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|  | JANUARY 30, 2006
 TECHNICAL MARKET INSIGHT By Mark Arbeter From Fear to EuphoriaAfter their mid-January slide, the S&P 500 and the Nasdaq are headed back up to test recent recovery highsOnce again, the stock market cracked but did not break. Many commentators described the market events of mid-January as "The Perfect Storm." Late last week, we think the market can best be described as "Perfectly Numb." The recent failed breakouts by the major indexes seem a thing of the past and it appears to us that the S&P 500 and the Nasdaq are headed back up to test the recent recovery highs. Bond yields broke out last week while oil prices took a break and pulled back to support. The S&P 500 found support from a number of areas last week, before breaking to the upside on Thursday and Friday. The index fell into an area of chart support that runs from 1245 to 1275. The 50-day exponential moving average, which lies at 1261, was tested on an intraday basis on Wednesday and held. With the late week rally, the S&P 500 overtook both its 10-day and 20-day exponential moving averages. Chart resistance runs between 1278 and the recent intraday high of 1295. Trendline resistance off the highs in August and January lies just north of the 1300 level, while trendline resistance of the highs in November and January sits at 1310. The Nasdaq's chart of late looks very similar to the S&P 500. The Nasdaq's most recent breakout failed, but it fell right into an area of strong support. Chart support for the Nasdaq lies between 2190 and 2278. This is from the consolidation during November and December. Both the 50-day exponential moving average and the 50-day simple moving average provided support during the latest pullback as the index fell right to these key pieces of support. The 50-day averages also provided nice support during the dip at the end of 2005. A trendline drawn off the highs in January and August of last year came in at 2240 and added another layer of support for the index. On the upside, chart resistance lies up at 2333, or the high on Jan. 11. Trendline resistance, drawn off the highs in November and January, comes in at 2360. A fair number of secondary indexes have already broken out to new highs, with many posting all-time highs. We view this as bullish action. The S&P 600 SmallCap index broke out sharply to an all-time high on Thursday and is now up over 15% since the low in October, 2005. The "600" is up a whopping 121% since its bear market low in October, 2002, and has consistently outperformed the S&P 500 since April, 1999. The S&P 400 Mid Cap Index broke out to an all-time high on Friday and has also risen over 15% since its October, 2005 low. The "400" has surged 108% since its bear market low in October, 2002, and has also outperformed the S&P 500 since April, 1999. The Dow Jones Transports moved to another all-time high this week and has climbed over 20% since its low in September 2005. The DJ Transports are up about 122% since hitting a bear market low in March 2003. With the continued strength in commodity prices, the Philadelphia Oil Service Index (OSX) hit an all-time high on Monday while the Philadelphia Gold & Silver Index (XAU) jumped to its highest level since 1996 and is very close to taking out the major highs of 1987. The strength has not been limited to U.S. markets as the CAC 40, the DAX, and the FTSE all broke to their highest levels since 2001, and the Nikkei Index has moved to its highest level since 2000. Market sentiment remains very bullish, and this tempers any enthusiasm we could muster toward equities. Last week, the Consensus poll, made up of stock index futures traders, hit 74% bulls, while the MarketVane poll rose to 73% bulls. The combination of these two polls hit 147% bulls, matching the highest level since January, 2004. The high prior to that was back in March, 1998, at 149%. The other investor polls we monitor remain heavily tilted towards the bullish camp. Taking a look at the options market renders the same conclusion. On Jan. 24, the equity-only put/call ratio fell to 0.37, the lowest daily reading since late December, 2003. We believe low put/call ratios signal an overly bullish stance towards the stock market, and from a contrarian standpoint, this is bearish, in our view. The 5-day, 10-day, and 30-day equity-only put/call ratios are all near their lowest levels of the past couple of years. The bond market broke down last week, as yields on the 10-year Treasury note moved sharply higher. The 10-year Treasury finished at 4.5%, the highest since early December, as yields broke the downtrend they have been in since early November. Daily momentum reversed to the upside, after getting overbought, confirming the change in trend. We believe yields will head back up for an important test of chart support in the 4.7% area. This zone represented a top for yields in August, 2003, March, 2005, and November, 2005. During a brief time in 2004, yields did pop up to the 4.9% area. If yields break through the 4.7% level, there is trendline support, drawn off the recent peaks in yields, at 4.8%. After running up sharply, crude oil prices were relatively stable last week, pulling back to support and consolidating the recent gains. The low for the week was around $65.50/barrel, hit on an intraday basis on Wednesday and Thursday. This represented an area of near-term chart support. It also was a 23.6% retracement of the latest rally that began in November. We are still looking for crude oil to challenge the all-time highs up at $70 per barrel and we believe a strong breakout above this level would then target the $80 level.  Arbeter, a chartered market technician, is chief technical strategist for Standard & Poor's All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of analyst compensation was, is or will be, directly or indirectly related to the specific recommendations or views expressed in this research report. Standard & Poor's Regulatory Disclosure Any advice, analysis, or recommendations contained in articles labeled "Insight from Standard & Poor's" reflect the views of Standard & Poor's, which operates separately from and independently of BusinessWeek Online. It is possible that BWOL may from time to time publish information that is not consistent with advice, analysis, or recommendations that are published by Standard & Poor's. Standard & Poor's and BusinessWeek Online are each units of The McGraw-Hill Companies, Inc. 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