THE BOTTOM LINE:
On the recent pullback, the major indexes held key support, discussed last week, at the 21-day moving averages with the exception of the 6/25 close. The 1-day (only) Close below the Average invokes my 1-day 'rule' that suggests that a single day only below a support trendline or key moving average isn't necessarily bearish. (Conversely, the '1-day rule' also applies to a single 1-day close above a key down trendline or to above a key moving average resistance.)
More importantly, the strong rally following the 8/25 dip broke out above key resistance (down) trendlines with the exception so far of the S&P 500 (SPX). Note also that the Nasdaq 100 (NDX) has yet to clear its down trendline by more than a hair's breath.
Bullish price action of this past week furthers the idea that there's more upside potential ahead as first suggested by the Head & Shoulder's bottom patterns I've written about since the 6/8-6/13 formation of the 3rd bottom forming the Right Shoulder.
If SPX decisively pierces its down trendline currently intersecting at 1368, the 'minimum' upside objective implied by the Inverse Head & Shoulder's bottom as highlighted on the hourly SPX chart below suggests that 1390 (or higher) remains a potential upside objective. This would make some sense for SPX since 1400 may be a tough resistance; but, getting NEAR this level looks more doable.
There are well-defined uptrend price channels on the major hourly index charts suggesting upper channel resistance on an approach to the upper channel lines such as seen with the SPX hourly chart below. I won't be showing hourly charts for the other indexes but this first one, for SPX, shows the pattern.
Lastly, as you'll see on my CPRATIO sentiment model with the SPX (and Nas Composite) chart, there's been little build up in bullishness during this most recent sharp advance which in a contrary opinion sense, suggests that this recent rally may have 'legs' and stocks could go still higher.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart went from being mixed in its pattern to one with more bullish potential; with potential for SPX to pierce its April-May down trendline. SPX went to a new closing high for the current move which is bullish. I've noted current trendline resistance at 1368. Next big resistance then comes in around 1400. I've had a bullish potential objective to around 1390 since the index traced out a Head & Shoulder's Bottom which with this past week's upside movement doesnâ€™t seem as far-fetched.
On a weekly chart basis (not shown), SPX closed above the 1340 level, significantly technically as this level formed a line of prior highs dating back to the Feb-April-July 2011 top. If prior highs have 'become' support, longer-term bulls should hope that closing weekly highs continue above 1340.
Support is at 1340, then at 1320-1310, extending to 1300.
Bullish sentiment has been in a recent downward slide (a fall off in bullishness). In light of the fact that the Index this past week held key support in the 1310 area, and stayed all days but one at a closing level above the key 21-day moving average, followed by a very strong Friday rally, should be encouraging to the bulls but ... NOT so much. Rallies where traders don't jump into heavier call buying are often the most surprising and sustained. Beware where the talking heads all get very bullish very quickly and stop talking about all the things that could derail stock prices; especially in the good old summertime. Well, it's 'good' at my coastal Pacific home but not so much back in Colorado where the rest of the Stevens clan resides. And, my prior Manhattan haunts ... Furgetabotit!
S&P 100 (OEX) INDEX; DAILY CHART
The big cap S&P 100 (OEX) rally looks the best of the rest as the Index cleared not only resistance at its down trendline but lifted decisively above prior recent highs as well.
The last OEX advance stopped right at my 3% upper envelope line where an 'overbought' level is suggested; i.e., at 3 percent above the 21-day moving average. This is not a resistance level like a prior high or even a down trendline, but sometimes the envelope bands 'act as' a definite resistance; or better, we could say a likely turning point in a trading range market. Not so much in strong uptrend. In a downtrend within a bull market at least, the lower envelope (at 3% under the 21-day average), is often a place to look for a rebound.
A well-defined internal down trendline (one drawn touching the MOST number of intraday highs) is a current key resistance technically and I rate the chart as having achieved a bullish breakout. Important however that pullbacks be limited to 620 not lower. If so, further upside is suggested to 633-635 or higher, especially to 640 and a measured move objective for SPX.
On the bearish side, a couple of days where OEX trades below 620, suggests the Index remains more or less in the same downtrend OEX has been in since the early-April peak. Next support below 620 is 610, with 600 as fairly major support.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) achieved a decisive upside move above its down trendline, ending the week quite close to prior intraday highs just under 12900. Next key resistance is 13000. INDU could reach the 13200 area at some point. 13100 area is the top end of broad uptrend price channel that the hourly Dow is in currently but only the daily chart is shown here.
Near support is at 12800, then 12600. The recent rally was fueled by 14 Dow stocks showing continued or renewed strength: AXP, DIS, GE, HD, IBM, JNJ, KFT, KO (at new highs), MRK, PFE, T, TRV, VZ, and WMT.
I'm back thinking the Dow could at least hit 13000 again and perhaps 13100-13200. Holding at or above 12800 keeps bullish chart potential alive.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
As I wrote last week, "only a bullish breakout above the down trendline changes the chart picture to a more bullish one." Check this off for the Nasdaq Composite (COMP), so far at least. There was one bearish Close below the important 21-day average, but with subsequent closes then back ABOVE this line as seen on the chart. Yet to come would be for COMP to continue to hold above its bearish down trendline and to move above prior highs around 2940. Next resistance and a key one is at the 3000 level.
A measured move objective, if realized, would be to around 3025. As long as prices hold above what has been a resistance down trendline, the chart pattern suggests further upside potential. I've noted very near support at 2920, but not a lot of expected support until around 2850.
Judging by the Relative Strength Index (RSI), COMP isn't at an overbought extreme on an intermediate-term basis; short-term is another story as COMP is at or near overbought extremes on a 2-3 day basis. I mentioned in my initial 'bottom line' comments that my CPRATIO indicator (seen at the bottom of the COMP chart) showed little jump in bullishness on the most recent rally. This makes for some bullish potential in a contrary opinion sense. Low expectations can lead to bullish surprises. Stay tuned on the next news out of Europe, China or the U.S.!
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index sharp 2-day rebound carried right to the area of NDX's bearish down trendline. It was a very strong advance on Friday with its Close at the intraday high, which is bullish action, but also suggests short-covering ahead of the weekend. Yet to come is a further sustained advance that carries the Index to well over its down trendline and to above the prior 2633 intraday high as implied next resistance; further resistance then looks comes in around 2660.
IF a 'measured move' objective was realized, where there was a second up leg from the 2518 area that equaled the earlier rebound (from 2444 up to the trendline at 2633), NDX could again advance to around 2700.
If prices start falling below Friday's intraday high at 2615 and then starts slipping below 2600, the pattern would then suggest another rally failure in the area of the down trendline, continuing its sideways to lower pattern. Hey, it's summertime. Floods, fires, winds, hurricanes, etc. Not so good seasonally typically for the market with choppy price action.
I've noted a key support in the 2540 to 2520-2518 zone.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) chart is starting to look bullish again with initial upside penetration of RUT's down trendline. The stock hasn't cleared resistance by much and yet to come is a challenge and possible move above the prior 64.6 intraday high.
Next resistance above 64.6 looks like 65.5. 65.5 is my highest upside objective currently and would take QQQ to the top end of its hourly uptrend channel (not shown here). A measured move objective could take the stock closer to 67 over time.
Near support is suggested at 64. If instead prices start sinking again below 64, the pattern looks like another rally failure in the area of the resistance/down trendline. Support as noted by the green up arrow is highlighted at 63, then at 62. A close below 62 suggests bears still in control or just not enough buying interest to lift the stock in a sustained way; if so, pattern then looks part of more backing and filling.
A low volume rally on Friday, suggested it was driven more by short-covering than a wave of strong new buying.
RUSSELL 2000 (RUT); DAILY CHART:
The second to last rally in the Russell 2000 (RUT) failed at its down trendline but not this most recent power move. In fact RUT gapped higher above this resistance trendline. A measured move objective, should that be realized, is to around 820. 830 was a prior intraday high on the last big upswing. Near resistance is at 800-802, extending to 807.
Near support is at 780, extending to 776, with next technical support in the 760 area. A Close below 760 suggests a short-term downside reversal. The chart looks bullish if prices don't settle back below 780, at the previously pierced up trendline.
GOOD TRADING SUCCESS!