Last week I looked at two scenarios as to how the daily channel could play out. The weekly charts had still left room on the upside for a break to last year's highs, but momentum was shifting compared to December, which indicated a correction. As we saw, that correction offered no further setup on the 15 minute charts for a further correction in price versus the correction it was forming over time. On Wednesday, however, the upper channel level did break in the Nasdaq, offering confirmation on our second scenario by which the market would treat the correction of the prior couple of weeks as more of a trading range and then attempt a break that would be comparable to the mid-December rally.
This breakout will have resistance when the move higher this week equals the move higher between the 19th and 27th of December and runs into last year's highs. The Dow Jones Ind. Average ($DJI) is testing last year's highs in premarket trade, but the S&P 500 ($SPX) still has room. It also needs more confirmation for the channel break though. It is testing the upper channel of the past several weeks once again ahead of Thursday's opening bell. This will up pressure on the bulls intraday into the open, but isn't enough to negate the daily breakout.
S&P 500 (Figure 2)