8/17/2012
By Jeffrey S. Weiss, CMT

LOOK OUT ABOVE...We couldn't think of a more appropriate title given the Standard & Poor's 500 Index finish last week in relation to our oft mentioned region of import surrounding 1400. This (weekly closing basis) investment resistance zone is again featured on the (top) chart below, containing three lines. Of that trio we'd assign the most technical import to the solidly drawn one, extending back to July of 2006. Note the S&P's failed retest of that line (arrowed) back in August of '08, prior to its 38% slide to its November weekly closing trough that year – in a span of only 14 weeks. That trend line is presently located in the vicinity of 1425 and continues to offer what we think is some key overhead resistance on a weekly closing basis.

If the "500" can overcome this barrier, and then successfully test it in on any subsequent (weekly closing) reactions, the bulls will have transformed it into one of potentially key support. The down trending line drawn off the S&P's all-time weekly closing high (near 1561) has been mildly bettered at this writing, but the most serious test still lies ahead.

The broad based (weekly closing basis) Dow Jones U.S. Total Stock Market Index graph is also featured below, on which two dashed trend lines form a "triangle" type pattern several years in the making. We'd like to see it favorably resolve this formation to confirm any S&P 500 Index weekly closing finish above its respective trend line barrier. We'd suggest using the 14100 region as potential initial intermediate-term support on this index, with the low 1360's-1370 zone offering potential S&P 500 Index support – both on a weekly closing basis. We featured the latter in our July 16th piece, tracing it back to the week ending April 4th of ‘08. That weekly close (1370) was also where the index finished in the week ending April 13th of this year. In between were its April 29th, 2011 weekly closing peak near 1363 and more recently this year's June 29th week ending close near 1362.

Regarding our moving average momentum readings there's been some relative improvement in the volume portion of that gauge versus its breadth counterpart, so a more neutral view of that barometer appears warranted here.
We think that part of the market's better recent overall tone stems from the "positive outside weeks" in some popular indices in the week ending July 27th. That technical term gets its label from the fact that those indices recorded lower intra-week lows and higher intra-week highs than their prior week's respective ranges and finished that late-July week near the tops of those ranges. Indices performing that task included the S&P 500, Dow Jones Industrials and Dow Jones U.S. Total Stock Market – plus several utility indices. Absent from that list and displaying a lagging tendency here are the Russell 2000 Index and S&P MidCap 400 Index.

So far we're satisfied with the market's performance since our June 4th piece (BETTER MEDICINE, BAD TASTE), where we described what we thought was "the start of a silver market lining". Our technical needle here suggests maintaining our upgraded neutral rating – but with a technical edge going to the bulls based on recent developments.

Monday Morning Technical Analysis DJIA: 13207
August 13th, 2012 S&P 500:

Wall Street Strategies