THE BOTTOM LINE:
With a stall in the area of prior highs in the S&P and Dow and a bit more shy of that in the Nasdaq, we have to consider the possibility of another top having formed. However, I don't think the market came back this quickly and strongly only to trace out a double top.
It is a high risk game if you're in bullish options strategies and counting on a further up leg in the next week. Prices are headed higher I expect but in terms of trading strategies I like to buy in when bullishness is low and not hang in when progress gets stalled as far as holding index/stock calls. It works differently when buying stocks to hold for the long haul. In terms of bullish sentiment, options traders are showing above average bullishness, but haven't gone to extremes yet in buying calls relative to puts on individual stocks.
The Dow Average (INDU) most looks like it can break out to decisive new highs, possibly headed for the 13000 area next. The Nasdaq Composite could be forming a major double top, but the same pattern does not show up in the big cap Nasdaq 100 (NDX), as NDX is holding above its prior (Nov, 2007) major top. If NDX needs further upside help from bellwether Apple (AAPL) to progress, good luck, as that stock looks like it's been tracing out a broad rectangle top.
I remain bullish; modestly so, to rank or qualify my view at this juncture. I don't see enough selling pressure to take this market down by much. In terms of the S&P 500, the index may pull back to the 1300 area again. A decline to under 1300 that lasted more than 1-2 days would suggest an interim or longer-lasting top.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) index has stalled around 1340 not far below its prior highs for this move. The daily chart looks mixed because of this indecision pattern. On a longer-term weekly chart basis (not shown), over time, SPX looks like it could be headed to the 1400-1425 area. This seems unlikely before this month's expiration but before May's in my estimate. To keep on a bullish track, SPX should hold above 1300-1303 on a daily and weekly closing basis. I still rate the odds for new highs as good.
I noted last week that "SPX might struggle to churn through resistance in the area of prior highs between 1332 and 1344..." and this dynamic was in evidence this past week. I've noted resistance around 1340, extending to the mid-Feb 1344 intraday high. Next resistance then looks like 1360, with fairly major resistance at the previously broken up trendline, intersecting in the 1400 area currently.
Near-term support begins around 1320; generally, buying interest in the area between 1309 and 1313 (at the 21 and 50-day moving averages) is what I'm anticipating. Pivotal technical support next comes in at 1300.
RSI and TRADER 'SENTIMENT'
Bullishness has picked up since the last bottom, but isn't at that kind of 'extreme' seen at the last top (indicator charts seen above). The 13-day RSI could fall into the 'neutral' 45-50 zone if there's a further downside drift. Neither of these indicators are suggesting extremes.
Moreover, the CBOE Volatility Index fell to around 18 by Friday, down from a peak level of 28 that occurred at the 3/16 low and which is also a mostly neutral reading and at the 10-day moving average.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) remains at a crossroads in a chart/technical sense as the index drifts sideways in the area of a key prior high just under 600. We have to consider the possibility that OEX tops again in this area. While I think that the OEX will break out to new highs at some point, short-term the index may struggle to advance above 602-603. An upside penetration of this level on a closing basis would turn the intermediate trend back up.
Resistance implied by a return to the previously broken up trendline is another technical focus. I've noted resistance at the extension of this trendline at 603 currently. Major resistance begins in the 620-625 area.
OEX technical support is at 585-589, extending to 580. A close below 580 would be a bearish development, especially if weakness continued into the following day's session. At that point it would set up a possible retest of OEX's prior intraday lows around 560.
DOW 30 (INDU) AVERAGE; DAILY CHART:
I wrote last time about the Dow 30 (INDU) average having the potential of getting back above its long-term up trendline which I've been noting as a key technical resistance. Extensions of such trendlines, what I sometimes refer to it as 'kiss of death trendlines', are a close watch on my charts. The kiss of death term was coined by an astute technical trader I knew from New York/Wall Street days, Michael Jenkins. ("Geometry of Stock Market Profits; A Guide to Professional Trading for a Living")
INDU's previously broken up trendline continues to 'act as' apparent resistance as can be seen on my daily INDU chart below. This rising line of resistance could mean that the Dow possibly just creeps up along this line 'hugging' this resistance. Conversely, a retreat from the 12400 area could result in a setback to 12200 support or possibly to 12000 again. I doubt we'll see much more than a pullback than to around 12200.
Of course, INDU could again rally to above what had been its long-term up trendline, by breaking out above nearby resistance at 12465. The Russell 2000 (RUT) did this recently but then settled back to below this key trendline by week's end. I've noted next resistance as 12600. Major resistance begins around 13000, extending to 13130.
THE 30 DOW STOCKS p>
I rate as technically strong/bullish: AA, BA, CAT, CVX, IBM, KO, T, UTX, and VZ
Moderately strong/bullish: DD
Mixed (e.g., faltering uptrends): AXP, DIS, HD, JPM, KFT, PFE, MMM, TRV, and XOM
Moderately bearish to markedly bearish charts: BAC, CSCO, GE, HPQ, INTC, HPQ, MCD, MRK, MSFT, PG, and WMT
This current 'bottom's up' analysis suggests some further upside potential in INDU, but not a major new up leg absent a rebound in some of 9 'mixed' stocks and/or some of the 11 more bearish looking charts.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) did have prior strong upside momentum and the sideways drift of last week may be a consolidation before a push up through a line of resistance at 2815. That's the bullish scenario and implies then a further push above the prior intraday 2840 high. Next resistance comes in around 2862 currently, at the previously penetrated up trendline; what was support at the trendline has 'become' potential resistance.
The more bearish near-term scenario is for a pullback to support starting around 2750 and extending to 2730. Major support begins at 2700.
I think COMP is headed higher but I'll be watching the S&P 500 (SPX) for how it does in taking out ITS prior high. The S&P has been occupying the prior leadership role provided previously by the tech heavy Nasdaq Composite. Tech stocks had a big run when investors assessed the economy wasn't in a growth pattern strong enough to warrant buying the more cyclical (with the economy) stocks traditionally listed on the NYSE.
The Relative Strength Index (RSI) and my CPRATIO sentiment indicator aren't at 'overbought' extremes. RSI was headed in that direction but a sideways to only slightly lower trend tends to pull this indicator down again fairly quickly.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX), which was in a strong rebound, faltered this past week and we've seen slightly lower daily highs and lows since then. There's a small rounding top formation seen on the hourly chart (not shown) that suggests there could be a further slide. Support is at 2300, then at 2275, extending to around 2253-2250.
There's also a bullish interpretation suggested by the recent sideways to lower move seen as a possible bull flag that has formed prior to another rally. However, NDX should rally SOON as an outcome of this pattern. If the index continues to drift lower, it negates this chart interpretation as 'flag' type patterns form for brief periods only, covering just a few bars or trading periods.
Resistances levels are at 2359-2360, then at 2375, extending to the 2400 area. 2470, on up to 2500, is the start of fairly major resistance. At some point, maybe not in this coming week, I envision another rally that could carry to around 2500. I don't see current upside potential as to much more than to this area but the unknown is whether there's a breakout to back ABOVE the previously broken up trendline.
My current 'worst case' scenario is for pullback to the 2200-2190 area. In the next few weeks I think it more likely that NDX will see a move toward 2500 than to sink to 2200 again.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock symbol has reverted to "QQQ" from QQQQ.
QQQ looks to be at a crossroads on a short-term basis. I think it's more likely another QQQ rally sets up than it is for the stock to drift much lower. Resistance levels to be tested: besides the most recent intraday high at 57.9, there's the previous 58.3 peak; next resistance is assumed to come in at the highest prior top, at 59.0. A move above 59 would suggest potential back up to resistance suggested at the highlighted trendline, currently intersecting around 60.7.
If instead, QQQ continues to slide, especially to below 56.0, then a move to the 55 area looks like a next target.
The daily volume numbers have on balance been declining on recent down days, consistent with a still bullish price trend.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) didn't prove to the mighty leader index in the face of lackluster buying interest in the overall market. RUT got only up to where I noted initial resistance last week at 860. It looks like a bout of profit taking set in on Friday, pulling RUT's Close back below its previously regained up trendline.
I should note, because my daily chart doesn't take us back far enough, that RUT built a major top at 850-856 back in June-July 2007. By October ('07) RUT peaked once again at 850. So, we're in a powerful price area with this Index. The 2007 856 top was the previous all-time RUT top. RUT has extended its absolute historical high slightly here by a hair's breath.
Friday's close brought the Russell to just under its short-term up trendline, bearish on a short-term basis. However, if RUT can hold around 840 and rebound by Tuesday-Wednesday, the index could quickly challenge 860 again. Major resistance begins at 877-880 and extends at around 900 by mid-May.
If RUT continues to slip pivotal support is provided by the 50-day moving average, currently at 816. I'd call key support as 820-816. Fairly major support comes in at 800.
GOOD TRADING SUCCESS!