Technical analyst Dave Chojnacki of Street One Financial updates the important technical indicators for the major U.S. averages and finds equities in dire need of a 3% to 5% pullback in the near term.
Prices traded in a narrow range on Tuesday, with investors looking to the Financial and Industrial sectors for equities. This helped push the Dow Jones Industrial Average (DJIA) to be the best gainer on the day. The Nasdaq 100 (NDX) and S&P 500 (SPX) also added to their averages, making all three major indices hit new highs in the session.
It was the 6th straight record close for the SPX. Not all equities had a good day, however, as breadth was negative. iShares Russell 2000 (NYSE:IWM) (Russell 2000 small caps) actually lost 0.14%, as small caps failed to participate.
At the close, the DJIA gained 0.4%, the SPX added 3.5 points, and the NDX inched up 1.3 points. Breadth was negative, 1.4 to 1, on average volume. ROC(10)’s advanced across the board and remained in positive territory.
RSI’s inched higher, with the DJIA remaining the strongest at 81.5. The SPX ended at 79.6 and the NDX at 74.7. All three major indices are in overbought territory. All three MACD’s continue above signal. The ARMS index ended at 0.86, slightly bullish at the close.
All three major averages are at or above their upper Bollinger Bands®. They are becoming over extended near term. The SPX and NDX developed ‘candlestick’ Doji’s in the session, a sign of indecision and a possible near term reversal.
The DJIA closed at a record of 25385. It’s upper Bollinger Band is at 25333. Its 20D-SMA sits at 24815. The NDX closed at 6677, a point above its upper Bollinger band of 6676. Its 20D-SMA is at 6490. It traded as high as 6696 in the session.
The SPX closed at another record of 2751, and traded as high as 2759. Its upper Bollinger band sits at 2748. The VIX added 5.8% to finish at 10.08. Several near term indicators are pointing to a near term pullback/consolidation. We are overdue for a 3% to 5.5% pullback.
Near term support for the NDX is at 6650 and 6600. Near term resistance is at 6700 and 6750. Near term support for the SPX is at 2750 and 2725. Near term resistance is at 2762 and 2775.
Europe is lower in early trade Wednesday, and U.S. Futures are pointing significantly lower in the premarket. Major economic reports on tap for today include Import/Export Prices at 8:30am, Wholesale Trade at 10:00am, and the EIA Report at 10:30am.
The SPDR Dow Jones Industrial Average (SI:SPDR) ETF fell $0.82 (-0.32%) in premarket trading Wednesday. Year-to-date, DIA has gained 2.60%, versus a 2.88% rise in the benchmark S&P 500 index during the same period.
DIA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #3 of 80 ETFs in the Large Cap Value ETFs category.