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Stocks are Capped by Technical Resistance

David Becker
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Stocks are Capped by Technical Resistance

The technical picture for stocks is a key aspect to return over the next few weeks. While May is coming quickly upon us, many investors will hold off from selling as they wait to determine if the broader markets can breakout to new highs. Investors have been unwilling to purchase stocks at the top end of the current range as worries over geopolitical events continue to plague the broader markets.

On Friday, S&P has reduced Russia’s rating by a notch to BBB-, or one grade above junk level, and kept the country’s outlook at negative as the tensions with Ukraine continue to ratchet up. Russia began military exercises on its border with Ukraine on Thursday in response to the latter killing five pro-Moscow rebels during attempts to reassert control over the eastern part of the country.

While earnings continue to come in better than expected, and benchmark stocks such as Caterpillar (NYSE:CAT) , Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB) hit the earnings cover off the ball, traders are waiting for the S&P 500 index to make new all-time highs before jumping back into the markets.


The top end of the current range seems to be well protected. The S&P 500 index has attempting to break above the 1885 – 1900 region 4-times, which includes this latest move, which is now facing pressure. The Bollinger band high caps stocks, which is a 2-standard deviation level above the 20-day moving average. Until stocks are able to close above target resistance near 1900, the broader indices will have a difficult time gaining further traction.

Momentum on the S&P 500 index is solid as the MACD (moving average convergence divergence) index generated a buy signal this week. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The index moved from negative to positive territory confirming the buy signal, which should help catapult stocks on a close above 1900.

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