THE BOTTOM LINE:
Monday's sharp decline on Standard & Poor's revised outlook on U.S. debt predictably led only to a one-day sell off by nervous investors and traders. It's rare that a single report like this creates a long-lasting diversion of market momentum. As they say in physics, "a trend in motion will tend to stay in motion until reaching a countervailing force". A true countervailing force for an uptrend in stocks has to be something that clearly implies that earnings expectations will need to be substantially reduced.
The S&P report was as 'trustworthy' for stocks, as were the company's triple-A rating on mortgage bond pools that contained 'junk', were for the bond market. We used to call em 'junk bonds' but at least they were high yield and didn't have investment grade ratings!
Technically, not much happened in that the S&P 500 (SPX) once again held support in the 1300 area, although there were lower intraday lows. The (Nasdaq) Composite (COMP) held key support indicated last week at 2700. I'm not minimizing the difficulty of going against the mood of this past Monday, but it was a good buying opportunity for cooler heads. A fundamental analysis of the S&P report would suggest that the impact on stocks was only going to be the head-fake it was. I relied most on the fact that key technical support levels were not pierced on a closing basis. Support at the SPX lows was apparent in the 3 hours of trading after the opening; after that the index rebounded to back above 1300.
My prior analysis (for two weeks) was that "The Dow Average (INDU) most looks like it can break out to decisive new highs, possibly headed for the 13000 area next." A move to slight new highs happened. Only to INDU so far but the Dow leads the market sometimes and can be 'easiest' to forecast on a technical/chart basis. I continue to see a possible move up to the 13000 area.
I also noted last week that: "If the Nasdaq Composite (COMP) gets into gear along with the S&P, it could eventually be headed for the 2950 area or a bit higher (e.g., 3000); at least that would be a 'measured move' objective, provided COMP doesn't fall below 2733-2700." This forecast is still one I hold to.
On a short-term basis, the market is overbought (and hasn't yet reacted to the dismal 'new home' sales report of Friday), so may well sell off some from Friday's closing levels. I remain bullish and, besides the Dow Average, anticipate new highs ahead for the other major stock indices.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
As I wrote last week, it's possible the S&P 500 (SPX) could form another top in the 1340 area, but it's unlikely in my view. We don't typically see repeated attempts to move beyond prior highs in this index only to have momentum fail and the trend reverse.
There were two closes slightly over 1340 made when a top formed in mid-Feb. It will perhaps take a decisive move to new highs above 1340 to get traders really bullish. If so, we should see that bullishness reflected, possibly with some lag time, in my market sentiment indicator with 1-2 or more single-day readings above 2.0.
Beside near resistance at 1340-1344, I've noted resistance coming in around 1360. Major resistance probably begins at the previously broken up trendline, currently intersecting at 1420.
Near support comes in around 1320, extending to 1300-1295.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) dipped briefly below 580 support on Monday this past week but then went on to close above this level. Tuesday's price action then encouraged the bulls some but it was Wednesday's gap higher opening that really swung things their way. This move took OEX to well above resistance implied by the 21 and 50-day moving averages.
Next resistance, once again, lies in the 599 to 602 area. I think the index will clear this zone, perhaps after another minor dip in the early going in the week ahead. Above 599-602, I've projected resistance at the previously broken up trendline, currently intersecting (as of Monday) in the 610 area.
OEX technical support is at 586, then at 580, extending to the prior recent intraday low at 577.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) average, alone among the major indices, has a bullish chart in that INDU has cleared its prior highs, and a significant area of price congestion, at 12425-12440.
I continue to think that INDU can get to the 13000 area again which, as can be seen in my first chart above of the weekly Dow, was an area of weekly highs made in a 'leveling' off period in May 2008 when INDU was on its way to a major decline. In terms of a move to the 13000 area, INDU must first get back above resistance implied by its previously 'broken' up trendline. I've noted next resistance as at the current intersection of this trendline at 12650, per the red (down) arrow on my Dow chart. Key near support now looks like 12200, then next at 12100-12093.
There aren't MANY of the 30 Dow stocks that are clearly in dominant uptrends as the 'leadership' isn't broad and this is of some concern in suggesting a clear cut bullish outlook for INDU; only BA, IBM, KFT, TRV and UTX have broken out to decisive new highs.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) came roaring back from its early week dip to the 2700 support area. The chart is still somewhat mixed. Its bullish that COMP has made a new high for the current move dating from lows in the 2600 area. To technically 'confirm' that the intermediate trend has turned up requires a move to new highs above 2840, which I think is going to happen.
I don't want to chase tech stocks higher. I favored select bellwether tech stocks when COMP got down near 2700 technical support again and I couldn't see any fundamental change in the market outlook based on the S&P report released in time to trash the market this past Monday. I was seeing support at 2730, but 'fairly major' support at 2700. I've bumped up near support to 2750.
Resistance ahead is assumed to lie in the area of prior highs in the 2840 area. Next resistance is projected at COMP's previously broken up trendline, currently intersecting at 2908.
The Relative Strength Index (RSI) is nearing its 'overbought' zone and my CPRATIO sentiment indicator also seen above is neutral or in a midrange reading. Neither indicator is at an 'overbought' extreme, but this pair of indicators should provide a cautionary input when they are. I don't take such 'extremes' as a shorting/buy puts indication in any mechanical way but I lay off adopting NEW bullish strategies.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) is bullish in the sense of pulling back to a 3rd point that now 'defines' a new up trendline. However, it would take NDX moving to new highs to 'signal' that the intermediate-term uptrend was back on track. Before this happens, the chart remains 'mixed'. The short and long-term trends have turned up, or remain up, respectively. I anticipate that NDX is going to move to new highs above 2400.
Near support is at 2307-2300, extending to 2272 and then to the prior recent 2255 low. Resistance is at 2375, extending to 2403. Above 2400-2403, I've projected next resistance for the 2463 area.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) which had been drifting lower, reversed to the upside with its decisive upside penetration of 57.0 resistances. QQQ went on to rally above its prior recent high. Only the 59 price peak still needs to be cleared to suggest a 'confirming' shift in the intermediate trend to UP. I've noted key near QQQ resistance at 59.0 and then well above 59, at 61.8 and which begins fairly major resistance in my estimation.
Key near support is now highlighted at 56.6, then at 55.8, extending to the prior recent 55.3 low in the Q's.
On Balance Volume (OBV) is the only volume indicator that seems to tell us much in terms of 'confirming' QQQ price action, and it is now pointed up. If OBV continues to track higher on balance, this is what 'should' be happening in a renewed bullish trend.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) index reversed higher from support in 820 area. the area of its 50-day moving average. The key moving average for RUT that suggests either key support or resistance is often seen with a daily chart moving average length setting of 50; I sometimes use a setting of 55, but there's not a big difference in the two levels.
I'd again note from last week that RUT built a major top at 850-856 back in June-July 2007; RUT then peaked again in October 2007 at 850. I try to keep this in mind as my shorter-term daily chart doesn't provide this comparison. RUT is one of the few major indexes that could make a major new high if it decisively clears its prior recent peak. There's a good possibility that RUT could climb above 853-855 and regain its longer-term up trendline with the next technical challenge then being to clear 859-860. If that happens, a next potential objective is to 880, extending to the 900 area.
Technical support is at 820, extending to 816 at the prior recent intraday low; I anticipate fairly major support/buying interest in the 800 area.
GOOD TRADING SUCCESS!