Market Internals:


This week, Laszlo Birinyi and FOMC President Ben Bernanke sounded the news that the recession has ended, with Birinyi insisting that U.S. equities have room to climb further. Warren Buffett chimed in with his plans to buy equities.

For those who don't recognize Birinyi's name, he ranks with Nouriel Roubini as a market forecaster, but the two have been on opposite sides of the fence with regard to the bounce off the March low. Birinyi's forecast of room to go for the rally isn't new. Back in August, he was being featured in articles and on the airwaves for his prediction that the markets are in "a bull cycle in phase one" (Bloomberg, 8/26/09).

Equity and commodity markets were already in a partying mood when his newest comments were hitting the airwaves in the middle of this week. Never mind that it's begun to feel a bit frantic, this party: bulls celebrated his prediction all over again before tiring later in the week and pausing for breath.

Chairman Bernanke's warning that the end of the recession might not feel all that good to the average American due to continued unemployment was largely ignored when the comment was first made. This weekend, when regional newspapers mull over the Labor Department's Friday report that 42 states lost jobs in August, compared to only 29 in July, and that five states now have unemployment at 12 percent or over, more attention might be paid to the impact of that unemployment.

Thursday morning, CNBC's Steve Leisman drew from studies by Haver Economics to point out that unemployment peaked 15 months after the technical end to the 1991 recession and 19 months after the technical end to the 2001 recession. Payrolls didn't regain prior peak numbers until 23 months after the 1991 recession and 39 months after the 2001 recession. Anecdotally, out of the eight cousins in my children's generation, all in their mid 20's to early 30's, two have been laid off in just the last three weeks, both from jobs they'd held for years. Others currently fear for their jobs. Two of their parents or in-laws, people from my generation, have lost their jobs and been unable to find others, probably joining that talked-about group of Boomers that will never find another fulltime job. Both hold advanced degrees and had worked in professional careers. Families are sharply reining in expenditures. These are stories being repeated across the nation.

Since Option Investor is a market-related website, what everyone wants to know on these pages is when the economy returns to normal and when indices return to their prior levels. According to Leisman's research, the 1991 and 2001 recessions didn't provide a lot of help with that question. Earnings didn't return to peak levels until eight and nine months after the 1991 and 2001 recessions, respectively. However, peak SPX levels were regained in 1991 but not until six years after 2001. Go back further than 1991, and I could name longer periods before prior index price peaks were permanently regained.

Several forces--quadruple witching, S&P rebalancing and the approach of another quarter's end--combined to produce a sideways market on both Thursday and Friday. On Friday at least, that sideways movement was accompanied by strong volume. Strong volume equates to strong market participation by institutions as well as by individuals. When that strong volume results in little market movement, one must question what the institutions were doing. The general consensus mulled over on talk TV was that some institutions, particularly funds that missed the beginning of the rally and missed out on earlier gains, are chasing markets so that their end-of-quarter reports will show that they owned the big winners during the run-up. They were buying. If that's the whole story, why didn't markets advance significantly on strong volume? The institutional involvement Friday was without question: the volume proves it. We must conclude, however, that without a significant market advance, that some institutions were selling, too, and that the selling almost matched the buying, at least momentarily. Perhaps that was a result of rebalancing, but let's take a look at the charts.


During the SPX's strongest and most sustainable rallies, the index often demonstrates a pattern of breaking sharply higher, then trending sideways for three to five days, dipping briefly to test or even pierce the 10-sma, and then springing higher again. Then the action is repeated.

The latest rally leg off the July low has been so strong that the SPX didn't even touch the 10-sma from July 14 until August 11. Then SPX prices fell through that 10-sma and chopped back and forth before springing above the 10-sma again on September 8 and charging way above that average. A faster moving average, the 8-ema, is the one from which it has been bouncing since July other than during consolidation periods. After September 11, when the SPX looked as if it was reinstituting its normal pattern of trending sideways until an important moving average rose up underneath it to provide support again, the SPX dipped only to the faster 8-ema on September 14 before taking off again, without waiting for the 10-sma to catch up. Now it's outstripped even that faster moving 8-ema and outstripped it by more than it has at any time during the last rally leg.

In other words, this rally is getting frothy from a moving-average perspective. I'm not predicting the demise of the equity markets. I am saying that it would be normal, even if the rally has Birinyi's room to run, to expect either a sharp pullback to one of those averages or a sideways trending until those still-rising averages pull up closer underneath the current price action. The 8-ema is now at about 1053.33 and the 10-sma is now at about 1046.66. At some point, too, the SPX needs to drop all the way back to test its 30-sma, with that average currently just under 1022. Let's watch how the SPX behaves with a 10-sma test before we make plans for a deeper 30-sma test, however.

Prices don't normally outstrip these 8-ema and 10-sma moving averages by such extreme amounts unless they're "going parabolic" as some technicians term them, a term that describes an ending action to a recent move. Those hoping for further equity gains actually don't want that to happen. They want orderly pullbacks to test and confirm support, so that there's confidence in buying and holding equities for an anticipated further climb. Then they want a rinse and repeat, so that they can put their stops under those averages and have confidence that they have a solid decision-making point for their equity longs.

On Thursday and Friday, the SPX action produced daily candles indicating indecision. A possible evening-star reversal signal was confounded on Friday when a second indecision-type candle was produced rather than a long red candle. This gives slightly more credence to the possibility that the SPX will trend sideways until the 10-sma rises closer and then dip to test that support but really just confuses the issue of what will happen next. This chart does not predict whether we get a rally, further sideways movement or a stronger downturn, so this weekend should be spent in just-in-case plans for each eventuality.

Annotated Daily Chart of the SPX:

Keltner channels (not shown here) help me to refine that support "near 1060" level. A daily chart with the Keltner setup I use suggests that it is currently at about 1056.40 on daily closes. A conservative trader would want to see consistent daily closes beneath that level to believe that the SPX has dropped enough to suggest that it won't find support on the red channel's former resistance.

Annotated Daily Chart of the Dow:

In normal market conditions, I would rate the chances of a Dow pullback to the 10-sma as "probable," but these market conditions, demonstrating runaway upward momentum, produce upside breaks out of formations that typically break to the downside. Until we see signs that the extreme upside momentum has abated, likely demonstrated by consistent daily closes back inside that rising channel, we can't assign "probable" to the chances of any sideways or downside move.

Annotated Daily Chart of the Nasdaq:

Annotated Weekly Chart of the SOX:

Annotated Daily Chart of the RUT:

The various Wrap writers all have their intermarket relationships that they watch for guidance. Long-time readers will remember that one of those relationships I watch closely is the TED spread. This is the basis-point spread between U.S. treasuries (the "T") and Eurodollars (the "ED"), and it measures default risk. This spread usually moves in opposition to equity charts and widened to record levels in 2008. In fact, it sometimes telegraphs equity moves. It's not a great market-timing tool, but the general idea is that equity traders don't want strong climbs in the TED spread. They were cheered when the March rally was accompanied by a TED spread decline. In fact, the TED spread fell to five-year lows, which seemed a bit overdone considering what we know about default risk, particularly in commercial real estate.

The TED spread has begun rising again, however. At 21.03, it's now 29 percent higher than the 16.28 level produced on September 10. The prior peak was on August 31 and was at 22.073, so the TED spread has not yet even so much as breached the prior peak's potential resistance, and it sometimes comes back to retest prior lows before mounting a sustained rally. However, keep an eye on this. It has broken higher through a three-month descending trendline in place since June, so there has been a first tentative change in tenor, as shown on this Bloomberg chart. I've overlaid the SPX chart so that readers can see the way that SPX prices and TED spread levels tend to move in opposition to each other.

TED Spread with SPX Overlaid:

With the TED spread breaking up through that descending trendline, those long equities should be aware of the possibility, if not yet the probability, that the SPX will break through its month's long rising trendline, with perhaps uncomfortable resulting action for equity bulls. Given the TED spread's occasional need to come back and retest prior lows before sustaining a rally, it's not yet a given that the SPX will break through that trendline, but this chart would be enough to prod me to protect long positions if I had a portfolio heavy in longs.

Last Week's Developments:

Quadruple witching, including expiration of the VIX options, likely played its part in this week's results for options traders. Many experienced options traders mention that they anticipate a bullish or at least supported equity market during quadruple-witching expiration weeks. Add in a few upside surprises on economic releases, Federal Reserve Chairman Ben Bernanke's assertion that the recession is probably technically over, various equity upgrades, dollar weakness and possible end-of-quarter window dressing that's begun, and that typical bullish or supported market appeared again.

Some of the week's upside surprises included Tuesday's Empire State Manufacturing Index, Retail Sales, and PPI. Although retail sales predictions were officially forecasting a 1.9 percent gain, I had begun hearing whisper-number gains in the 2.5 percent realm, and Tuesday's actual number showed gains of 2.7 percent. Some question how sustainable those gains will be with the Cash-for-Clunker's program now finished. That program contributed to a 10.6 gain in August's auto sales. However, the core number, excluding autos, still showed a greater-than-anticipated 1.1 percent gain, perhaps due at least in part to gasoline sales. Higher gasoline prices contributed to a 5.1 percent gain in sales at gasoline stations. A bounce in the dollar would likely negatively impact those sales.

Moreover, those worried about the possibility of deflation might have been cheered by a 1.7 percent gain in the PPI, measuring the price of finished goods and services. Some sources claim that the market reacts most strongly to the PPI when it comes before the CPI, as it did this week. Underneath the PPI headline number, however, the core gain was a much more modest 0.2 percent, only slightly higher than the predicted 0.1-percent gain. The core number excludes energy and food prices. When the CPI came in on Wednesday, it barely beat the predicted 0.3 percent gain in the headline number, with a 0.4-percent gain. The core number was in line with predictions of a 0.1 percent gain.

Higher energy costs had contributed to the headline gains for retail sales, PPI and CPI, and energy prices were still climbing into the middle of the week before steadying into a choppy consolidation zone just under the week's highs. Lower-than-expected inventories and a weak dollar contributed to higher prices in the energy complex and a late-week bounce in the dollar probably contributed to a stall in the gains.

Wednesday's crude inventories revealed that stockpiles had dropped an unexpected 4.7 million barrels in the week that ended September 11. Analysts had expected a drop but only by 2.4 million barrels. This Department of Energy data differed from Tuesday's estimation by the American Petroleum Institute, which claimed a gain of 631,000 barrels. Years ago, when I wrote the Wednesday Wraps each week, the API and the government both distributed their numbers on Wednesday, and they rarely coincided. I could never find definitive information about which numbers were the most reliable.

Whatever happens with crude costs, those cheering the return of the consumer should keep in mind that retail sales were still down 5.3 percent year over year. Economists such as RBS Securities' chief economist Stephen Stanley, interviewed for a MarketWatch article, question the sustainability of consumer spending. In a Tuesday article, Stanley was quoted as saying that RBS continues "to believe that the consumer will trail rather than lead the recovery, and we will only be confident about the consumer when we see job growth and labor income gains." After Wednesday morning's CPI, a Bloomberg article noted that "[c]ompanies such as Kroger Co. are having to keep a lid on prices to revive demand." When a grocery store has to keep a lid on prices, that knowledge doesn't exactly set up a celebratory party for the return of consumer spending.

While the early week economic releases provided cheer to the equity markets, Wednesday's releases produced mixed results. Capacity utilization and industrial production rates inched a little higher than anticipated, but the current account deficit was far worse than anticipated. The current account numbers measured a deficit of $99 billion rather than the anticipated $92 billion-deficit.

The NAHB Housing Market Index came in right at the anticipated 19 level. Still, that 19 level for the NAHB U.S. homebuilder sentiment was the highest it's been since May, 2008, the NAHB/Wells Fargo report noted. Some question the impact if Congress doesn't extend the soon-to-expire tax credit for first-time home buyers. Perhaps that worry was reflected in the component that measures sales expectations for the next six months. That component declined.

Wednesday's TIC Long-Term Purchases for July was a major disappointment, at $15.3 billion rather than the anticipated $65.3 billion. In the past, this was a little-watched indicator but that's not true now, or at least it shouldn't be true. This indicator measures the international demand for long-term U.S. financial assets. The net foreign buying of long-term securities for the prior reported month had been $90.2 billion. The report indicated that foreigners sold a net $97.5 billion of long-term and short-term securities.

We've been hearing rumblings from countries such as China and Russia about our federal deficit's impact on the dollar, and this TIC report indicated that foreign powers were indeed a bit wary about taking on our debt. On Friday, Russia's Prime Minister Vladimir Putin again called for other currencies besides the U.S. dollar to be added as global reserves, scolding the U.S. for its "uncontrolled issue of dollars," according to a Yahoo! Finance article.

Dollar futures (DXZ9 on my charting service) dropped to pierce the 77 level by September 11, then producing a number of potential reversal signals before slipping lower again earlier in the week. On Thursday afternoon, dollar futures began a climb that approached the 77 level again from underneath before pulling back into a consolidation zone just below that level.

The last three days of the week produced a dollar futures chart showing a red-bodied candle followed by a small-bodied candle below that and then a green-bodied candle that seemed to complete a potential reversal signal known as a morning star. The "seemed" qualification comes from the upper shadow left on Friday's green-bodied candle. That weakened the potential reversal signal.

Volume on this particular dollar futures contract had been dropping off since September 8 as the dollar futures continue to slip lower, a possible sign that sellers weren't out in force so much as buyers were lacking. Forex-related websites have been producing articles noting how overbought other currencies are against the dollar, so the opinions of those paying more attention to currency moves than I have been lately are in concert with what's showing up on the charts. Those who are heavily long U.S. equities should remember that the equity rally since March has been accompanied by dollar weakness.

That inverse intermarket relationship will question what will happen to the equity rally if the dollar should mount a rally of its own. That rally hasn't happened yet, and I would want to see the dollar futures sustain values above a 45-ema, now just above 78.50 but still drifting lower, to believe in a sustainable dollar rally. However, a first step in improvement in tenor for the dollar would be continued daily closes above about 76.80, a level making a Keltner band line on a daily chart that hasn't been breached on a daily close in about two weeks.

Equity longs should keep in mind that the early August rally in the dollar futures was accompanied by an equity pullback even though the dollar's rally brought it only up to the 45-ema before dollar futures pulled back again. The dollar futures don't have to sustain values above the 45-ema to result in an equity pullback: just rising up to test it may be enough for a normal equity pullback.

Another story this week involved the buying of assets from a failed Texas bank, Franklin Bank. Another Texas-based company, mortgage servicer Residential Credit Solutions, submitted the winning bid to buy a 50-percent stake in Franklin Bank's portfolio of residential mortgage loans. This was the first test of the FDIC's Legacy Loans Program (LLP), which is in turn part of the government's Public-Private Investment Program, which seeks to find investors for troubled bank assets. This initial test attracted nineteen bids from twelve bidders. The Treasury may also soon test its program designed for distressed loans rather than the whole loans offered by the FDIC program, with that Treasury test perhaps coming as soon as early October.

Another FDIC announcement wasn't so positive. A past specter raised its head this week. FDIC Chairman Sheila Bair admitted Friday that the increase in bank failures, although anticipated, had significantly drained the agency's funds. Although in the past Bair had thought it unlikely that the agency would ever have to tap into its line of credit with the Treasury Department, she said when the agency met at the end of the month, that option would be explored as a means to rebuild the depleted funds. The option wouldn't be the first or the preferable one, she said when speaking in Washington at a global finance conference. She mentioned others, including adding more special assessments to banks, prepayments of assessments on banks and issuing a note.

Chairman Bair extended her talk beyond the narrow focus of replenishing FDIC funds. She also said that she didn't believe that mark-to-market accounting for bank loans should be further extended or that large financial entities should be led to expect further government assistance if they experience problems.

Friday evening's closure of Irwin Union Bank, F.S.B., Louisville, KY and Irwin Union Bank and Trust Company, Columbus, IN were the institutions added to the previous 92 banks closed so far in 2009, compared to 25 in 2008. A year ago, the FDIC's insurance fund had $45 billion available, but that's now been diminished to $10.4 billion minus the $850 million blow the FDIC estimates that Friday's closures will cost the Deposit Insurance Fund. That fund can't stand too many more Fridays at this rate, can it?

First Financial Bank of Hamilton, Ohio, assumed all of the deposits of the two entities closed Friday. The two had 27 locations between, all of which will be open Saturday as branches of First Financial Bank.

The FDIC insurance program wasn't the only one low in available funds. The Federal Housing Administration reported Friday that when it sends its study to Congress in November, that study is expected to show that its reserves are below the mandated 2-percent mark. Rising defaults among FHA borrowers is responsible for the depletion of the FHA's reserves. FHA Commissioner David Stevens denied that the agency would require a rescue by taxpayers, however. (Hmm. Haven't we heard that previously?) The agency wants to stem rising defaults by requiring those operators (loan companies) participating in the FHA program to have a net worth of $1 million rather than the currently required $250,000. Among concerns about fraud, the agency wants annual audits of these firms.

While the FDIC's LLP program was being tested and the FDIC mulled ways to replenish funds, and the FHA announced that its reserves would likely fall below the mandated level, another government program was slated to come to an end. On Friday, the U.S. Department of the Treasury announced the expiration of the Guarantee Program for Money Market Funds. Initially intended as a three-month program that could be extended through Friday, September 18, the program never experienced any losses and in fact gained about $1.2 billion in participation fees, the Treasury announced. Treasury Secretary Tim Geithner said that "the risk of catastrophic failure of the financial system has receded," and with that "the need for some of the emergency programs put in place during the most acute phase of the crisis has receded as well." It was about this time last year that one fund "broke the buck," inducing fear in investors. Geithner said the expiring program had served its purpose of providing stability.

Were these various announcements about government programs responsible for the stalling of the markets near the week's highs? Perhaps technical reasons, already shown on the charts, existed and perhaps the late-week economic releases just weren't as cheery for the markets as the earlier ones had been. Thursday's releases provided insight into housing, employment and manufacturing. The housing numbers showed that housing starts, at 0.60 million, and building permits, at 0.58 million, came right in line with predictions. Housing starts displayed a 1.5 percent increase for August. Inside these Commerce Department numbers, however, was the information that starts of new single-family homes actually fell three percent in August, to 479,000. That's the first decline in six months, a MarketWatch article noted. A sharp 25.3-percent rise in starts of large apartment buildings and not strength in the single-family homes had pushed the starts higher.

Building Permits provides more of a future look, although not all permits result in completed projects. Permits rose 2.7 percent. The seasonally adjusted 579,000 permits marked the highest number since last November. Still, by Thursday morning, market participants were given more of a mixed view of the economy.

It was, however, perhaps the much-awaited Philly Fed Manufacturing report's jump to 14.1 that propelled the equity indices to reach for new recent highs on Thursday morning before the overheated markets suddenly deflated a few minutes later. The Philly Fed's take on manufacturing is one of the two more important predictors of the ISM's take on the nation's manufacturing, so it's closely watched. The 14.1 had beat expectations of 8 and had furthermore produced the first two-month consecutive gains since the end of 2007. Inventories continued slipping, pointing sooner or later to a need to gear up to replenish inventory.

However, the employment component fell, optimism about the future slipped, and orders slowed. This combination wasn't so cheery. Once market watchers got a look below the headline number, this combination perhaps contributed to that quick equity drop after the initial post-Philly-Fed pop Thursday morning.

That same morning, initial unemployment claims had dropped to 454,000, but the Department of Labor revised higher the previous week's numbers, to 557,000. The insured unemployment rate inched higher to 4.7 percent from the previous 4.6 percent. Continuing unemployed rose by 129,000.

All in all, the early week enthusiasm waned a bit by the end of the week, but the earlier study of charts and our knowledge of how some rallies progress predicted that it might have done so anyway. I'm among the Boomer group and I can't tell you how many in my age group, their retirement funds decimated by what happened over the last two years, have vowed to me, "When the Dow gets back to 10,000, I'm selling." With the Dow being "the market" for the uninitiated and that same "sell when it hits 10,000" intention perhaps being repeated across the nation, we have to figure that there's going to be at least some increase in selling pressure as the Dow more closely approaches this level. How much there is and how it might impact the markets when the institutional end-of-quarter window-dressing also wanes about three days before the end of September, we don't yet know. That end-of-quarter window-dressing might yet support the markets through another week. The markets are technically ready for a pullback right now--overdue for it--but whether it comes or how deep it might be are not yet known.

Next Week's Economic Events and Earnings Releases:

Next week's important events include the FOMC meeting, a G20 meeting and a heavy schedule of treasury auctions. The most important economic events are set off in red font. I've placed all treasury auctions and earnings in orange, to set them apart from other economic events, although some are more important than others. Pay particular attention to the results of the auctions of the longer-term treasuries, for example, including the 5- and 7-year notes. Jim has been discussing for months the negative import if a treasury auction should go badly. A treasury auction doesn't even have to go that badly in order for the economic landscape to change if it significantly impacts the yield curve.

Not all reporting companies are included in the chart, of course, even though it's a light earnings week. When earnings are mentioned, "BMO" means before the market open and "AMC" means after the market closes.

Important Economic Events, Treasury Auctions and Earnings for the Market Week Beginning Monday, September 21:

What about Monday?

Options traders should be forewarned that the Monday morning after option expiration, particularly quadruple witching, can be volatile. Contracts are being rolled forward, assigned stock is being sold, and other such option-related activities are shaking out the markets. What happens at and shortly after the open may or may not relate to what happens the rest of the day or week.

Annotated 30-Minute Chart of the SPX:

The SPX produced a close just beneath that purple Keltner band, hinting at a waning of that extreme upside momentum, but that could have been an end-of-day anomaly. Not until the SPX produces consistent 30-minute closes beneath that purple Keltner line, something that hasn't happened since Monday, can we consider that the upward momentum has temporarily waned. If Monday morning produces a quick bounce from that support, then the support continues to hold and upward momentum continues to be strong, and we can't yet predict the short-term end to that upward momentum. Equity bulls should be wary, however, of a retest of last week's high, if it should occur, or of a slightly higher high that is accompanied by bearish RSI/price divergence.

It's possible the SPX heads down as this chart hints would likely happen if that close was not an aberration and reflected true waning momentum. If the SPX then maintains 30-minute closes beneath that purple channel line, such action would suggest a potential short-term move toward the pink 45-ema. If that support holds on consistent 30-minute closes, look for a bounce and retest of the purple channel line or 9-ema, to see if it's now resistance. If the 45-ema's support fails, the next potential target is the lower black channel line. Remember that these channel lines are dynamic and that they'll move a little up or down with price movement.

Annotated 30-Minute Chart of the Dow:

Remember the injunction "on 30-minute closes" when studying these charts. As with all types of support or resistance, prices sometimes pierce a particular Keltner band but then close back inside it during the period being studied. That shows that the resistance or support did hold, despite being pierced.

Both these charts show coiling price action that may be "triangling" up. Seen by themselves without placing them inside a Keltner chart, such a consolidation pattern suggests that bearish and bullish forces were approximately equal for the time being, and we can't presume that we know which way prices will break out of that triangle. Sometimes such formations are continuation-formations and prices break in the direction of the previous move, but sometimes they reverse. The Keltner bands give me a little more perspective. This time, as prices coil, they're showing a little more vulnerability to a decline, but the signal is only tentative so far, and trusting a tentative signal to guarantee a pullback is dangerous in this market.

The Nasdaq's chart also shows this coiling action but displays a difference with respect to the normal outer Keltner channel.

Annotated 30-Minute Chart of the Nasdaq:

This chart suggests that, so far, the Nasdaq retains its breakout status and is as likely to bounce from that outer channel line again as it is to drop below it. At 50.85, RSI provides no hint either of the next direction.

If the Nasdaq so far maintains its breakout status, the Russell 2000 does so even more emphatically. The RUT was one of the leaders in the rally early this week as well as a downside leader in Thursday's early decline, and it may be key to watch next week, too.

Annotated 30-Minute Chart of the Russell 2000:

The RUT's extreme surge out of its channels brought the pink 45-ema, the moving average on which the black channel is based, all the way out of the normal outer channel, too. In fact, it almost dragged the entire black channel out. The RUT so far maintains 30-minute closes above the red 9-ema, too, unlike the others. As long as it continues to do so, bears must presume that it will go on testing the rising black channel's resistance. Bulls should consider that this black-channel resistance has been holding, and be wary of further tests of black-channel resistance, especially as that rising potential resistance approaches last week's high.

If the RUT maintains consistent 30-minute closes beneath the red 9-ema, however, some of the same potential setups exist, even though the chart displays some differences. The 45-ema might have been dragged entirely above the typical outer channel boundary, but its support is still likely the next to be tested if the RUT maintains 30-minute closes beneath the 9-ema. If the 45-ema's support fails, black-channel and purple-channel support, likely next support, may be converging by then. It would typically require a strong surge lower to break through both at the same time, and so a bounce attempt could come from that level if prices just meander down to that level. Watch for potential resistance back at the 45-ema if such a bounce should occur.

These Keltner channels are not the end-all and be-all of technical analysis. I love them because they allow me to set if-then kinds of theories of what might happen next. They help me to see that even when prices are climbing, as they were Friday afternoon on the RUT, they were still finding resistance on 30-minute closes at the black-channel line, a potential resistance level that the RUT's prices had leaped above on Friday afternoon before charging higher. So there's a slight change in tenor. Is it enough to predict an immediate downturn next week, one that will be sustained? Of course not. But, if I had been going into the weekend with a lot of long RUT exposure, I'd have been forewarned to make sure I felt comfortable with that level of exposure. I'd certainly have wanted to be sure I felt comfortable with a potential drop to 610-612, at least.

As should have been apparent from the daily charts, many indices show similar setups on their daily charts. All look ready to either drop immediately to test their 8-ema's or 10-sma's or else trend sideways until those moving averages rise up beneath them and dip down to test or pierce them. However, many of those prices have broken up through rising price channel resistance or daily and 30-minute Keltner resistance, so these are markets that are in breakout mode. Those who trade breakouts know how dangerous a trade they can be. Catch the right breakout and you'll be pocketing money by the fistfuls, but catching the "right" breakout is the difficulty. Breakout trades can be quickly whipsawed, too. Breakout traders spend years refining tools that predict which moves will be sustained and which reversed, but I haven't yet heard of one who has perfected the one that's right all the time.

So the best that the rest of us can do is recognize that momentum and pinpoint signs that help us determine when it has waned. It's time. It's certainly time for at least a normal pullback test of support if not something more, but some market pundits theorize that we may see continued window-dressing until the end of next week, at least. Watch the SOX and RUT for clues, as they may be the first to break out of the current consolidation in either direction.