NASDAQ Commentary

The NASDAQ composite led Wednesday's charge with a 0.63 percent rally.  The 15.5 point gain left the index at 2459.33 by the end of the session.  For the week, so far, that means a gain of 1.03 percent, as the NASDAQ is 25.08 points above the previous week's closing level.

You'll find that the same basic ideas we lay out for the NASDAQ's chart will be repeated as we go through charts for the S&P 500, as well as the Dow.  But in all cases, it's worth a close look.

One of those common themes is just trying to define whether or not the last several weeks was just a temporary stagnation of a longer-term bull trend, or an early warning that the Bulls are getting tired, and may be ready to yield to the Bears.

The ironic part is that the market's usual leader - the NASDAQ - has been struggling the most since mid-November.  This week though, it's been going like gangbusters, as it did last week.  The 50-day moving average (purple) appears to have been a springboard, pushing the composite well past its 10- and 20-day moving average lines, even creating a 10-day line cross above the 20 day average.  That's a new, fresh buy signal. For that matter, we also got a bullish MACD cross just yesterday.  As if that weren't enough, the recent strength has also had some very nice volume behind all the buying.  All in all, that's strong evidence that the Bulls are fully back in action. 

However, there's one last barrier we'd like to see crossed before being totally convinced.  That is, we need to see a new high. The line in the sand is currently 2470, where we peaked in mid-December.  It's a simple as that. With yesterday's close just about 10 points under that level, we'd say it's within one days striking distance, so the wait may be a short one until we get our answer. But as we said, it sure looks like the Bulls are back in charge of the NASDAQ's chart.

NASDAQ Chart 

S&P 500 Commentary

On Wednesday the S&P 500 closed at 1414.85 after gaining 2.75 points (+ 0.19 percent).  For the week that translates into a 5.15 gain so far, which is 0.37 percent above last Friday's close.  While the numbers are positive, we're still a little hesitant to buy in just yet.  On the other hand - and just in the interest of full disclosure - we actually went bullish yesterday in the market timing call we make for service subscribers.  All the same, there are a couple of arguments both the Bulls and the Bears could make.  We'll look at both sides today.

We have to acknowledge that the S&P 500 found pretty good support at its 50 day moving average line.  It's currently at 1402, which just happened to be Wednesday's low.  The moderate move higher pushed the index up to its 10 and 20 day moving averages.

At the same time, it appears as if the VIX has indeed hit a short-term top around 12.8.  If the VIX can't go any higher right now - and it appears that it will be challenged as such - then perhaps this unlikely trend can indeed continue, making last week's dip just a short rest stop for the market.

On the other hand, there are still a couple of issues were facing that might give the Bears at least a little hope.  Specifically, despite the fact that the index is challenging its 10 and 20 day moving averages again, it's not as if we've actually made a strong move above those lines.  Moreover, the 10 day line is now under the 20 day line...for the first time in months.  On top of that even, the SPX remains under the straight line support that extends back to August.

All were saying here is that the jury is still out, for strict technical analysts.

S&P 500 Chart

Dow Jones Industrials Commentary

The Dow Jones industrial average basically mirrored the S&P 500 on Wednesday, gaining 0.2 percent to the end the day at 12,442.  That was 25 points above Tuesday's close.  That close also happens to be 44 points above last week's close, so the blue-chip index is 0.35 percent above where we ended last Friday.  Like the S&P 500, it's not as if the Dow is falling apart.  However, it's also not as if it's overly impressive right now.

Much like S&P 500, the key line in the sand right now is going to be the 50 day moving average (purple).  It's not actually been touched yet, but appears already to have a support quality... at least enough to push the Dow back above the 10- and 20-day moving average lines yesterday.

The tough part is (again much like S&P 500) that the Dow is also under its long-term support line.  That in itself wouldn't be such a red flag if it weren't for one thing... we're actually sitting on our fourth bearish MACD crossunder in less than three months.  Of course, the Dow has gone higher during that time -- just to throw a wrench in the works.

So there are two interpretations we can deal with here.  The first is the possibility that the last several trading days were just a short-term break within a long-term up trend, and we're now ready to continue upward.  The second possibility is that the slowing pace we've seen over the last few weeks is the warning sign that the Bulls have run out of steam.

Thus, we remain between a rock and a hard place here as well.

Given the way that the NASDAQ has again assumed a leadership role in the rally, we have to give the edge to the Bulls for the time being.  It doesn't hurt the matter when the Dow continues to make gains - even if minor - in the face of those MACD crossunders.

We look forward to bringing you Saturday's weekly market outlook as we should have some better definition on the chart by then.

Dow Jones Industrials Chart

Price Headley is the founder and chief analyst of BigTrends.com.