THE BOTTOM LINE:
It appears that the tech-heavy Nasdaq Composite (COMP) may finally be hitting technical resistance near recent highs (3966) on up to around 4000. If tech stocks dip further, the overall Market will be pressured.
I'll start my parade of charts with the weekly COMP index, which is now bumping up against resistance implied by the upper end of its broad and well-defined uptrend channel. Moreover, COMP has gotten what I consider to be 'fully' overbought, according to the 13-week Relative Strength Index (RSI). An overbought extreme in the RSI indicator isn't definitive for a top, but does suggest that the Index is at high risk for a pullback this month. Such a pullback may have started with this past week's Market 'pout' on the Fed not doing ever more to push stocks even higher. There was more going on than fear and loathing of the Fed, but it makes for a simple story!
Of course, just as I emphasize possible tough resistance in COMP in the 4000 area, a decisive UPSIDE penetration of that level sets up a possible next up leg. A 'true' breakout move in COMP would then suggest support would be found on pullbacks back to the 'breakout' point in the 4000 area.
Another way for an Index or stock to 'throw off' an overbought extreme is by going SIDEWAYS. A broad sideways trading range trend dates from mid-May in the Dow 30 (INDU), which has kept the INDU (Market) bellwether from getting to either a longer-term overbought or longer-term oversold 'extreme', unlike COMP. The daily INDU chart has on 4 occasions 'signaled' a trend reversal when INDU's 13-day RSI has gotten into the 70 area (3 times) or to around 30 (once) in the period dating back to the mid-May peak in the Dow.
Bullish sentiment remains fairly high, suggesting to me some complacency among traders that the market is going to keep working higher. Just buy every minor dip! Sure, until that (strategy) doesn't work and we get a bigger break!
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart remains bullish but there are some signs showing of a possible pullback beginning. A new daily high was followed by a down Close in a classic reversal type pattern. Not what I call a 'key' downside reversal which has the more stringent definition of a new High, followed by a Close below the prior 1-2 day's Lows.
Not to overweight a somewhat 'speculative' bearish chart interpretation here, SPX's uptrend remains well intact by the Index holding at or above 1740 support. Support then extends to 1720. A Close below 1700, without a next-day rebound, would 'confirm' an not currently expected loss of upside momentum.
SPX resistance comes in around 1772, extending to 1780, then to the 1800 area.
An RSI upper extreme (an 'overbought' 70) seen above has been touched twice recently. Not long before an RSI peak was hit, my (CPRATIO) 'sentiment' indicator reached a different type of overbought situation; i.e., where traders register what I define as an 'extreme' in bullishness as highlighted below; e.g., total daily equity call volume is double that of daily put volume an my CPRATIO line gets to 1.9-2.0 or above on either a daily and/or on a 5-day moving average basis.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart
also remains bullish along with the larger SPX. The short-term up trend shifts initially on a Close below 780 in the Index. Technical support is suggested at 775, extending to 770. Fairly major support begins around 755.
A move above near resistance in the 790 area is needed to get upside momentum humming again. A couple of back to back closes above 790 would suggest potential for OEX to reach the 800-803 area; the 803 is potential resistance, at least initially, implied by the upper end of OEX's broad uptrend channel.
OEX might dip to 770 and trade sideways to up from there but not above 790. 770 is pivotal chart support and 790 key near resistance.
The S&P 100 Index recently hit an overbought RSI extreme per my red down arrow highlight above. Such (high) extremes have often been a concomitant (technical) indicator for OEX that, along with price action, suggested that the Index was at or near an interim top.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) is hanging in near its prior top. I figure a less than 40% chance of a breakout above 15700 currently. More likely is the Dow getting pulled back to support, especially 15500, extending to 15400. The Dow could dip to the 15200 area in November.
I didn't do a chart highlight of resistances above the 15700 area. Assuming a breakout move higher, a potential next intermediate objective (and possible resistance), is to around 16000, ultimately to the 17000 area, just not this year.
The Dow is in a fairly prolonged sideways trend, at least since mid-May which is a long time in this market. This kind of sideways trend traces out what (Charles) Dow called a rectangle pattern. Unfortunately, its 'chance' to predict whether a breakout of such a chart formation will be above or below the trading range. Most would give some benefit of the doubt to a breakout in the DIRECTION that prices were moving in prior to the sideways trend.
The upside breakout point for the rectangle is at 15700 and the downside breakout line is at 14700. The distance between the line of highs and the line of lows tacked on to the breakout level becomes a 'minimum' next objective, suggesting upside potential to 16700. Conversely a decisive downside penetration of 14700 suggests downside potential to around 13700.
Strong longer-term upside momentum continues or is not hindered in AXP, BA, DIS, bellwether GE, MMM, NKE and V. These stocks alone aren't currently enough to create a breakout above 15700 but they ARE keeping the Dow afloat. Stay tuned.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) Index has sideways momentum near-term and the short-term trend goes lower below 3900. I sense a pullback/correction at hand but price action isn't completely conclusive on this but this past week brought a key downside reversal midweek which is still exerting a downward pull on the Composite from a technical perspective.
A modest pullback would be to the 21-day moving average, currently intersecting at 3850; a still moderate dip would be to the 50-day average, suggesting support currently around 3800. Major chart support begins at 3600. Major resistance comes in above 4000.
The recent 'overbought' extreme in COMP is seen both by the weekly chart above in my initial 'bottom line' comment and on the daily chart below. The 13-day RSI has been bouncing up to the overbought line.
High RSI daily chart readings coupled with a predominance of bullish trader sentiment makes for 2 of 3 elements I consider important to suggest an interim top within a strong bull move. The 'first among equals', number 3 element in trading decisions is PRICE action and that is mildly, not wildly, suggesting a top.
The bull market move in tech is now quite 'extended' at 54 weeks or 4.5 years. About in fact, the average length of a bull market. Bear markets are typically shorter AND they can do more damage to stock portfolios in a shorter time.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart
is bullish, but the sideways line of resistance seen in the 3400 area could be the start of a more significant pullback then seen in several weeks. Clearly the (upside) breakout 'point' is 3400, and maybe not so 'clear' is my projected next resistance at 3457-3460.
Significant near-term support is implied by the lower end of NDX's last upside price gap, an overnight phenomena of course. For various reasons buying interest comes in at prices not obtainable AFTER the upside price gap until prices are again seen in the 'gap' area. A 'filled in' gap suggests an area o buying interest, for a period. Support then extends to 3250.
I'm thinking pullback here, maybe NDX gets back to the 3200 area at a 'minimum'. Corrections of that degree, such as back to the 3200 area or in a dip below it, should find support/buyers coming in. Big cap Nasdaq is still a sexy area of the Market and there's plenty of liquidity out there to buy more in this area.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 (QQQ) tracking stock is in the same question mark position as the underlying NDX index. Namely, does this recent short-term slowing of upside momentum 'signal' the early stage of a deeper correction. A modest correction here is back to the 21-day moving average, a 'deeper' correction is back to the 50-day.
I look for near support in the Q's at 80.9, extending to 80; next pivotal technical support comes in around 78. I've noted support at 78.3 to be persnickety about it.
Daily trading volume has been on the low side. Expect a big spike in daily trading on a decisive downside penetration of 82 that was heading to 81-80.9. Lots of selling will come out on such a technical break. Meanwhile, the On Balance Volume line has turned mixed.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart has turned short-term bearish and this may be a harbinger of the fate of RUT's intermediate uptrend as well. Stay tuned on that. I see a better than chance for the Russell to fall back to its 1080-1065 support zone. I'm assuming here that RUT continues it tendency to work up and down between the lower and upper ends of its well-defined uptrend channel .
On its last advance, RUT didn't reach resistance implied at the upper channel line which currently intersects around 1145. It's only sometimes the case that rallies fail at an upper channel resistance area, especially AFTER prior repeated rallies that 'defined' the same (upper channel) line. Every so often depending on the cycle, it's 'time' to test the low end of expected support.
Near support is highlighted at 1080, and extends to RUT's uptrend line in the 1065 area. A daily Close below 1043 turns RUT's intermediate trend lower.
A Close above 1122 resistance that is part of a sustained multi-day move, suggests potential to 1145-1150. I anticipate selling pressures going on a while longer.
GOOD TRADING SUCCESS!