Where will the S&P 500, Nasdaq, and Dow Jones run into resistance?

Given the recent rally in the broad market, it’s a good time to take an updated look at the technical resistance levels in the major indices. Specifically,  let’s assess how much room the main stock market indexes have to run before running into resistance. We’ll use the long-term monthly chart interval, which gives a comprehensive view of the “big picture” in the stock market.

The S&P 500 ($SPX) monthly has a bit of room to run before hitting resistance of prior highs. The prior highs are obvious levels of resistance, so the current rally could easily “overcut” those highs before stalling out:

Unlike the S&P 500, the resistance is not as concrete with the Nasdaq Composite ($COMPX), as it has never fully recovered after selling off from the highs in 2000. There may be some major long-term resistance at the 3,500 level, but most market players who wanted out of the market on the decline are already gone by now. Therefore, we do not consider that to be a big level of resistance.

The S&P Midcap 400 ($MID) is in the best shape of all the major averages. The monthly chart has already cleared the prior highs of 2007 and is poised to breakout to new all-time highs should the current market rally remain healthy. Midcap stocks have lagged the S&P 500 throughout most of 2012, but have outperformed big cap stocks the past few weeks.

The small cap Russell 2000 ($RUT) is also closing in on all-time highs. We prefer to see small and midcap stocks lead the market higher, which indicates that institutions are willing to take on risk.

The broad market rally continues to pick up steam with more industry sectors and ETFs participating in the advance. The financial sector has picked up some momentum the past few weeks, with the Financial Select SPDR ETF ($XLF) breaking out from a six-month base on Thursday. Although there are plenty of negatives out there to keep traders from investing in this market, we prefer to focus on the price and volume action of individual trade setups and to trade what we see, not what we think. Our market timing model remains in “confirmed buy” mode and we’ll continue to monitor setups for low risk entry points in the Wagner Daily stock and ETF trading newsletter.