By Mark Arbeter
Following the nice bounce off the mid-May lows, the S&P 500 has run into multiple areas of resistance. This can explain why the index has paused during the last week of trading.
The first piece of resistance for the S&P 500 starts at 1,118 and runs up to 1,150. This chart resistance represents the sideways trading band that took place during much of April. Trendline resistance, drawn off the peaks in March and April, comes in at 1,127. Third, the 80-day simple moving average, often an important piece of support or resistance, lies at 1,125. And fourth, the upper Bollinger Band, which is also a frequent piece of resistance, is at 1,129.
A strong break above the concentration of resistance between 1,118 and 1,130 will most likely set the "500" up for a test of the recovery highs in the 1,160 area. So needless to say, the index is at a key spot.
The Nasdaq also ran up to important chart resistance at 1,190 and was turned back. The index also faces some tough resistance and is also at an important crossroad. Many times, multiple indexes will run into key resistance or support areas at the same time. When this occurs, it makes future price action that much more important.
Volume levels on both the NYSE and the Nasdaq during the latest rally phase have not been great. Some of this can be explained by the continued wealth of uncertainties, as well as the recent holiday weekend. The positive as far as volume is concerned is that the up/down volume statistics on both the NYSE and the Nasdaq have improved quite a bit. Our accumulation/distribution models have moved to bullish configurations, which have many times preceded a decent move to the upside. However, our confidence level in the latest advance would rise quite a bit if overall volume and institutional participation started to show a little more conviction.
One continued positive from the sentiment arena is the action by option investors. Despite the recent strength in the stock market, investors remain skeptical of the rally and continue to protect themselves from any negative action. The 10-day and 30-day CBOE put/call ratios remain at pretty high levels. On June 3, both the CBOE total and equity-only put/call ratios were over 1.00, with total readings at or above 1.00 also posted on May 28 and May 26. Usually, when rallies are accompanied by high put/call readings, it is a positive sign.
Arbeter, a chartered market technician, is chief technical analyst for Standard & Poor's