U.S. Markets Approaching Resistance
Since breaking out around 1280, the S&P has continued higher, and is now approaching major trendline resistance around 1320 that dates back to 2007.
The QQQ Nasdaq ETF is also approaching long-term trendline resistance. Like the S&P, its pattern originates in 2007, but unlike the S&P which has a neutral pennant pattern, QQQ has a more bearish rising wedge pattern in play.
The iShares Dow Jones Financial index (IYF) is nearly hitting a trendline resistance dating back to 2007.
The iShares Dow Jones Real Estate index (IYR) is also approach trendline resistance. It still has running room before it hits the trendline resistance from 2007, but since August, it has formed a rising (bearish) wedge. Rising wedges are estimated to resolve to the downside about 66% of the time.
It would seem that there’s still room to the upside in these U.S. equity indexes, but significant resistance is fast approaching. The Euro may be breaking to the upside. If it is, does that mean U.S. equities will rally? The Euro and U.S. equities – which had been very tightly correlated for most of 2011 – separated significantly in the last month, as the Euro broke down and U.S. equities continued higher. It’ll be interesting to see how the prospect of a Euro breakout relates to the trendline resistance that is at hand in major U.S. indexes. Last year, Europe sold off while the U.S. remained relatively strong. With so little hope for Europe, and so much confidence in U.S. growth, might roles reverse this year?