THE BOTTOM LINE:

Not much after getting back to my Rocky Mountain family haunts then the Aurora tragedy happened. It could have been my kids a few years ago when they were more inclined toward a midnight screening, although not so much in Aurora. Sad, sad, sad.

I noted last week that in a trading range market like this one, an indicator pattern that's been reliable for much of this year involves hourly charts and the RSI indicator. It looks like this indicator again proved its worth. I wrote in this space last week that: "A reliable way to assess shorting/bearish opportunities (tops) is by trading contrary to (overbought) 'extremes' suggested by the 21-hour Relative Strength Index (RSI)." The same has been true on the downside when the 21-hour RSI has reached oversold extremes at 30 and below.

I picked up on this same theme in a Trader's Corner column penned on Thursday (7/19/12), which can be seen HERE. I wrote on Thursday, that in relation to the example of the big cap S&P 100 (OEX) Index, the extreme seen with the 21-hour RSI suggests taking profits on index calls. Moreover, based on the way the trading swings have gone after high and low RSI extremes, a bearish play looks to have a favorable risk to reward.

You can see in my first chart (of the hourly OEX) the downside pullbacks that have happened after the 21-hour RSI hit an 'overbought' 70 level. Readings at 70 on the Thursday Close also occurred on the hourly RSI for the S&P 500 (SPX) and the Nasdaq 100 (NDX) Index.

There were other technical/chart patterns that strongly suggested at least an interim top in the Market:

1.) Minor double tops formed in the Dow 30 (INDU) and the Nasdaq 100 (NDX) as highlighted on those daily charts further on.

2.) The Nasdaq Composite (COMP) reversed lower after COMP hit resistance implied by a well-defined down trendline and which is highlighted on the daily COMP chart below.

The chart and indicator picture suggests sideways to lower prices ahead. The support levels I've noted on the major index charts, especially at current up trendlines, will be important. A break below trendline support suggests more than just a shallow correction ahead.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The S&P 500 (SPX) remains in an upward trend and the recent high managed to climb above the prior upswing high; not by a lot but SPX did reach a new closing high at least briefly. 'Confirmation' of an intermediate up trend occurs if/when the Index pierces SPX's late-April highs, especially if there's a couple of consecutive Closes above SPX 1405-1406.

The 13-day RSI ran up to a similar 'overbought' reading as at the last peak. The S&P looks poised to have a further dip beyond Friday's weakness. Key support is at the up trendline, currently intersecting at 1350, which is also the level of the important 21-day moving average. A close below 1350 implies lower levels ahead and a possible test of next lower support in the 1320-1325 area.

Pivotal technical resistance is at 1380, extending to the 1400-1406 area.

Trader sentiment readings seen above have been running at a relatively low level, although without hitting a bearish extreme low. Meanwhile, prices have been trending gradually higher. This pattern of rising prices, with low bullishness is a mild bullish plus on a contrary opinion basis.

S&P 100 (OEX) INDEX; DAILY CHART

The failure of the S&P 100 (OEX) index to continue higher after making a nominal new high above 630 suggests the OEX will see some further weakness ahead. It's generally not a bullish omen to see a sharp 1-day reversal after a new closing high(s). I also think that the index is 'too' overbought to make an immediate challenge to the highs of late-April.

Key support is seen at the up trendline currently intersecting in the 620 area; support then extends to around 610. Major support begins at 600.

Near resistance is assumed to lie at the recent 634 intraday high, with next resistance in the 640 area.

Per my initial 'bottom line' commentary showing an hourly OEX chart along with a 21-hour Relative Strength Index, downside price swings of 15 or more points have been seen after such RSI extremes occurred (see my first chart above). Those prior declines have occurred over a subsequent 1-2 week period.

THE DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 (INDU) Average reversal in the 12935-12975 area forms a minor double top and a bearish pattern. Whether this is only a short-term top or perhaps more remains to be seen but I always pay attention to potential double tops and bottoms. I say 'potential' as it takes time to see if such a double top just reflects TEMPORARY resistance(s). Generally, the WIDER apart that such repeated highs occur, the more potent as a bearish 'signal' as in the March-April-May top, occurring over 3 months.

I've noted near Dow resistance at 12935, extending to the pivotal 13000 level. Near support is seen at INDU's up trendline, currently intersecting at 12675, with next support in the 12500 area.

I noted last week 12-13 Dow stocks that have been in strong weekly uptrends and that could keep a rally going into August. Of those INDU stocks I wrote about last week, AXP, DIS, HD, KO, T and VZ are faltering some. If the Dow stocks in prolonged and strong uptrends get down to only 6-7, this number isn't enough to keep INDU moving higher in the next couple of weeks.

NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

I mentioned in my initial (bottom line) comments the Nasdaq Composite's (COMP) recent reversal from its March-May-July down trendline, taking the daily chart picture from 'mixed' to near-term bearish. I've noted key near resistance at the down trendline at 2960 with next significant resistance at the pivotal 3000 level.

There's an up trendline in play here also and my internal up trendline suggests key near support at 2900; next support comes in at 2850-2837.

Outlook # 1: COMP works sideways to lower in the 1-2 weeks. Not necessarily a lot lower however, assuming support develops again around 2850.

Outlook # 2: There's the possibility we're seeing formation of a Head & Shoulder's Top as the highs on either side of 2988 peak could be the left and right peaks that form the so-called left and right 'shoulders'. Such a top pattern would suggest a more substantial, than just minor, decline.

Trader sentiment readings seen above have been running at a relatively low level, although without hitting a bearish extreme low. Meanwhile, prices have been trending gradually higher. This pattern of rising prices, with low bullishness is a mild bullish plus on a contrary opinion basis.

NASDAQ 100 (NDX); DAILY CHART:

The Nasdaq 100 (NDX) Index, along with the Dow, had formed a minor double top. The sharp reversal that followed the rally back up to the prior high around 2660 is suggesting that NDX is going to see at least a minor pullback. A 'minor' pullback would be to 2600, although NDX remains above its up trendline if it holds above 2560, which is a next key support.

Key resistance is at 2660-2663. Major resistance begins at 2683 and extends to 2700.

Bellwether Apple Corp (AAPL) stock may be forming a significant top in the 613-615 area. If so, NDX is not likely to pierce its prior tops anytime soon, especially not in the dog-days of August. Well, at least in the next 1-2 weeks.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQ) stock has naturally the same double top formation as NDX. At 65.2 in the case of QQQ, which is initial resistance, with next resistance in the 66 area.

I've noted a first support at 63 although I would keep an eye out for potential support at the 21-day moving average also which is at 63.5 currently. It's important for a bullish chart here to see my internal up trendline hold up as support in the 63 area. Next lower support below the trendline comes in around 62.0-61.5.

Just as with the underlying NDX, the most bearish chart interpretation is that the Q's have formed a 'Head & Shoulder's top'. Alternatively, QQQ could be locked in a 62 to 65 trading range. I see little potential for a new up leg above 65 in the next 1-2 weeks.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT), which had in my mind become something of a Market bellwether as it formed a well-defined up trendline on it march higher. RUT was looking like it could break out above its 820-830 resistance zone. NOT! Now with the Index Closing below its 21-day moving average and within a hair's breath of penetrating up trendline support at 790, the chart picture is mixed to potentially bearish.

Key near support is at 790, with next lower support at 780. Resistance begins at 808 and extends to 820. Major resistance is at 825-830.

RUT looks vulnerable for a pullback to 775, to perhaps 765-760, if the index falls below 790, then 780.



GOOD TRADING SUCCESS!