Major U.S. Indexes, ETFs Hit Ceiling

Major U.S. stock indexes and related exchange traded funds added slight gains for the week as they struggle to break significant resistance levels.

Dow Jones Industrial Average (NYSEARCA:DIA) gained 0.3% for the week and flirted briefly with the psychologically important 13,000 level on Tuesday but was unable to hold on and fell back to close the week at 12,983.

S&P 500 (NYSEARCA:SPY) touched an intra-day high of 1367 on Tuesday but fell back to close the week at 1365, its highest closing level since June, 2008, just before the waterfall drop leading to the bear market lows triggered by the financial crisis.

Nasdaq 100 (NYSEARCA:QQQ) gained 0.4% for the week to close at 2604, its highest closing level since 2001 when it was well into its big slide during the “tech wreck.”

Russell 2000 (NYSEARCA:IWM) closed down for the week at 826, the only major index not participating in the “new highs” party this week. On a fundamental basis, economic reports continue to be positive for the United States while Europe enters a recession and oil goes to nosebleed levels of over $109/bbl. and up 6% for the week which can only mean headwinds ahead for both the developed and emerging worlds.

On a technical basis, major U.S. stock indexes and ETFs remain overbought and overextended with many RSI readings at or near 70 with the Nasdaq 100 leading the way higher at 73.5.  These are levels from which measurable corrections often occur.

Significant resistance resides right here at current levels between 1360-1370.  A break above 1370 on the S&P 500 (NYSEARCA:SPY) would be a strong buying signal indicating the likely possibility of higher prices ahead, while failure to break that level could lead to a quick retrenchment to support levels at 1290, 1260, 1210 and major turning point at 1190.

Breadth is also weak as the NYSE Summation Index continues to decline while overbought levels are also seen in the NYSE Bullish % Indicator at 77 and the % of stocks above the 200 day moving average at 77 with upwards momentum starting to decline.

Finally, volume continues to register at extreme lows which indicates a thin and dangerous market in which price moves are potentially exaggerated in either direction.

Bottom line:  While the U.S. economy continues to improve, fundamental factors will face a steeper climb as Europe enters recession and oil starts acting as a drag on the global economy.  Greece is not settled yet and Iran and Israel and the Western world have yet to settle their differences.  On a technical level, overbought, overextended and over loved are the only suitable words, and this combination leaves major indexes to hit the ceiling and possibly take a nasty fall down.

Disclaimer:  Wall Street Sector Selector actively trades a wide range of exchange traded funds (ETFs) and positions can change at any time.