Traders who have ridden U.S. stock indices as they climbed up from 2012 should congratulate themselves for sticking with it, and they should consider taking profits now. Although there is not yet enough confirmation for taking short positions on a swing-trade timeframe, everybody should be observing the market's reaction to nearby resistance levels. This article presents some prices to watch and exhaustion signals to monitor.
Starting with a very broad index, the Russell 2000 (INDEXRUSSELL:RUT) and the associated ETF (NYSEARCA:IWM) have been making headlines this week because of how far they have risen. However, most of the coverage hasn't mentioned the waning momentum seen as the index reached new highs. Price also is up against the middle trendline of the channel shown on the monthly chart below - a channel which solved for the January 2014 low.
The daily Russell ETF chart below shows how well the Wave59 "nine-five" indicator has caught highs and lows over the past year. On Wednesday, it registered a "9", which is a signal that the upward move on that timeframe is probably near exhaustion. Note, there is divergence between momentum and price on the daily timeframe as well.
The S&P 500 Index (INDEXSP:.INX), shown below, has edged slightly beyond the 127% Fibonacci expansion level of the big "crash" down-move of 2007-2009. That resistance level, combined with a peak in the 39-month empirical cycle, suggest this is an area where investors and traders should get defensive and step out of long positions. Also, the Wave59 "nine-five" indicator, which is even more significant on the monthly timeframe than it is on the daily timeframe, registered an important exhaustion signal last month.
In an extended version of this article at our website, we offer some observations about cycles and channels on the weekly S&P 500 chart.