The Santa rally that had a last minute start has shown to be a success even more so than many might have thought. It's time to take a look to see how high the S&P and the Nasdaq have climbed over the past week and a half.
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The S&P chart shown above has a reading of 202 points above its 324 EMA line at Friday's close. Anytime the S&P gets above the +200 level it is living on borrowed time. While Friday's 202 is still one typical up day from its 219 point average extension of the past twenty-four months, it is already at the peak over-extension trend line shown in red. Considering both the red over-extension line and the current numerical distance from the green 324 line enables us to get the best read on when the current market run is done. The S&P may be able to get a little higher in the next few days but we are very close to a maximum over-extension.
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Looking now at the NASDAQ chart shown just above, the most noticeable difference is that in the past eight months the maximum over-extension of the NASDAQ has been reduced considerably from the over-extensions of last January and March. The market is only allowing approximately 600 points of extension in the past eight months, reduced from the approximately 700 points from last January and March. Friday's close on the NASDAQ was +595 which is also very close to its max and the NASDAQ is also above its red over-extension line which is the frothiness that the NASDAQ develops sometimes before it starts a decline.
While the Santa rally could float us up a few more points on both indices over the next several days, having both so close to their maximum extension is definitely a heads up at least for those who go in and out of the market every couple of months or so.
Trade well my friends
Alan
