.

The real issue is that there is resistance overhead, and we're seeing complacency in an overbought market. If the market can correct that by backing off and re-rallying -- that is, if we get the market to have a running start -- then we'll see what support really lies below and if this resistance will continue to matter.


Overbought/Oversold Oscillator -- Nasdaq

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