- Technical Market Commentary -

January 5, 2011 (FinancialWire) (By Dr. Joe Duarte) (Go to http://www.financialwire.net/?s=cmmtry for all recent commentaries) — The S&P 500 SPDR ETF (SPY – AMEX) and the Russell 2000 ETF (IWM – AMEX) remained within striking distance of new highs on Tuesday. But the action was less than encouraging in many ways.

First, market breadth pulled back significantly on Tuesday. Both the NYSE and the NASDAQ advance decline lines pulled back from the new highs they made on January 3rd.  Second, some of the groups that were leading the way up, such as the oil service stocks, pulled back for the second day running.  This is especially interesting since oil prices are still holding above $90 per barrel, despite some recent volatility. And third, when the Dow Jones Industrial Average makes a new high, all by itself, it may be a sign that the market is getting tired.

This is what technical analysts call a technical divergence. Under normal circumstances in a bullish trend, the market tends to rise in tandem. That means that small stocks, blue chip stocks, midcap stocks and large cap stocks tend to move in the generally same direction, up.  When one group, especially a small group such as the 30 stocks in the Dow Industrials start to move up on their own while the rest of the market starts to lag, it’s a sign that the bulls are getting tired.

It’s still early to say that this market is making a top. But it wouldn’t be hard to say it, or see it, if this becomes the norm over the next few days.  It wouldn’t be uncommon to see one or two good up days in January followed by a vicious correction.

(Go to http://www.financialwire.net/?s=drtjby to see more commentaries by Dr. Joe Duarte, and go to http://www.financialwire.net/2010/05/01/about-duarte/ for more about Dr. Duarte.)

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