Market Priced for Perfection, Ripe for Retreat

Christmas has come early for the Bulls.  Over the past several weeks it seems that just about every economic report, Fed speech and recently earnings reports (most notably from consumer related stocks) have been just what the Bulls have asked for.  Commodities are off their highs, the consumer is strong, manufacturing robust, inflation in check, all while the housing market cools providing the perfect "goldilocks" situation.  With that, the market is priced for perfection and ripe for a fall.  Will traders "sell the news" after tomorrow mornings PPI data? The charts would indicate that scenario is highly likely.

The Dow remains the strongest of the major indices and is still showing considerable strength despite kissing the upper reaches of its short term trend line.  Combine the overbought conditions with today's lack of enthusiastic buying as well as psychological resistance of Dow 12,000 and you have a set up for profit taking.  Considering the amount of strength behind this move, the Dow may just retest the bottom of the channel around 11800 before moving higher.  This is an area I might look to start adding new positions, depending on the amount of sell volume.

The Nasdaq looks mighty tired up here, lacking much conviction to punch through resistance of the April highs.  Notice it's gotten ahead of itself in the past couple days, by moving ahead of the trend channel.  This has occurred with decreasing buy volume, indicating the big fellas are easing off a bit.  Again, considering the strength of this run, there is a good chance that the Nasdaq will undergo a minor drop to the first level of support around the bottom of the channel (approx 2300).



The S&P won't face any significant resistance until it tackles all time highs above 1500, but it too has gotten ahead of itself in the past couple days while volume continues to subside.  Look at the bottom of the channel in the 1345  range as a potential area of support.