I’ve said in recent posts that the weekly charts look good, but the near-term charts, the dailies and especially the 60 minute charts don’t look so good. We have positive divergences in the former and negative divergences in the latter. And for a sustained impulsive rally, you need multiple time frames to confirm one another.

The other thing we must take notice is that the markets have noticeably rotated resources into small caps and technology. This is clear by examining the Nasdaq daily chart ($COMPQ), where we have a breakout from it’s rising wedge pattern at about the 2380 level, led by the familiar four horsemen of tech RIM, GOOG, BIDU, and especially AAPL. Unfortunately that Nasdaq breakout has been hampered with falling volume. So the breakout is losing steam. The S&P has been performing well, moving through its rising wedge and finding good support in the uptrend line that wedge has formed. The most recent move up last week,like the Naz, was accompanied by falling volume. So, it’s difficult to say whether the Naz will continue in breakout mode, and whether the S&P will try to test the resistance at the top of its rising wedge, which looks to be at about 1320. The market will more than likely test support below first before testing resistance above, and it will need to refuel in order to gain the momentum it needs to overcome those negative divergences and break through resistance. So for the Naz, that will likely mean testing its newfound support at its 200-day moving average.

In the past two weeks AAPL has performed in spectacular fashion, even when the markets were down. Sooner or later it had to give some back. But surprisingly that wasn’t until late in the session on Friday (August 15). AAPL has not seen a decrease in volume, but it failed to penetrate that venerable line of resistance at 180. It was rejected several times last week. And with the weight of the Naz and S&P, combined with AAPL’s inability to break on through to the other side, I believe that the markets will regroup the first part of this week before attempting another move up. AAPL would do well by back testing its 50-day moving average which sits at about 171 right now.

The big cautionary note that you must watch, is if the S&P falls below its uptrend line and breaks the wedge, or if the Naz loses the 200-day and falls below top of its breakout point, then you must respect what the market is telling you at that point. And that is, it’s simply not ready to take on the challenge. Now I’ve said the weekly charts are providing a good deal of support, but it goes further than that. The S&P for example put in a strong bullish hammer last month on incredible volume, as did the Naz. So there is confirmation on the longer-term time frames that the markets want to go higher, we just need the patience and fortitude until that event happens.

So, what do we do to start this week. As an investor that looks for strong confirming moves, I would say there currently aren’t any. The S&P needs to decide whether it will retest support or go for resistance. The Naz needs to decide whether it will continue its breakout, or find just what kind of support it has, before making the move. And AAPL is the lead horseman that just stopped at a watering hole. So for now, the markets and AAPL must first reveal their intentions before moving on and before I’ll commit my money to one direction or another.

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