The Stock Indices finally broke out to the upside, as discussed in last week’s Briefings. Structurally, the rally was supported by most of the internal components. However, there are two areas of concern going into trading the first part of the week. The first is the fact that volume did not increase on Friday. This suggests the rally was not attracting additional buying pressure, and that pressure may have been waning. The second is the Indices reached an overbought condition on Friday with NASDAQ Breadth diverging from price slightly.
If this rally is to continue in the short term, we will need to see volume begin to increase and Breadth continue to strengthen. If not, then expect some type of pause in the trend. It could be a short term pause simply to work off the overbought condition. The Indices are not at an extreme overbought condition. Therefore, it does not preclude them from exploding once more to the upside before that pause occurs.
Far be it from me to stand in front of this uptrend, but I would be cautious of its potential short term rotation the first part of the week.