Dec 04

Pullback Ended in S&P 500

by Mike Paulenoff, Mon December 4th, 2006

During the first two hours of trading, the SPY has charged towards a test of its prior two highs -- at 141.05 (11/30) and at 141.16 (11/22). Thus far today, it has a high of 141.14, which remains just 3 cents below the 11/22 high. My near-term technical work remains in very constructive condition, and argues strongly that a pullback ended and a new upleg started after Friday's low at 138.99.

From a larger perspective, however, let's notice that while all of the meaningful pullbacks since July show a series of higher-lows, juxtaposed against higher-highs on rallies, momentum actually peaked at the 10/26 high of 139. The 2006 high at 141.16 (11/22) and today's test of the high both show much lower RSI readings, which if nothing else is a warning sign that the power underlying the July-December upmove is dissipating.

As of now, the negative divergence in the RSI represents a yellow caution flag. However, a decline that breaks Friday's low at 138.99 will morph the Nov-Dec price action into a very topping-looking pattern.

Chart

Mike Paulenoff is author of www.MPTrader.com, a real-time diary of his technical analysis & trade alerts on ETFs for precious metals, energy, currencies, and an array of equity indices and sectors, including international markets, plus key ETF component stocks in sectors like technology, mining, and banking. Sign up for a Free 15-day Trial!