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Technical Analysis: Rally Hits Headwinds

The Nasdaq (first chart below) continues to be the strongest index, which is good for the market in general, but in the short-term the lagging blue chips suggest that we may not yet have the breadth necessary for a lasting advance.

The bigger picture remains, positive, however. For starters, take the Investors Intelligence weekly sentiment survey, which saw a big drop in bulls last week from 47% to 38%, while bears rose from 30% to 32%. That bullish sentiment faded so quickly on a relatively modest pullback suggests that there may be more upside on the way once this corrective phase is over.

The indexes have a few more days of monthly inflows to try to push through resistance; after that we may see another swing down if the rally can't gather strength.

The Nasdaq faces resistance at 2550 and 2600, and support is 2513, 2550 and 2465.

The S&P (second chart) has support at 1385, 1370 and 1360, and resistance is 1406, 1425 and 1460.

The Dow (third chart) has support at 12,442-12,500 and 12,303, and resistance is 12,683, 12,715, 12,743 and 12,800.

Paul Shread is a Chartered Market Technician (CMT) and member of the Market Technicians Association.