As the market continues to grind higher, investing gets more challenging, and MoneyShow’s Tom Aspray takes to the charts to figure out what investors’ next move ought to be.

Early release of the FOMC minutes and the Fed’s resolve to keep rates low apparently is just what the underinvested bulls and nervous shorts needed to trigger strong buying. The S&P 500 made new all-time highs and had its best day since late February, gaining 1.22%.

All of the major sectors were higher, led by technology as the Select SPDR Technology (XLK) was up 1.76% followed by the 1.68% gain in the Select SPDR Health Care (XLV). The financial and industrial sectors also outpaced the S&P 500.

The market internals were strong with advancing stocks leading decliners by almost a 3-1 margin. The NYSE Advance/Decline line has made new rally highs confirming the new price highs. Only 311 stocks made new highs on the NYSE, which is well below the prior four peaks.

With no overhead resistance now for either the Dow Industrials or S&P 500, one might expect that the bullish sentiment was extremely high. Therefore, the latest AAII readings of individual investors, released today, will surprise many investors. As of April 11, only 19.3% are bullish with 54.5% bearish. As of last week, the financial newsletter writers are still quite bullish.

So what is an investor to do now? Add to long positions, sell your stocks, or take no new action?

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Chart Analysis: The daily chart of the Spyder Trust (SPY) shows that Wednesday’s close at $158.67 was not far below the daily starc+ band at $159.31.

  • The weekly starc+ band is at $162.24 with the upper parallel resistance in the $163 area.

  • The daily OBV has broken out of its recent trading range and moved back above its WMA.

  • The daily OBV has not yet confirmed the highs and the weekly (not shown) is positive so the OBV multiple time frame analysis still points higher.

  • The S&P 500 A/D broke out to new highs Wednesday as it overcame resistance at line c.

  • The A/D line moved above its WMA on Monday as it held well above the uptrend, line g.

  • The monthly pivot at $154.84 was violated last Friday with a low of $153.77 and there is further support at $153.59, which was the March 19 low.

The iShares Russell 2000 Index (IWM) was up 1.81% Wednesday as it has reached the underside of the former uptrend, line e.

  • IWM is still below the March 14 high of $94.96 with the quarterly R1 resistance at $96.62. (For a table of key quarterly pivot levels, click here).

  • This is very close to the 127.2% Fibonacci retracement target at $96.19.

  • The weekly starc+ band is at $98.33 with the monthly at $100.22.

  • The daily OBV is still below its WMA and the downtrend, line f. I would look for a breakout to signal a move to hew highs.

  • The Russell 2000 A/D line is above its WMA but still below the former uptrend, line h.

  • If IWM were to make new highs this week, the A/D line may not confirm the highs.

  • Last week’s low was $90.42, which was below the quarterly pivot at $91.81.

NEXT PAGE: Are These Sectors Flashing Warning Signs?


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The weekly chart of the SPDR Diamond Trust (DIA) up through April 10 shows this week’s strong action with the weekly starc+ band at $149.81 along with the quarterly R1 resistance at $149.81.

  • The weekly relative performance bottomed out in February as the downtrend, line c, was broken.

  • The RS line is still in a well defined uptrend, line d, and is above its WMA.

  • The daily RS line (not shown) has dropped below its WMA.

  • The weekly OBV broke through weekly resistance, line e, in early March.

  • The Dow Industrials A/D line (not shown) did make new highs Wednesday, confirming the price action.

  • There is initial support now at $145.50-$146.30 with last week’s low at $144.05.

The iShares Dow Jones Transportation (IYT) led the market on the upside, peaking at $112.30 on March 19, a gain of over 19% for the year. And despite its correction, it is still outperforming the SPY.

  • IYT had a low last week of $104.40, which was a decline of 7% from its high.

  • The uptrend, line g, was broken on the decline as the starc- band was exceeded. As it turned out, this really was a low-risk buy level.

  • The downtrend from the recent highs, line f, is now at $110.90 with the recent swing high at $111.62.

  • A completion of the trading range has 127.2% Fibonacci target at $114.66.

  • The uptrend in the relative performance that goes back to the December low, line h, has been broken.

  • The RS line is still below its declining WMA.

  • The daily on-balance volume (OBV) has stayed in a tight range, lines i and j, during the correction.

  • An upside breakout in the OBV could precede a breakout in prices.

  • There is good support for the OBV at line k.

  • Initial support at $107-$108 with the quarterly pivot at $105.99.

What it Means: The impressive nature of yesterday’s action does favor additional gains by the S&P 500 as there are reasonable upside targets now in the 1620 area, which is just over 2% above current levels.

I will be focusing on whether the iShares Dow Jones Transportation (IYT) and iShares Russell 2000 Index (IWM) are able to complete their corrective patterns and also make new highs. If not, this would be a strong warning sign. The relative performance of the IYT and the Russell 2000 A/D line are especially important ways to gauge the market’s strength.

Over the very short term, I would expect to see a one-two day pullback before prices again try to rally. This could come if JPMorgan Chase (JPM) and Wells Fargo (WFC) disappoint on earnings this Friday.

I continue to favor taking some profits on those positions that have performed well, as well as closing out those that are starting to look toppy.

There are some still good opportunities as I focused on the REITs last week and AvalonBay Communities (AVB), which was featured, is up over 4% in just over a week.

Most importantly, be sure you have a plan for your existing positions and carefully analyze the risk on any new purchases.

How to Profit: No new recommendation for now.