Despite Wednesday's dip into the red ink, we saw a few hints of bullishness that were well worth noting. Those higher highs weren't just a short-term rallies - we're flirting with a move into uncharted territories. Such moves are typically followed by strong follow-through, so today we'd like to go over exactly how close we are to breaking past our previous highs and making some major gains. Each major index has a unique chart, so we'll review them one by one.
S&P 500
Back at the beginning of the year, the S&P 500 hit a 52-week high of 1217.90. Since then, the closest we've come to reclaiming that level is with yesterday's high of 1215.79. The close at 1210.08 leaves us just about eight points shy of that new high, which is more than surmountable with one day's work. What makes this break past 1218 a little more likely is the momentum behind it. The SPX has been on a roll since late January, finding support at what has turned out to be an important intermediate-term support line (dashed). We're also seeing support at the 10 day line (not shown), but we urge you to plot the same dashed support line we've plotted on our chart - it will likely come into a play again, whether or not the index makes it past 1218. And if we do happen to get past 1218, don't be surprised to see a repeat of November and December. After all, a move to new 52-week highs was what prompted that rally. S&P 500 - Daily Chart
Dow Jones Industrial Average
Like the S&P 500, the Dow is on the verge of not only making new 52-week highs, but new four year highs as well. That's right - the last time the Dow was at these levels was in June of 2001. In fact, yesterday's high of 10,869.83 was a new multi-year high for the Dow. It just couldn't hang onto that gain, and pulled back to the close of 10,811.97. All the same, the recent move has been very impressive, and we can't expect this hurdle to be surpassed with perfection. That said, the high of 10,869 is suspiciously close to the previous high of 10,868 from late December. Odds are that the market had that level flagged as resistance, thus creating a self-fulfilling prophecy. The ironic part is that the longer it's treated like a resistance line, the stronger resistance it becomes. All the same, that's our line in the sand for the Dow. Also note that the Dow has an intermediate-term support (dashed) line of it's own. Keep that support line in your back pocket for down the road.
Dow Jones Industrial Average - Daily Chart
NASDAQ Composite
The NASDAQ has been the laggard all year long, and is nowhere near moving to new 52-week highs. That's not to say that there aren't bullish things about the chart though. For now, we'd be impressed if the NASDAQ crossed above the 50 day average, which is actually no small feat as we've seen over the last two weeks. That's where the composite got sent lower back on the 15th after hitting a high of 2103.45, and that's where yesterday's pullback started after we hit 2084.15. We can see that there's enough buying interest to actually get the index past that important line, but until that actually happens, caution is advised. The 50 day line is at 2085.68. The new 52-week high here is 2192, where the NASDAQ topped out on January 3rd. Like we said, it's not even part of the equation yet.
NASDAQ Composite - Daily Chart
So that's it. All of the charts are on the verge, but none of them are quite there yet. In a perfect world, we'd like to see all the indexes cross their respective milestones together. That may seem like a pipedream, but in this choppy, indecisive market, it's practically a requirement. We just need these charts to confirm each other, or we're likely to suffer more fakeouts like we've been through in the first two months of the year.
The only thing we'll add is that it's no coincidence that the NASDAQ has been less impressive than the large-cap indexes recently. This is something we expect to generally see more of this year as the bull market fully matures. In the meantime, you now have the key levels to watch on your charts.
Price Headley is the founder and chief analyst of BigTrends.com, which provides daily stock and options recommendations and education.
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