November saw the best monthly gains since August with the S&P 500 (SPX) up 49 points (+2.4% versus +3.8% in August), the Dow (INDU) up 438 points (+2.5% versus +3.2% in August) and the Nasdaq Composite (COMP) up 161 points (+3.5% versus +4.8% in August). These are solid gains for November, but it should also be noted that, on a 24-month basis, all are both overbought on a 2-year time frame and at the top ('resistance') end of their broad uptrend channels.

I haven't before set the length setting on the Relative Strength Index (RSI) to '24' and applied it to the monthly charts. This makes apparent the very long-term 'overbought' condition, coupled with technical resistance implied by SPX, INDU and COMP at or near the upper end of their broad monthly uptrend channels. This should put us on alert for a possible SLOWING of further month over month gains and/or some dips here and there, if not a more substantial pullback in coming months.

THE S&P 500 (SPX) MONTHLY CHART (end-November, 2014)

SPX hit the top end of its long-term monthly uptrend price channel, which usually suggests at least temporary resistance. The Index could break out above this channel but this isn't common given the long-term overbought extreme seen with the very long-term (24-month) RSI.

More common in this situation is for prices to dip a bit and if the uptrend continues for SPX to continue higher but with highs bumping up against the upper trendline, 'hugging' this upper trendline and moving just gradually higher. This pattern would suggest a potential slowing of the current advance.

THE DOW 30 (INDU) MONTHLY CHART (end-November, 2014)

INDU, unlike SPX, has a bit more room before it bumps against the top end of ITS long-term monthly uptrend price channel. INDU could get up to the 18000 area before the Dow would hit this potential upper trendline resistance. There are at least 16 Dow stocks in strong weekly uptrends so tacking on another couple hundred points in December wouldn't be at all surprising.

The Dow 30 could break out above resistance implied by the upper trendline but this outcome would be unusual given the long-term overbought extreme seen with the monthly RSI.

More common given the pattern here is for prices to dip a bit but for the Index to continue advancing on balance with monthly highs then bumping up against and staying at or within the upper trendline. A slowing of the advance, if not an outright pullback, is a common outcome of the pattern of prices hitting the upper channel line highlighted below.

NASDAQ COMPOSITE (COMP) MONTHLY REVIEW (end-November, 2014)

There's little to say here more than already said about SPX and INDU which have the same pattern of its November high hitting technical resistance implied at the upper end of the trend channel that COMP has traced out over a multimonth/multiyear period as seen below.

Moreover, COMP also is showing a multiyear overbought extreme. This doesn't mean an end to this bull market but a common occurrence in this situation is for a slow down to the current powerhouse advance. A decisive upside penetration of 5000 isn't something I rule out by any means but this seems more likely nearer to or after Q1 of the new year.


GOOD TRADING SUCCESS!