THE BOTTOM LINE:
Showing the greatest strength of all the major indexes, the Nasdaq 100 (NDX) is getting close to a 66% retracement of the ENTIRE decline from the late-October high to mid-March low. Very often retracements that EXCEED 2/3rds of a prior decline end up returning to the area where the top occurred. At that point, there's the possibility of a second (double) top occurring in the same area or, conversely, the potential for the old high to be exceeded and for a resumption of the prior major trend; i.e., an UP trend in this case.
I always examine my thinking and influences when I UNDERESTIMATE the potential for a rally or decline to continue, assuming bullish or bearish chart patterns have remained intact, which they HAVE in this current market. There has been a steadfast resistance to sell off much.
While I like to think that I'm pretty much all 'technical' in how I evaluate a stock or the indexes and that I don't let myself get influenced by the prevailing view of an apparent 'obvious' bullish or bearish economic backdrop, the reality is that I DO sometimes. I have found it hard to believe that the market has resumed its long-term uptrend, like some of the long-term major index charts would suggest. If I don't 'believe' the charts, who else is going to? Well, bullish sentiment is definitely rising, but is not yet what we can call 'extreme'.
Time will tell if the charts and bullish price action are going to continue to prevail, at least until if and when the market gets overbought again. The market is overbought on a short-term (2-3 days) basis, slightly overbought now on a daily chart (2-3 weeks) basis at least in the S&P 500 and the Nasdaq indices, but not yet on a weekly chart (2-3 month) basis.
The oil stocks are in another spurt higher and investors continue to pour money into this sector and the OIX oil sector index is fast closing in on 1000. Are the oils going to continue to fuel this market higher? That sector plus the natural resource and other stocks that are being pushed higher by sharply rising prices for commodities of all sorts and a strong inflationary trend. The semiconductors, a key bellwether for this continued resurgence in tech stocks are having a continuing strong move and may be accelerating to the upside.
The Dow Jones Transportation Average (TRAN) has, lo and behold (!) returned to a level that is within a hair's breath of a new weekly ALL-TIME closing high; 5368.9 versus the record weekly close of 5369.7. The Dow Industrials (INDU) however, is some distance from a similar new weekly closing high; 12986.8 in the week just ended, versus the all-time weekly closing high of 14093.
My safest or only course of action is to stick to commentary on the charts below and NOT provide any prognostications beyond what they're showing us. The market has it's own internal logic and has only rarely been 'wrong' in forecasting better times 6-9 months ahead of current recessionary concerns and fears. Stay tuned on that this time!
Of course as traders, we only need concern ourselves with a shorter time frame. And, until options traders get to what I would say is 'extremely' bullish again, there's no reason why stocks can't continue to confound me and anyone else who thinks that this market can't/shouldn't/won't continue just continue working higher.
MARKET NEWS and INFLUENCES:
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
There was no dip under near S&P 500 (SPX) support at the 21-day average and the index popped right back up to retest recent highs, where selling may come in again OR buyers will once more power prices higher; if the later, look for an upside penetration of 1435, a key near technical resistance. If this is how it unfolds a next potential target is to 1463, then to 1495-1500.
If the index stalls around recent closing levels (1425) or a bit higher (1435), look for support on pullbacks to 1400, then at 1385. There may be a tendency for prices to stall around current levels given the overbought conditions suggested by the RSI currently.
If the index mostly drifted sideways for a time and continued to 'throw off' an overbought RSI reading that way and resisted much of a further decline, this would also maintain a later bullish chart potential.
S&P 100 (OEX) INDEX; DAILY CHART:
The S&P 100 (OEX) Index continues to lag the S&P 500 and didn't clear its 655-658 resistance yet. Above the prior recent 658 high, next resistance is in the 662-668 zone.
A close over 668 is needed to suggest there was potential to re-test prior highs in the 700 area; next resistance would come at 707 to 711. I see more potential for OEX to move sideways to lower than to break out above 658-662 anytime soon. But this market has been more surprising on the upside than down.
Near support at 644 is implied by the 21-day average and a close below the average, not reversed in the next 1-2 following sessions would suggest that OEX was losing upside momentum. Next support is at 640-638, then at 632-633 and finally at 616 to 610.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The chart remains bullish in its pattern but the Dow 30 (INDU) hasn't yet pierced resistance around 13066. INDU has seen steady buying interest and prices worked gradually higher over the week. A key test of resistance at the prior high and at the 66% retracement remains. Assuming 13066 is pierced, there's upside potential to 13550-13560 and then perhaps for a re-test of the prior INDU late-December top at 13780.
Near support is 12715, then down at 12270.
I don't have a strong feeling or assessment of where INDU goes from here. The Dow is not overbought yet so could certainly take out its prior high in the week ahead. On the other hand, if the recent low (12715) is pierced, INDU is vulnerable to falling 200-400 points ahead.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) Index put in another good performance this past week and has now climbed a bit more than a fibonacci 62% retracement of the December to March down leg. If measured from the October high, the same (62%) retracement falls within the downside chart 'gap' area at 2571-2592, which I've noted as a possible next resistance and a pivotal one in my estimation.
A close over 2600, not reversed in the following couple of days, would continue the bullish chart pattern. In that case, significance technical resistance wouldn't be seen before about 2727, at the prior highs. I wrote last week that a close above 2500 that was maintained would likely keep the index moving higher and upside momentum is still strong. As mentioned, pivotal resistance is 2572-2592, extending to the 2600 area.
I've noted near support at the most recent downswing low at 2429; next support is suggested by the gap that's under current levels, at 2352-2387. Note how that gap 'became' support in the days following its formation and we can assume, until proven otherwise, that this may continue to be the case later on.
NASDAQ 100 (NDX) DAILY CHART:
As I noted last week, "...somewhat more than all the other major indexes, NDX remains bullish in its (chart) pattern." I thought last week that some resistance/selling interest might surface around 1985, but NDX sliced through this level and then above 2000 quite easily. Friday's closing level puts the index into possible next resistance in the 62-66% retracement area relative to the entire October to mid-March decline.
If there is going to be a correction, given how much NDX has rebounded already (2/3rds) and also taking note of the overbought condition suggested by the 13-day RSI, it could be the end of this rally (doubtful), or a 'normal' type pullback and price consolidation will take place before the index moves higher.
On the bullish side, a close above 2050 would suggest potential for NDX to climb next to 2100 or higher, such as back to prior highs in the 2135-2147 area.
Key support is at 1950, then at 1900 and finally in the 1850-1868 area.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
I thought QQQQ, the Nasdaq 100 tracking stock, would probably not work higher in the past week. Instead, expiration-related unwinding was a strong bullish influence.
If QQQQ now moves above 50.4, I don't see any resistance before 52.4-52.8. Near support is in the 48 area, next support is well under, at 46.0-45.7.
Volume on the latest upside surge has not expanded much, but On Balance Volume (OBV) continues to advance, which is a confirming type bullish indicator for price action.
RUSSELL 2000 (RUT) DAILY CHART:
Lo and behold, the Russell 2000 Index (RUT) also advanced this past week on the influenced of a bullish Nasdaq. A close over 747 is needed to suggest that the index could advance back to the 800 area.
Support is in the 715 area, then at 700 and finally at 685.
Given the overbought condition suggested by the RSI, it seems doubtful that RUT is just going to continue to advance, but my track record of late suggests to 'fade' my trade thought on this and stay bullish.
GOOD TRADING SUCCESS!
NOTES ON MY TRADING GUIDELINES AND SUGGESTIONS
Trading suggestions are based on Index levels, not a specific option (month and strike price) and entry price for that option. My outlook often focuses on the intermediate-term trend (next few weeks) rather than the next several days of the short-term trend.
Having at least 3-4 weeks to expiration tends to be my guideline for trade entry choice. I attempt to pick only what I consider to be 'high-potential' trades; e.g., a defined risk point would equal in points only 1/3 or less of the index price target.
I most often favor At (ATM), In (ITM) or only slightly Out of the Money (OTM) strike prices in order not to 'overtrade' my account. Exit or 'stop' points, as well as projected profitable index price targets, are based on my technical analysis of the indexes.