To be sure, the Standard & Poor’s 500 is still in a holding pattern so all the market’s engines are not firing (see Chart 1). A move above the upper border of the triangle pattern in effect since February would be required to confirm rallies elsewhere in the market.
Chart 1
Standard & Poor’s 500

There is another index showing new moxie – the New York Stock Exchange composite. Last Wednesday it finally moved above a ceiling that was in place since July of last year (see Chart 2). That was a long time to be stifled at a resistance level and in technical analysis the longer that continued the stronger the ceiling would become. Therefore, a break through it had big technical significance.
Chart 2
NYSE Composite
Unfortunately, there was no follow through Thursday and Friday, when stocks tumbled and the index dropped back below its breakout point. It was interesting to me from a sentiment point of view to see many respected chart watchers call it a breakout “failure.” Failure, in the technical sense, means a pattern breakout was rejected, implying strong resistance and a likely drop back down the pattern’s bottom border.
But was last week’s gain really a breakout? After all, the index topped out less than 1% above resistance and considering how long the pattern had been in effect that is not significant. But even if it were, Friday’s drop to approximately one half of one percent back into the pattern was not enough to negate the upside move. Unknown is whether Monday’s move back into breakout territory will hold. Odds suggest the answer is yes.
The small capitalization Russell 2000 remains in the lead and Friday’s decline served as a perfect test of the rising trendline in effect since October (see Chart 3). Admittedly, momentum is not as strong as I’d like it to be. Still, it is hard to argue with a rally that remains intact despite big market events.
Chart 3
Russel 2000

As mentioned, there are two areas of concern. The Dow Jones Transportation Average continues to trade near an important support level, even as the major indexes trade near highs (see Chart 4).
Chart 4
Dow Jones Transportation Average

Late last month, I wrote here that despite this divergence in trends, the broad market remained in good shape (see Getting Technical, “Stocks Look Good Even as Transports Go Nowhere,” March 30). I also highlighted strong support in the 8580 area for the Dow Transports supplemented by the rising 200-day moving average (the index traded at 8791 Monday).
Since that column, the transports bounced but not by much. And on two occasions the index dipped to challenge support pushing the analysis closer to the bearish side. In theory, the longer an item hovers near support the more likely it is to break down.
Monday’s rally may be the spark needed to finally get this index moving higher. Failure now would indeed be a concern for it and the market as a whole.
Retail is the other concern. The SPDR S&P Retail exchange-traded fund outperformed the market since last summer but stumbled earlier this month (see Chart 5). Friday’s decline actually created a short-term breakdown on the charts although the intermediate-term trendline from October remains unbroken.
Chart 5

But with the giant Wal-Mart locked in a rather steep down trend and some of the biggest names such as Costco Wholesale  and Home Depot threatening trading range breakdowns it might develop into more.
For now, neither retail nor transports have scored major breakdowns. The market remains in good shape with rising trends, good breadth and a healthy dose of fear thanks to Friday’s dip.