THE BOTTOM LINE:
The major market indexes have gotten to or near their prior highs and are overextended. I doubt that there's much more upside so those holding calls are at risk of a corrective pullback.
Those having bearish positions should sit tight as odds favor at least a modest pullback either from recent highs or after a retest of the early-May price peaks.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart is bullish but the rally is 'extended' on the upside as recent highs hit levels that are 3 percent above the 21-day moving average, suggesting that there is limited further upside without a corrective pullback. In some cases prices will work higher and move up along or 'hug' the upper (3%) envelope line. This could happen here but I'm first anticipating at least a modest pullback to the 21-day moving average.
Resistance is at 1356, extending to the prior high at 1370. Support is anticipated in the low-1300 area.
The 13-day RSI has nearly reached an overbought reading. The more bullish of my two key technical indicators is bullish/bearish sentiment, where bullish sentiment is only 'moderate'. This alone suggests that SPX could work still higher.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is the other S&P bullish chart but as with the 500 (SPX) Index, the odds of a downside pullback outweigh the chances of a big further up leg. While the prior 611 intraday high or 608 closing high could be retested, I don't believe that there would be anything more than a nominal new high before the index is at least pulled back down toward its 21-day moving average. A recent close saw the 13-day RSI reach a fully overbought level.
Can OEX work still higher? No doubt, based on the strength seen in the past 10 days, but on a risk to reward basis, bullish strategies no longer have such a favorable risk to reward equation. If you bought calls where OEX was a screaming buy when it made a double bottom, you likely got more profit quicker than you anticipated. Old Wall Street saying: "take quick profits".
Resistance is at 603, extending to the area of prior highs in the 608-611 area. Initial support is at 590, then down in the 580-578 area.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) has held gains well since the very strong rally of the week before, but is rather 'extended' as I've been saying in regards to how far INDU is trading above its 21-day moving average. There could be a retest of the prior 12876 high with a pullback coming after that.
I rate the odds of another sizable up leg above 12800 as significantly lower than the risk of a pullback to support in the 12400 area, or to 12200.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) has held the gains of the prior week quite well. Most traders thought that the stocks in general would take more of a beating than they did, after the weak employment numbers. This suggests to me that this market still could have some upside surprises. However, on a risk to reward basis, it's prudent to take profits on call positions. If your entry was in the area where COMP made a double bottom, take the windfall.
Resistance is in the area of the prior 2887 intraday high, extending to 2900. COMP could get to 3000 but I don't see that happening in another straight up move from around current levels or after a retest of the aforementioned high. Support is at 2750, extending to 2710-2700.
The 13-day RSI hit a 'typical' overbought reading and this doesnâ€™t bode well for hanging in longer with call positions. As I said with in regards to SPX, the more bullish of my two key technical indicators (RSI and CPRATIO) is my sentiment model; here, bullish sentiment is only moderate and traders have only been moderately bullish. Sentiment readings suggests that COMP has some room for surprises on the upside before any corrective action sets in.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) index made the same sky shoot as the Composite of course; more so, in the intraday high of this past Thursday (before employment numbers) hit the area of prior May highs. Even if NDX extends its gains, say to the 2450 area, the odds of a correction is growing. I don't say to short the trend; I don't like going against the dominant trend until there's a technical breakdown. I would take profits on call positions. Nice profit on calls or other bullish strategies, if you 'believed' the double bottom low in the 2600 area and acted accordingly.
Support is anticipated in the 2350 area, extending then to 2300.
Based on the chart, it wouldn't be surprising to see a rally to at least nominal new highs, but on a risk basis, I won't hang in longer with call positions but I don't generally hang in for what I think is the last 20% of a move. Shorting this market is risky too as the weekly long-term uptrend channel (not shown) would suggest potential yet to 2600-2650, which is how I see current major resistance.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) is bullish. The Q's have already hit their prior intraday high and with news that 'should' have hit this market harder than it did, I suspect higher highs are in offing. Nevertheless, I've been suggesting taking long profits. I generally look at current price levels and assess what I think is the upside 'reward' potential if I went long there, versus the downside risk in a correction. If I wouldn't take the trade on a current risk to reward basis, I won't hang in with long positions even when bought at much lower levels.
Initial resistance is at 59.3, extending to the 60 area. Support is at 57, then around 56.
Volume picked up this past week, no doubt on liquidation. On Balance Volume is still on a bullish upward track.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) is nearing its prior highs and I think there some chance, having come this far, that the index will retest it prior 868 high. At least I always assume that if a stock or index rallies so strongly and approaches a prior high(s), that it will be retested. It's hard to know if this will be straight away or after a correction. I don't favor hanging in with call positions to see if a last bit of gain will be achieved or not.
Friday's action would suggest that RUT is not ready to cave; when bearish news doesn't knock prices down, I give the benefit of the doubt to the dominant up trend. However, here I favor using rallies to exit bullish strategies.
Resistance is at 860, extending to 868-870 with next resistance likely to come in around 900. Support begins in the 840 area, extending to 827, then down to 810-800.
GOOD TRADING SUCCESS!