The daily chart of the Spyder Trust shows the gap through resistance (line b) at the start of the year. The October 27 high at $129.42 was just overcome on Thursday.

• The 127.2% Fibonacci retracement target is at $133.26 with resistance from the July highs at $134.70 to $135.70
• The S&P 500 advance/decline (A/D) line moved above its weighted moving average (WMA) on Dec. 22 and has been rising nicely since
• The A/D line has not yet exceeded the previous high, line d, which is a short-term concern
• In a very strong rally, the A/D line should be acting stronger than prices; a drop back to the rising weighted moving average would not be surprising
• The important A/D line support is now at line d
• The rising 20-period exponential moving average (EMA) is now at $126.60, with more important support at $124.73 to $125

The SPDR Diamonds Trust surpassed the October highs on the first day of the New Year. It is now not far below the 127.2% Fibonacci retracement target at $125.61.

• The July highs are at $127.30, and DIA reached $128.63 on May 6, 2011
• The upper trend line on the daily chart, line f, is at $130.40
• The Dow Industrials' A/D line is still well below the prior highs and the weighted moving average is now just starting to turn higher
• This is quite different than the action after the October lows when the Dow's A/D line was rising more sharply than that of the S&P 500
• There is first support for DIA at the 20-day EMA in the $122.40 to $122.60 area; there is additional support now at $120.50

What It Means: The lagging action of the A/D lines for both the S&P 500 and Dow Industrials is consistent with a short-term top. It would take a few days of strong advance/decline numbers to reverse this deterioration.

The short-term comparison of the two A/D lines suggests that the Dow stocks may be more vulnerable on a market correction. I would not be surprised to see the cash S&P 500 hit the 1305 to 1310 area and SPY reach $130.50 to $131.50 before a pullback.

After a correction, I will be better able to assess the weekly relative performance, or RS analysis, which still favors DIA at this time.

How to Profit: A 2% to 4% correction in the Dow would not be surprising, so those who have nice profits on some of their Dow stocks and are familiar with covered call strategies may want to sell higher-strike calls against their existing stock portfolio, especially if the S&P 500 gets above 1304.