Another choppy week ultimately finished with a surge above three and a half year highs on news of a better than expected employment report. It’s the move we’ve all been waiting for and was an important milestone for both the Dow and the S&P. You would think that a surge in volume would accompany a move like this, but it wasn’t the case. Buy volume remained surprisingly weak on Friday across all indices, adding skepticism to the breakout move. In addition, the Nasdaq continues to struggle below major resistance levels and isn’t showing any many signs of conquering those levels anytime soon. Clearly, the market continues to be led by commodity based stocks… tech, finance and medical just aren’t participating with any significance. In order for this breakout to hold, there has to be participation from other sectors other than commodities. Strength in retail towards the end of the week as well as an improving picture for semiconductors is a start, but until the Nasdaq bursts out of its depressed state, it’s best to remain a bit cautious. All eyes will certainly be on the next big milestone .. Dow 11,000, which is would provide a nice headline for the major news outlet and perhaps prod the bull into a final run.

Here’s a look at the Nasdaq, which has two major resistance levels to contend with in the coming days. The first is at the 50 day moving average , where it was turned away on Wednesday. The second point of resistance is around 2100, an area it has had trouble with in the past. It will be very interesting to see if we get any follow through from the market early next week and if so, how will the Nasdaq handle these resistance levels. Next week should reveal some important clues as to the strength of the market.

You see that the S&P has cleared 3.5 year highs, but there have been no days of accumulation (institutional buying) in the last several days. The market can’t stand up for very long without the support of institutions.

UPDATE

The market has in fact revealed some important clues as to its strength… and it’s indicating the rally is in trouble.  What began as an unconvincing break to all time highs in the Dow and S&P, followed by a break above resistance of the 50 day moving average in the Nasdaq has quickly faded, bringing us once again to a point of uncertainty.  In the last few months the foundation for the market has been commodities, which in the past couple days have shown signs of cracking.  Oil sold off hard at the end of the day today and steel stocks have been hit in the last two.   If the market is going to be able to pick itself up and make charge ahead to new highs, there must be leadership in other areas.  Retail and semis have shown signs of life, but it may not be enough.  We shall see.   With the bull market that began in 2002, nearing the end of a run it will be more important than ever to keep close tabs on price and volume action.  I still think the market has enough gas for one last run.

Here a look at the latest charts of the Naz and S&P:

The Nasdaq showed signs of hope on Monday by surging above the first level of resistance at the 50 day moving average, but was quickly turned away at 2100, which has proved to be a formidable area of resistance since the beginning of the year.

Looks like the S&P will continue to drop and test that support area where the short term term trend line and the 50 day moving average converge.