Technicals

Dow Breaks Above Resistance But Is A Top Nearing?

As is often the case in Elliott, the picture is becoming much clearer as the rally has matured and nears its end.  The advance from the March low is a complex W-X-Y (a-b-c-x-a-b-c) rally.  Notice the broadening formation since August.  Broadening patterns almost always signal tops (called ending diagonals in Elliott terminology).  Levels to watch for resistance are 10365 and 10495 (100% extension).

The Dow broke above resistance at 10,326 the 50.0% Fibo retracement of the 14,198-6,469 decline, which leaves upside potential to 11,000. The next level of resistance is at 10,581-61.8% Fibo of 13,136-6,469.

The S&P is in a similar situation to the Dow.  The count from the March low is the same but the recent surge that propelled the Dow to a new high has yet to do the same for the S&P.  A broadening formation from the August low is evident here as well, which again does warn of a top.  A new high exposes 1110.30 (top of gap from October 2008 in December contract), then 1134 and 1159 (100% extension) in the index.

The S&P 500 broke above psychological resistance at 1,100 leaving 1,120- 50.0% Fibo of 1,576- 666 as the next barrier.

The NASDAQ pattern is the same as the S&P pattern in that the index has yet to make a new high.  The more volatile index also broke a support line and dropped below its October low (red line) – something that the other indexes failed to do.  Clearly, the technical situation for bulls is deteriorating.  A new high would expose 2341 (100% extension).

The NASDAQ set a fresh yearly high breaking above resistance at former trendline support. Given the fact that the Dow and S&P 500 have pushed through their resistance levels we could see the tech laden look to test Fibo resistance ahead.  If weakness returns then look for a test of trendline support near 2,100.