THE BOTTOM LINE:

An old saying is that the Market (sometimes) "climbs a 'Wall of Worry'", which seems to fit the recent advance perfectly. This is the 3rd summer when investors find more to worry about than not. And, sure as its summer, market volatility (VIX) increases along with the heat!

Here's an interesting first chart. I'll call it chart 'X'. Followers of chart patterns and/or my work will recognize this pattern (without an identifying index name or time frame) as a Head & Shoulder's TOP; a pattern that's seen from time to time and will be familiar to many. Also familiar may be the measuring implication implied in a 'minimum' downside target or objective. The objective is based on distance 'A' being (at least) equal to distance 'B'; i.e., take the highest high of the middle top (the 'Head'), measure down to the so-called 'neckline'... this distance is then subtracted from the point where the neckline is pierced after the third top forms. Next up is to unveil the 'true' identity of this chart pattern.

Providing the true meaning of an INVERSE Head & Shoulder's, my chart above is an image that was 'flipped' from what has been traced out to date in the hourly S&P 500 (SPX) chart seen below. My next chart suggests in fact a Head & Shoulder's BOTTOM formation in SPX, with an implied UPSIDE objective to around 1390. Pardon my little 'trick' here but the H&S bottom pattern highlighted below was such a good mirror image of an H&S top pattern that it has a striking effect in showing it first above in a 'flipped' (mirror) image since the H&S 'top' is more commonly seen and understood.

My chart highlights are NOT meant to imply that this minimum upside objective, that may or may not be realized (or, could be exceeded) will happen in any implied time frame based on where the target (X) is placed. If the objective is realized it could be in the coming week or a following week(s). Still, the Head & Shoulder's pattern, in both top and H&S bottom variations, tend to be one of the more reliable 'outcomes' as chart patterns go. [Note: there is a somewhat greater probability of downside objectives based on H&S tops being met versus upside targets based on the inverse H&S bottom pattern.]

The aforementioned bullish interpretation for SPX and for the Market as a whole fits with my prior week's bullish view based on various technical considerations. I went into an expanded forecast for a significant further up leg in my last (Sunday, 6/10/12) Trader's Corner article which can be viewed by clicking this LINK.

The same inverse Head & Shoulder's hourly chart pattern in the Nasdaq 100 (NDX), given the breakout above a well-defined 'neckline' suggests an upside target to around 2677; in QQQ the H&S bottom formation and subsequent upside (neckline) breakout, suggests potential to 66; in the Dow 30 (INDU) potential is seen to around 13170; in the S&P 100 (OEX) possible upside is suggested to 633.

Bullish to me also is that my CPRATIO 'sentiment' indicator (seen with the SPX and COMP charts) has actually FALLEN this past week on a 5-day moving average basis even though price action was bullish technically. I'll bet on what the chart suggests or 'tells' me versus all the catastrophic WORRY out there.

I don't minimize the dangers of a significant downturn in US stocks. More authoritative voices than mine (analyzing underlying economic fundamentals) are pointing out the dangers to our economy of a global recession or just a deep and prolonged downturn in Europe and/or an international banking crisis.

Nevertheless, over many years and market cycles I've found that the market itself by the chart patterns it traces out, tends to predict where stocks are headed. Interpretation of those (chart) patterns can of course be correct or incorrect. By inference, overall market patterns point to where the economy is headed. Regardless of the whether the market is in the early stages of a further overall advance, near-term still looks bullish. I hope to ride a 2-3 week upswing off the early-June bottom but also trade lightly in summer; I'll exit calls on signs of a near-term downside reversal such as a break below SPX 1325 in the week ahead.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

I wrote last week that the S&P 500 (SPX) "appears to have completed its correction as its popped back up above its 21-day moving average." The bullish price/RSI divergence was especially telling in this regard and I was anticipating near support in the 1300 area (my typo last week said 13000).

SPX has resumed a bullish uptrend; the near-term trend is now up. Favorable action this past week was basing in the area of the 21-day moving average. Please read my initial 'bottom line' comments above for my discussion of the upside breakout regarding a Head & Shoulder's (H&S) bottom formation, which was especially apparent on the SPX hourly chart (seen above). A 'minimum' and eventual upside objective is for a move to the 1390 area. [Downside objectives for H&S tops tend to be the most accurate versus upside objectives based on H&S bottoms.]

SPX rallied above near resistance at the prior 1335 high. Next resistance looks like 1360, extending to 1373.

Support should be also noted at 1325, representing a return to the H&S neckline, not just my chart notations of 1308 support, then in the 1292-1290 area.

Bullish to me in my key indicators is that my CPRATIO 'sentiment' model has actually FALLEN this past week on a 5-day moving average basis, even given bullish price action. I'll go with what the chart suggests versus all the worry that's out there.

S&P 100 (OEX) INDEX; DAILY CHART

[NOTE: If you haven't read it, my initial 'bottom line' comments seen above is relevant for ALL the indexes relating to an upside breakout above the 'neckline' of a Head & Shoulder's (H&S) BOTTOM formation. A clear cut example was especially apparent on the S&P 500 hourly chart, but the SAME bottom type formation is seen with ALL the major indexes.]

The big cap S&P 100 (OEX), which had regained some bullish 'footing' as I noted last week, continued with further bullish action this past week. The basing action around the 21-day moving average followed by the upside breakout above its line of prior highs should have served to keep traders from adopting further bearish strategies. Regarding the H&S bottom pattern, the breakout to above the 'neckline' resistance in 606 area suggests possible further upside to around 633.

Anticipated near-resistance in the coming week is raised to 620, extending to 625.

Near support is highlighted at 598, extending to 590. In addition to my notated supports, a bullish chart is maintained if pullbacks hold the 606 area, at the recent breakout point.

THE DOW 30 (INDU) AVERAGE; DAILY CHART:

[NOTE: If you haven't read it, my initial 'bottom line' comments seen above is relevant for ALL the indexes relating to an upside breakout above the 'neckline' of a Head & Shoulder's (H&S) BOTTOM formation. A clear cut example was especially apparent on the S&P 500 hourly chart, but the SAME bottom type formation is seen with ALL the major indexes.]

The Dow 30 (INDU) extended its bullish rebound with the basing action of the past week in and around 12400 support, followed by a breakout above 12600 resistance. The near-term trend has now reversed to up. The close above 12700 was noteworthy in that it was an area of prior support and could have been a later resistance.

Resistance is noted on my INDU daily chart in the 12800 area, then at 12900.

Near support is highlighted at 12400, extending to 12300, although the most bullish chart action occurs if daily Closes are maintained or mostly maintained at and above 12600, the prior recent 'breakout' point.

Based on the upside potential of the Head and shoulder's bottom pattern I've discussed at length, INDU upside potential is suggested to 'at least' 13170 but should also be seen as an ideal target.

NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

[NOTE: If you haven't read it, my initial 'bottom line' comments seen above is relevant for ALL the indexes relating to an upside breakout above the 'neckline' of a Head & Shoulder's (H&S) BOTTOM formation. A clear cut example was especially apparent on the S&P 500 hourly chart, but the SAME bottom type formation is seen with ALL the major indexes.]

The Nasdaq Composite (COMP) which had regained what I described as "some bullish footing" last week has then seen upside follow through this past week after well-defined basing action in the 2800 area kept COMP's chart bullish, especially when basing was followed by a minor chart breakout above 2850. Yet to come to maintain upside momentum is a decisive upside penetration above resistance at the line of prior highs at 2882; resistance then extends to 2900 with fairly major resistance at 2950.

Near support is (again) seen at 2800, extending to around 2780.

As I wrote with my S&P 500 commentary, I took it as bullish in terms of my key technical indicators that my CPRATIO 'sentiment' model actually fell this past week on a 5-day moving average basis. Given the backdrop of at least mildly bullish price action in COMP (more bullish in the S&P and Dow), this bodes well for more upside in Nasdaq. Bellwether tech stock Apple Computer (AAPL) has been trending sideways which I figure has a dampening effect on the two key Nasdaq indices.

NASDAQ 100 (NDX); DAILY CHART:

[NOTE: If you haven't read it, my initial 'bottom line' comments seen above is relevant for ALL the indexes relating to an upside breakout above the 'neckline' of a Head & Shoulder's (H&S) BOTTOM formation. A clear cut example was especially apparent on the S&P 500 hourly chart, but the SAME bottom type formation is seen with ALL the major indexes.]

The Nasdaq 100 (NDX) Index continues its bullish chart action; the Index hasn't cleared its prior intraday high at 2579, but most importantly went to a new Closing high for the current rebound. Another upside move versus AAPL's recent sideways trend should help boost NDX also.

Near resistance is at 2579-2586, next at 2615, extending to 2650.

Near support is at 2520, extending to 2490. The recent 'breakout' point in NDX was at 2560 and if NDX were to maintain or mostly maintain Closes above this prior chart resistance this would be a bullish plus.

If NDX fulfills a 'minimum' upside target implied by its inverse Head and Shoulder's bottom formation it could reach 2677; higher is possible this level looks like an achievable target ahead, not to say when. Stay tuned on that and there are a lot of potential bearish influences to be navigated. The market is in summer worry mode, this year with Eurozone crisis concerns.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

[NOTE: If you haven't read it, my initial 'bottom line' comments seen above is relevant for ALL the indexes relating to an upside breakout above the 'neckline' of a Head & Shoulder's (H&S) BOTTOM formation. A clear cut example was especially apparent on the S&P 500 hourly chart, but the SAME bottom type formation is seen with ALL the major indexes.]

The Nasdaq 100 tracking stock (QQQ) chart continues to be mildly bullish as the stock has at least Closed above prior resistance at 62.9. Not a big decisive upside penetration there but it's better than a kick in the head (to the bulls), who seem to be in relatively short supply. Certainly, daily trading volume on Friday's concluding rally was pretty dismal!

There potential for the Q's to advance to the 66 area if QQQ can climb further above 63. I've noted near resistance at 63.2, next at 64 and finally at 64.6.

Near support/buying interest looks like 61.8, with next support at 61.2.

The chart looks bullish but QQQ could get derailed easily also. The stock needs to make upside progress above 63 to suggest that the recent advance has 'legs'. Stay tuned on that!

RUSSELL 2000 (RUT); DAILY CHART:

[NOTE: If you haven't read it, my initial 'bottom line' comments seen above is relevant for ALL the indexes relating to an upside breakout above the 'neckline' of a Head & Shoulder's (H&S) BOTTOM formation. A clear cut example was especially apparent on the S&P 500 hourly chart, but the SAME bottom type formation is seen with ALL the major indexes.]

Key chart/technical resistance in the Russell 2000 (RUT) is in the 778-802 price zone. Next resistance looks like 795.

Support is suggested at 760, extending to 750.

RUT has the same Head and Shoulder's type bottom pattern as seen with the other major indexes. This formation can be easily seen on RUT's daily chart with the 'head' traced out at the recent bottom and the two cluster of lows on the left and right side of that forming the twin (left and right) 'shoulders' in this pattern.

Based on the hourly chart (not shown here) RUT achieved an initial upside breakout above its H&S 'neckline' at 765-766, suggesting upside potential to around 818. Stay tuned on that but it looks like a doable target based on the current chart pattern; especially so if RUT holds above 765 on a Closing basis. Not as much otherwise.



GOOD TRADING SUCCESS!