Weekly Market Outlook – Running Out Of Room To Rally

Housing Starts, Building Permits Charts

Source: Census Bureau, TradeStation

Stock Market Index Analysis

This week starts out with a look at the weekly chart of the S&P 500, as it's here where we can most readily see our biggest concern about the rally's health. Namely, while the renewed momentum is impressive, that momentum only carried the index to a well-established resistance line (red) that connects all the key highs since October. Then there's the not-so-small matter that the market's just plain overbought; the RSI line is back above 70 (if that means anything anymore).

S&P 500 Weekly Chart, with VIX, RSI, and Volume

Source: TradeNavigator

Ditto for the Dow Jones Industrial Average.

Dow Jones Industrial Average Weekly Chart, with Volume

Source: TradeNavigator

Both of these indices are in contrast with the Nasdaq Composite, which didn't move to record highs last week. It did push up and off of its 100-day moving average line (gray) though, and seemingly still has room to run. The Nasdaq's Volatility Index also has a little room to keep falling now that it's broken below its floor around 24.9.

Nasdaq Composite Weekly Chart, with VXN

Source: TradeNavigator

There are some key problems with the Nasdaq's rebound rally, though. Chief among them is the lack of participation in it. Take a look at the graphic below. The Nasdaq's daily gainers and daily bullish volume aren't getting more bullish.

Granted, it's not as of the Nasdaq's daily decliners and the trading volume behind those falling stocks are soaring. It's curious, however, that even with Friday's bullish bump, more of the Nasdaq's stocks fell than gained, and that we saw more bearish volume than bullish volume.

Nasdaq Composite Daily Chart, with Advancers, Declines, Up and Down Volume

Source: TradeNavigator

It's not a new problem -- which is a problem in and of itself. We've pointed out several times in recent weeks how only a few big stocks have overcome an otherwise-bearish tide, but those few stocks continue to fight the tide and drag the composite upward. Still though, it's a nuance that's too risky to ignore.

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