THE BOTTOM LINE:
Week before last, the big cap S&P 100 and Nasdaq 100 ran up to new highs for the year, setting the stage for the other indexes to follow this past week. Overbought readings on a short, intermediate and long-term basis is another result.
The Market can get more overbought, especially on a long-term weekly chart basis. I mainly point out such extremes not as a 'timing' indicator for a (downside) reversal, but to remind myself and everyone else that this market will have a high risk of a shake-out when we next get hit with bearish news; e.g., NO fed action, etc.
I've got projections with my regular chart commentaries of where next resistances might come in along with the key support levels. What was noteworthy to me on the last little dip is that key support came, as it often does, in the area of the 21-day moving average. Absent decisive downside penetrations of this key average, there's no technical impediment for stocks to not push still higher.
Bullish sentiment readings from my Call to Put Indicator (CPRATIO) seen on the S&P 500 and Nas Composite daily charts below, shot up from mid-week on but my indicator hasn't yet reached what I consider 'excessive' bullishness; and a different type of an overbought extreme.
An interesting chart pattern shows up with the Nasdaq Composite (COMP) in the way at least that I've constructed COMP's uptrend (price) channel suggests that an initial area of technical resistance has been reached. See the COMP chart for the details.
The last BEARISH extreme (single-day reading) on my CPRATIO indicator was in mid-August when the S&P 500 (SPX) was headed toward 1420. Now with SPX simply over that level by 17 points, traders appear to be quite bullish. When they get EXTREMELY bullish (e.g., daily CBOE equities' call volume gets near, to or more than double that of equities put volume), especially prior to an apparent downside chart reversal, it will be time to exit bullish strategies and to be positioned for a pullback; or, to just stand aside. Going neutral is an option too. Even if the Fed does what the Market hopes it will do, their action will be priced into the market already. Buyers may get scarce at that point.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The chart pattern continues bullish as the S&P 500 (SPX) finally pierced key resistance in the 1420 area. When SPX shot up through that area finally it was a decisive move as the shorts ran for cover.
Key support is at 1420, extending to 1400, then to the up trendline, currently intersecting around 1387.
I estimate technical resistance in the area of the top end of SPX's broad uptrend price channel in the 1450 to 1460 area. This area may be the maximum upside for a while anyway. Stay tuned on that.
Bullish sentiment shot up from mid-week on and traders seem to gotten a bit of bullish fever. It wasn't enough to have weeks of an advance! The Market must make converts by going to new highs it seems. The 13-day RSI is registering an 'overbought' extreme, as is now mostly the case with the 8-week Relative Strength Index (not shown). The only 'limit' on how high this indicator can go is 100 but in practical terms 75-80 is about as high as you'll ever see it before there's AT LEAST a sideways move that 'throws off' such an extreme.
S&P 100 (OEX) INDEX; DAILY CHART
The OEX chart is bullish in the same way as SPX with the move to a decisive new high piercing the prior Closing and intraday price peaks as is highlighted on the daily chart here.
There was a brief dip under the key 21-day moving average. Both SPX and OEX had at least two back-to-back Closes below the average. Normally, this type action suggests that the indexes may reverse. With the chart patterns the way they were with the high-level price consolidation (for the most part) I look at the volume levels and other ancillary indicators and there wasn't a lot of selling hitting this market. If they can't take em down, they may well take em up!
Technical resistance, as with SPX, looks to be at the top end of the OEX's broad uptrend channel and a bit under it as well; I've highlighted resistance at 667, extending to around 674.
Key near support comes in at 656-652, extending down to the current intersection of the up trendline, at 642.
As with all the major indexes, OEX is an overbought extreme according to the 13-day RSI. Be aware there's increasing risk of a correction, but an overbought situation can go on for some time without a pullback worth trying to ride.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow chart is bullish but the push to a new yearly Closing high wasn't the power move that we've seen elsewhere. I'd still look at the prior intraday highs around 13338 as possible near resistance. Above this area, technical resistance doesn't come in until well above current INDU levels, specifically in the 13600 to 13660 area.
Very near support may be found in the 13200 area, then at 13150-13075. The Dow looks like it's being 'dragged' higher by the action in the S&P and the Nasdaq. The 30 stocks in the Dow are pretty mixed, with around half of the 30 not showing strong uptrend patterns.
The Index I'd be inclined to short is DJX on a further move higher. Figuring at what price level(s) INDU is vulnerable isn't easy as we're in new high ground. Certainly, if the Dow shot up to the high end of its uptrend channel, that would make the choice 'easier' so to speak.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart is bullish but as I noted in my initial 'bottom line' commentary, COMP is just recently hit possible technical resistance. My bad, I didn't highlight the price where that upper channel line is intersecting; it's at 3145 currently. Assuming a breakout above the UPPER end of COMP's broad uptrend channel, next resistance is suggested around 3200.
Near support comes in 3064-3048, with fairly major support starting at 3000, and extending to the up trendline (intersecting currently in the 2950 area).
Bullish sentiment per my 'CPRATIO' indicator seen above shot up from mid-week on and traders seem to have gotten bullish fever. The Market must make converts by going to new highs it seems.
The 13-day RSI is registering an 'extreme' overbought condition, as is now mostly the case with the 8-week Relative Strength Index (not shown). The only 'limit' on how high this indicator can go is 100 but in practical terms 75-80 is about as high as you'll ever see it before there's at least a sideways move to 'throw off' such an extreme.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index is bullish and also at an overbought extreme. More important than any such extreme may prove to be the approach to the upper end of NDX's broad uptrend channel.
On the basis of the broad up trend channel, at least the way I've currently constructed it, near resistance is suggested at 2840. If implied resistance there doesn't prove to be significant, next technical resistance looks to come in around 2900. However, I've long thought that if NDX gets near 3000, it's capable of testing this big round important level. These kind of milestone levels (like 700 in NDX bellwether Apple Computer, AAPL) are important more often than not.
Near support is at 2800; the chart remains most bullish if the Nas 100 consolidates above this level. Next support is at 2768-2745. Fairly major support begins at 2700, extending to around 2650.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock's (QQQ) chart is bullish of course like the underlying (NDX) index. I'd mainly note that there could be resistance coming in around 70. Above 70, next resistance is suggested in the 71 area.
Near support is at 68, with next support at 67. If 67 is seen, the Q's may be heading toward the low end of its broad uptrend channel currently intersecting around 65.
A key volume measure, On Balance Volume (OBV), shows an OBV line that has pretty much leveled off. A correction seems 'due' and volume is here isn't showing a bullish pattern to suggest otherwise.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart is bullish, especially in that RUT has finally made it above 820-830. Next technical resistance may come in around 860, extending to the 870 area. The May highs formed in the 860 to 868 area.
Near support is 820, extending to around 813 or the 21-day moving average. Major support begins in the 800 area.
The Russell small to mid-cap index hasn't shown a lot of independent strength relative to the rest of the Market. It's been mostly a follower relative to the strongest market sectors. For that reason I haven't seen much reason to play RUT for its upside potential. If RUT appears to top out again at 860-868 or a bit above, I'd consider playing the Index for its downside potential.
GOOD TRADING SUCCESS!