Raising My Outlook to 'Neutral/Positive' Amid Improving Market Technicals

 | May 10, 2018 | 10:12 AM EDT
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The market's major indices have finally broken out of their sideways patterns sufficiently to alter my near-term outlook from "Neutral" to "Neutral/Positive," with the caveat that recent gains might see some retracement due to high stochastic levels.

We finally saw some breaks above resistance Wednesday that moved the big indices out of their prior sideways patterns and into near-term uptrends. The S&P 500, Nasdaq Composite, Nasdaq 100, S&P MidCap 400, Russell 2000 and Value Line Arithmetic Index all violated upside resistance on a closing basis, with the SPX closing back above its 50-day moving average as well:

Both the Dow industrials and Dow transports also closed above their 50-DMAs, but were unable to break resistance. Here's the Dow-30 chart:

And here's the Dow transports' chart:

Since neither broke through its upside resistance on Wednesday, both remain in neutral/sideways patterns. However, the rest of the market's major indices are all now in near-term uptrends.

The main reason for my not being even more positive on the market is that we now find all of the indexes with the exception of the Dow Transports at overbought levels on their stochastic readings. These stochastics can stay overbought for extended periods, but might also imply a potential retracement of recent gains.

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