Resistance on the Dow Jones Industrial Average daily chart for the last month has been defined by the 200 day moving average, currently situated at 26,254 level. It should be tested right at the open this morning. If this resistance is broken the assumption would be that the next upside target would be closing the island gap created earlier in June. That would be a major step in initiating a credible run at new highs.
The Volatility Index weakened for most of the month of June. Last week the 200 day moving average was tested. That average has been running along with a horizontal support line. Together they compromise a double level of support situated along the 26-25 level. That area will come under heavy pressure at the open today. The collapse of volatility is an all-clear sign for the bulls.
The NASDAQ Composite chart is a thing of beauty. It continues its lower left to upper right climb (remember that one, I miss Gartman) within its upper Bollinger Band range. The only negative about this chart is its relative performance to the broader market, in this case the S&P 500 index. It’s too good. The NASDAQ is outperforming the S&P 500 by about 12.5%. These gains are powered by the tech heavy weighting in the Composite Index. The negative implication is that, at some point in time, NASDAQ performance will revert to the S&P mean and come in.
Regression to a mean is likely over time and looks obvious in retrospect on the chart. It is just hard to time or more correctly impossible to time. That is why traders respect the trend.
So, how will the trading landscape present itself today and later into the week? The futures are telling us the week will begin with a bang, that’s the easy part. But will the move gain traction or whimper out? and will volatility continue to contract? I don’t know. If you are comfortably invested my suggestion is to continue to ride the trend and look for levels to tighten trailing stops. If you are less invested that you want to be, don’t use this strength to add more exposure. There will be pullbacks and opportunities to add incrementally. Be patient.