There’s not a whole lot I need to add to thus: Richard Suttmeier performs a full diagnostic on the Technical Health of the Markets:
The Technical Dilemma
So far 2006 has been an interesting year for the US Capital Markets and in particular the major equity averages. The Russell 2000 Futures reached an all time high 787.75 on May 5, which was followed by the Dow Transports with an all time high of 5013 on May 10. Before this crescendo the Nasdaq saw a double top at 2375 in April. The small caps and transports failed to pull the Dow to a new all time high with a year to date high of 11,670 on May 10. The all time high of 11,750 was set in January 2000.
The peaks for the equity averages in early May were accompanied by highs for commodities; The CRB peaked at 365.40 on May 11. Comex gold hit $732.0 on May 12. Comex copper peaked at 404.00 on May 11. Nymex crude oil kept its momentum going to an all time high of $78.40 into July 14, as geopolitical risks continued, and as Hurricane season began.
I heard the bell ring at these highs beginning on May 10 when the Federal Open Market Committee (FOMC) raised the federal funds rate to 5%.
The Dow – Back in May the Dow was poised to breakout to a new all time high and could not, despite the record highs for the Russell 2000 Futures and Dow Transports. This makes a breakout for the Dow now, less likely, or not sustainable if it were to occur. The Dow had a double bottom in June and July at 10,700.
The Nasdaq – If the Dow goes to a new high keep in mind that the Nasdaq had that double top at 2375 in April. So your trading range looking at the Dow and the Nasdaq is major support for the Dow at 10,700 and major resistance for the Nasdaq at 2375.
Dow Utilities – Utilities set an all time high at 443.49 on September 1, and have been drifting lower since then, which is another reason for concern.
Dow Transports – Transports peaked on May 10 at 5013, and strength this week has been shy of its 200-day SMA at 4480. A close today below my semiannual pivot at 4442 is another reason for concern.
Russell 2000 Futures – The Russell 2000 Futures reached an all time high 787.75 on May 5. Today this measure of small caps is trading back and forth around my semiannual pivot at 736.11 with quarterly and monthly resistances at 754.49 and 790.58.
The Technicals: the equity averages looked better in May than they do today, and look what happened following that FOMC meeting on May 10.
This sets the stage for Wednesday at 2:15 PM.
The Technical Dilemma
Real Money, 9/15/2006 3:38 PM EDT