THE BOTTOM LINE:
Overall, the market looks like it has limited upside potential. I don't anticipate tech being so strong ahead that this market segment will pull up the overall market. Maybe the Nasdaq will break out and I noted last week that COMP and especially NDX had still-bullish looking charts. The key Nasdaq technical resistance levels remain the 66% or 2/3rds retracement levels, which approximate their recent highs.
If a top has been made, if the retracement of the October to March or December to March declines has run its course, you may and probably do ask why the market hasn't fallen more than it has so far relative to recent highs. The bullish fundamental outlook supporting the recent rebound is that the U.S. has seen the worst or near to worst of a slowing economy, declining earnings, high oil prices, etc. and stocks will be in pretty good shape by year end, so stocks SHOULD work still higher ahead.
The bearish case is well known and I don't need repeat it, but if the outlook is so bearish, why aren't more stocks tanking? It could of course be that a secondary top here may take some time to build, as has been fairly common in the past. Rallies to test how much supply or selling interest is out there is fairly common in situations where the market is climbing a 'wall of worry'.
Investment money has to go somewhere and with inflation picking up and housing in the doldrums, there is not a lot of places, other than equities, that you can stash a lot of cash. Stay tuned on this outcome. It looks to me right now that the overall market will work sideways to lower in the coming month, but with some pockets of strength.
I wouldn't be shocked if the overall market works higher, but it's not what I anticipate looking at the charts currently and that includes the strong Nas 100. On the other hand (good thing we have two!), if there is a break out move to new highs (for the current move), the least surprising major index to manage that would be NDX; a key test of its prior top is not far overhead, in the 2050 area.
MARKET NEWS and INFLUENCES:
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) rebounded this past week from the low end of the trading range the index has been in since mid-April. This recent rally hasn't been the equal in strength to the sell off that preceded it; the index has retraced about half of its prior decline so far and SPX looks like it's hitting resistance in the area of its 21-day moving average. The chart continues to look bearish in its pattern, suggesting formation of a secondary top after SPX's prolonged rally off the mid-March lows.
More often than not, the bearish price/RSI divergence that formed and that I've keep highlighted on the price chart below, is suggestive of more than a minor top formation.
Near resistance is at the 21-day average, currently at 1403, with next overhead resistance coming in around 1426, with next higher resistance implied by the 66 percent retracement (of the Dec-March decline) at 1434. A close that's maintained over 1426-1434, would be bullish and suggest potential back up to 1500 area.
Near support is assumed to be at the recent 1373 low, which held above near support suggested last week at 1368-1370; next technical support lies in the 1350 area; lastly, support should be found at 1335 to 1324.
S&P 100 (OEX) INDEX; DAILY CHART:
The S&P 100 (OEX) Index is pretty much a mirror of the larger S&P 500 Index and the recent rebound looks vulnerable to another wave of selling and/or a lack of strong buying interest. As with SPX, I rate the OEX chart (pattern) as bearish in the near to intermediate term; from 2-3 days to 2-3 weeks out.
Near resistance is also suggest by the 21-day average intersecting around 644; next resistance and quite key technically, is at the minor double top made in the 658 area. Resistance implied by the fibonacci 62% retracement level is at 662.
I suggested last week that key technical support looked like 610-615, but OEX rallied from a 627 low; this level now is viewed as near support. 610 is a next key support, as implied by the prior (down) swing low at this level.
Although there's been no 'sell signal' so to speak suggested by the CPRATIO indicator, as reflected by any recent readings around 2 (i.e., a daily call volume double that of puts), my general take on current trader 'sentiment' is that option players have been buying into a bullish case for stocks. I tend to see this as reflecting a degree of 'complacency' about stock risk ahead, which may not be warranted.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) had a weaker recovery bounce than the S&P and its chart pattern is the most bearish of the 3 indices. Maybe the Dow could get back up to its 21-day average currently (as of the Friday close: 12812), but that's my most bullish expectation for this index at present.
Next resistance above the average is not far over the 13000 mark, at 13066 on up to 13147 at the recent minor double top. What makes a double top (or bottom) more 'minor' is when there is a relatively short time span between when each top or bottom was made. The longer the duration between top formations, the more 'major' is the significance usually; e.g., two tops made 3 months apart is generally a more significant future resistance than two tops occurring 10 days apart.
Near support can be assumed as coming in at the recent 12443 bottom, with next support at the prior downswing low at 12270, extending to around 12176.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) Index has yet to re-test or pierce it's prior high in the 2550 area, but last week's rebound has brought it close to a possible challenge of resistance in the 2535 to 2550 area.
The Nasdaq stocks have been surging, while the 'old' economy sectors more represented in the S&P indexes are not seeing the same buying interest. If 2550 is overcome in COMP on a closing basis and the index holds this area in day(s) following, look for upside potential to 2600 or a bit above; e.g., to 2610-2620.
Conversely, if there's another top that forms and if support implied by the recent minor double bottom low at 2429 is pierced, support suggested by the 2352-2387 price 'gap' could get re-tested.
Something to watch for: if the 13-day RSI indicator as seen above does NOT make a new relative high along with a new high close, a bearish price/RSI divergence could be signaling a 'final' top for a while anyway for the extended rally that began after the March 2155 low.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) chart is close to its 'moment of truth' as to the staying power of the powerful recovery rally it's had in past weeks. A decisive upside penetration of 2050, where the 2050 area is more or less maintained on any subsequent pullbacks, would suggest upside potential back to NDX's December highs made in the 2725 area. The index is now within a hair's breath of testing its 5/15 closing high of 2034.
The hourly chart (not shown) suggests an initial hint of a retreat from prior recent highs; this after the index reached a short-term overbought condition. The first 1-2 days of the coming week ought to tell the story on whether recent strength will continue or fade in the area of NDX's recent highs.
Near support remains at where I suggested from last week, around 1950; next support should be found in the low-1900 area, extending down to 1887. Repeating also from last week: fairly major buying interest is anticipated in the prior (upside) gap area, at 1850-1868.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQQ) has key resistance at 50.4, with major resistance around 52.8.
Near support is at 47.8-48.0.
It's toss up in my mind as to whether the stock keeps going or fades around its prior recent highs. The volume trend is encouraging for a bullish outcome. Stay tuned on that!
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 Index (RUT) made a new closing high last week and the chart remains bullish. If RUT retraces a fibonacci 62% or to around 66% of the ENTIRE decline as measured from the 852 top made in October to its March low, the next significant technical resistance as suggested on a retracement basis, would be 771 to 881.
I thought last week that there might be a downturn rather than an upturn and this was a WRONG turn in the estimation department! RUT however remains overbought on an intermediate basis (e.g., in a 2-3 week time frame) so now isn't the time on a risk to reward basis of jumping into RUT call purchases.
I did also write last week that..."it looks like there could be lower prices ahead, especially if there's a decline below 715 next." Support this past week developed in the 719-720 area. Next chart support is around 700, with fairly major support at 685.
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.