Technical Analysis: Bulls Build Their Case

More bullish developments today, with back-to-back 80% upside volume days on the NYSE and a close back above 1370 on the S&P (first chart below). That puts the S&P back inside the 15-month trading range that broke last month, while the strong upside volume could suggest a bottom, according to the work of Paul Desmond of Lowry’s Reports.

The bulls have done just about everything we could have asked of them the last two weeks, but that doesn’t rule out a retest of the lows at some point.

We’ve had a big decline in 52-week lows on the New York Stock Exchange, along with leadership from the NYSE advance-decline line (second chart). We’ve also had plenty of bearish sentiment — witness this week’s New Yorker cover.

The one thing we’d like to see is a little more bearishness among investment advisors — the Investors Intelligence survey is at 40-32 bulls-bears, not quite as extreme as the 40-37 reading in August — and a little more enthusiasm from commercial futures traders. But sentiment is always the hardest call — and price action is so far doing everything right.

Next up for the S&P is 1406, with 1430-1438 above that. Support is 1380, 1370 and 1360.

The Dow (third chart) is pressing 12,724-12,786 resistance here, with 13,000 above that, and 12,500 is now support.

The Nasdaq (fourth chart) cleared 2387-2400 resistance today, and it’s hard to see much resistance for the techs until 2500-2550 and 2600. 2387-2407 is first support, with 2360 below that.

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