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November 13, 2006

Vacuum of Resistance

The Nasdaq indices took giant leaps forward today by closing resolutely into new 5-year high territory. By conquering their highs of earlier this year, both the Composite and NDX entered zones of no apparent resistance. As can be seen in this 6-year view of the Composite, there is a vaccum of resistance up to the 2900 level.

stock chart

Similarly, the NDX has little apparent resistance up to about 2100. In other words, a technician would have to allow for nearly 20% more upside before seeing a serious threat to this market run.

I say little apparent resistance. Just because this vacuum exists doesn't mean the markets will actually make those runs, but bulls have to be feeling much more at ease with this setup, especially if the highs just broken turn into support. I have previously put low odds on the possibility of a huge short squeeze / blow-off top at the end of this fall rally, but the odds of such action just went significantly higher.

Of course, as much as a market technician tries to make a definitive science out of his analysis, support and resistance are never more than estimates as to where things might happen, and we very often see head-fake breaks just before significant turning points. It is possible we're witnessing a head-fake, but I wouldn't bet the ranch on it.

Disclosure: None

 

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