Hesitation At The Trend Lines

Most of the major-index charts, especially the Nasdaq and S&P 500, hit the top of their trend lines and are now struggling. We've shown you these charts and how difficult it can be here for the markets to continue higher with force. It would be best if we pulled back some first, although markets know how to fool the masses. Would it shock me if we saw another move higher first, because that's least expected? Not at all. Maybe one more move towards Nasdaq 5K and then down hard. Maybe not. There really is no way to know.

What I do know is that the market is full in terms of too many bulls, and that the trend lines were hit, so the journey higher should be a lot more difficult now. The key word being should. See the reversal lower on big volume, with a gap down that runs lower all day creating technical damage for the bulls, and the bears are good to go. Until we see this occur you shouldn't get bearish. Markets may look one way but often fool people so be sure to see the reversal before playing the dark side. Nothing is easy here on either side of the ledger. Probably won't be for some time to come so make peace with it and adapt accordingly. Tougher times are here, but again, nothing bearish yet. See it and respond, not before.

One possible important sign that things are getting old in terms of upside is watching how the high pole stocks are performing. Many leaders have been doing very well as they create an up move followed by a basing pattern only to see the next up move take place. The process of wash, rinse, and repeat has been with us for a while. At some point in the process the oscillators simply get way too overbought and the momentum stoops allowing the stocks to finally fall and unwind. That's not necessarily bearish, but it does provide a pause in the action to allow these stocks to fall and catch their breath. Some of these stocks have had RSI readings in the mid-70's, or higher, and over time this can't go on. We're seeing some leaders already start some down side action such as The Boeing Company (BA) and Apple Inc. (AAPL) to name a couple. There are hundreds all over the market. Every sector getting hit. A little less rotation. Nothing terrible yet but the market showing the type of action that causes short-term pauses in the action.

If the SPDR S&P 500 (SPY) loses 210.60, or the 50-day exponential moving average on the short-term sixty-minute chart there could be a vein of selling as this critical moving average on this time-frame chart has held all selling over the past few months. The bears would get more excited, and far braver, if this level went away with any force. A solid twenty-point move down would be possible, once this level goes away. That's only one percent, but we all know what one percent can feel like to individual stocks if you own too many of them. Watch this level more than a little closely. It would not be wise to ignore it or to be buying heavily in to new plays with the SPY trading below 210.60. Over time, a move down to 4800 on the Nasdaq 100 would be very healthy for the market, but none of you would want that if you're overly involved with too many plays. This is the time for caution. Don't get too complacent. Just be on guard and adjust accordingly.