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Investors Should Expect Some Consolidation In The Markets Soon

Market technician Dave Chojnacki of Street One Financial examines Monday’s big market rally, and points out that things may be getting a little bit frothy after several days — and months — of gains.

With no major economic news to move the market yesterday, investors concentrated on Washington’s relaxing of Regulations and Tax Relief. This lead the major indices to gap up at the open and equities never looked back throughout the session. The major averages stayed strong into the close and ended with new record highs, not only for the DJIA, SPX and NDX, but also confirmation from the Russell 2000 (small caps) and the Dow Transports.

The major averages ended with moderate gains for the day, but once again volume was missing. At the close, the DJIA was up 0.7%, the SPX gained 0.52%, and the NDX added 0.58%. Breadth was positive, 1.8 to 1, on below average volume.

ROC(10)’s advanced in the session, with all three major indices remaining in positive territory. RSI’s moved higher, with the NDX at fairly strong overbought level of 78.4. The DJIA and SPX also moved into overbought territory, ending at 72.3 and 73.9, respectively.

All three major indices continue with their MACD above signal. The ARMS index ended the day at 0.71, a bullish reading. With the major indices moving to new record highs and out of their months’ long range, they appear to be moving into the 5th Elliott wave. Confirmation by additional indices adds to their technical strength.

Since the lows in early November 2016, the major indices are up significantly: DJIA +14.1%, SPX +11.4%, and NDX +12.7%. As we noted earlier, one of the few negatives of yesterday’s session was once again the volume. Technicals suggest we will see more upside, and our short term target for the SPX has been 2348.

The NDX is getting frothy with an RSI of 78.4, so we would expect some consolidation near term. The VIX diverged from equities and moved higher yesterday, up 2% to 11.07.

Near term support for the NDX is at 5250 and 5234. Near term resistance is at 5275 and 5288. Near term support for the SPX is at 2325 and 2312. Near term resistance is at 2337 and 2348-50.

Europe is slightly higher in early trade, while U.S. Futures are pointing slightly higher pre-market. The only major economic report on tap today is the PPI number at 8:30am.

The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) rose $0.11 (+0.05%) in premarket trading Tuesday. Year-to-date, DIA has gained 3.39%, versus a 4.13% 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 #6 of 76 ETFs in the Large Cap Value ETFs category.

Disclaimer: The content of this article is excerpted from a daily newsletter from Street One Financial. While ETF Daily News may edit the contents and add a relevant title to the piece, the author, David Chojnacki, does not endorse or recommend any issuer or security mentioned herein.

About the Author: Dave Chojnacki

Dave Chojnacki is the Chief Market Technician at Street One Financial. He provides technical support for the Street One team and also develops individual analysis for Clients as requested.

Dave is a major contributor to the ‘ETF Daily’, a morning newsletter providing clients a daily look at market technicals of the major indices and selected ETF’s. Market trends, support and resistance levels are provided in the daily letter. The Technical portion of the daily can also be found on Seeking Alpha. Mr. Chojnacki has been quoted in a number of industry publications including the Reuters, ETF Trends, Minyanville, Yahoo Financial and Investors.Com.

In addition, Dave assists with desk trading when necessary. He possesses a Series 7 and 63.

Prior to joining Street One, Dave designed and developed I/T Systems for the Insurance and Financial Industries.

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