THE BOTTOM LINE:
In what looks like a 'rotational' type correction, the Nasdaq has faltered some but the Dow and S&P are resurgent. At some point the pattern here looks like there could be an across the board pullback but when is a big unknown.
The Dow 30 (INDU) has broken out above a sideways rectangle or trading range pattern dating back to mid-May. Assuming INDU's advance continues above 15700, a move to 16000 looks like a next target. (An eventual move to the 17000 area is a potential longer-term objective in INDU.) The S&P 500 (SPX) looks like it may pierce prior highs in the 1774 area and reach the 1800-1825 zone.
Right now a Dow advance anywhere beyond the 16000 area, or SPX to above 1800 or so doesn't quite compute given what I see as strong technical resistance projected in the Nasdaq Composite at 4000. I don't expect that much 'divergence' in the two Markets with a big new up leg in the Dow or S&P, not matched to some extent with the tech heavy Nasdaq. Nasdaq may have reached a practical limit on the upside for now with the S&P playing some catch up, but probably not advancing to above, or much above, 1800.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart is in a bullish pattern, especially with SPX holding this past week at near-term support implied by the 21-day moving average. An important consideration with the major indices is whether the index is trading above or above this key average. Trade above the 21-day I assume 'defines' the trend as UP and trade below this key average is showing falling momentum and defines the (trading) trend as DOWN.
The 21-day average often acts as support on pullbacks, but once penetrated suggests that prices are going lower; e.g., the move lower carries as far UNDER the (21-day) average as prices got ABOVE like 2-3%. This is what moving average envelopes show, percentages above and below a centered moving average.
Near support is at 1740, extending to 1720. Near resistance is at the line of prior highs around 1774. Next technical resistance is assumed for the top end of SPX's uptrend channel, currently intersecting in the 1800 area.
Traders continue to register 'extremes' in bullish sentiment as seen on the (bottom of) the chart by continued spikes into the (CPRATIO) 'overbought' zone. I think the market is primed for a dip that will shake up the consensus.
The Relative Strength Index (RSI) has been gradually falling as seen above, whereas the Index is proving to continue to have good buying interest on dips. This divergent direction of RSI versus price is nominally considered to be bearish but isn't much good for 'timing' purposes. Such a bearish RSI/price divergence provides an alert for a future decline, perhaps a sharp one, but doesn't provide a clue as to timing of bull market corrections, known for coming unexpectedly.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart
also remains bullish along with the larger SPX. With the OEX this is seen in the Friday Close, at new high Close and back above the recent 9-10 day trading range.
I suggested last week to not expect further downside as long as index lows held at or above 780. 780 is now suggested as near support, especially so as the area of the 21-day moving average. Next technical support comes in around 770.
I also noted last time bullish implications in OEX climbing and staying above 790 resistance. Call it 790-792 as near resistance. Above this area 805 is highlighted as potential resistance at the upper channel line.
The S&P 100 Index recently hit an overbought RSI extreme per my red down arrow highlight above. Repeated such high extremes have often occurred at or ahead of deeper corrections than seen to date. When the RSI keeps popping back up to an overbought reading, this pattern continues to suggest 'correction ahead' but also continued strong buying interest; high readings become an 'alert' only for correction risk.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) has made a new Closing high above 15700, which is bullish as is the Dow's recent ability to hold above, and work higher from, 15500 support. Assuming INDU now holds mostly above 15700, a next potential objective and possible next resistance is to 15850, extending to 16000. Longer-term objectives to 16500 to 17000 can be projected, more likely in a Q1 rally than November-December holiday periods ahead.
I've noted near support in INDU for the 15500 area, with fairly major support coming in around 15300, at the current intersection of the Dow's internal up trendline. An internal or 'best fit' trendline like seen below may have one penetration of the line but otherwise connects the MOST number of lows.
Besides continued longer-term bullish upside momentum in INDU stocks AXP, BA, DD, DIS, GE, JNJ, MMM, NKE, PFE and V (10). This past week saw decent gains and/or rebounds in CSCO, JPM, KO, MRK, MSFT, PG and XOM (7). 17 Dow stocks in advancing trends or rebounding made for this most recent upside breakout.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) Index has popped back above 3900 chart support and support implied by the 21-day moving average. COMP looks 'toppy' if it can't hold above 3900 in the near-term. I assess slipping upside momentum with the Index trading below its 21-day average and with COMP maintaining upside potential by trading above this key trading average. Near-term trading ahead should tell the story.
If COMP starts sliding lower again, I anticipate support coming in around 3850, then extending to 3800.
I've pegged near resistance at 3960, extending to what I continue to anticipate as 'strong' technical resistance in the 4000 area.
The RSI reading on the COMP daily chart seen above slid back recently into a 'neutral' mid-point reading. The sideways to lower slide in COMP has 'throw off' a near-term overbought extreme seen at recent highs. This isn't the same on longer-term charts (not shown) which suggest a quite overbought market. If you look at a multiyear weekly (or monthly) chart and apply a 13-week (or 13-month) RSI, COMP is at the upper 'overbought' range after which deep past corrections have started. Historical patterns tend to repeat, just not always.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart has seen a bullish bounce from support implied both by the 21-day moving average and the upside chart gap area dating back to the start of this last spurt higher in NDX. Price gaps under current levels (here, at 3301-3321) tend to act as support and 'define' areas of buying interest.
Now, for what happens at the line of resistance in the 3400 area! A move above 3400 is needed to suggest that NDX could also make to a move to new highs and perhaps test implied next technical resistance beginning in the 3470 area and extending to 3500.
Support is suggested in the 3300 area, with next support at 3250-3255. Given the strong move that has occurred already, I'm giving further upside the benefit of any doubt regarding the odds of a next leg higher. Expect a move in the direction of the dominant trend until proven otherwise! Stay tuned.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 (QQQ) tracking stock retreated from resistance implied by the high end of QQQ's long-term uptrend price channel but then rebounded from the dip into support suggested in the 80.9-81.3 prior (upside) gap area. Technical support is noted beginning at 80.9, with next support in the 80 area.
Near resistance is seen at the 'line' or recent intraday highs in QQQ at 83.3-83.4; resistance above this area is suggested by the upper resistance end of QQQ's longer-term uptrend price channel (not shown here) comes in around 85.
Daily trading volume spiked when QQQ fell below widely perceived support at 82. The converse is not true, as nowhere near the same volume level occurred on QQQ's rally back above support. The old adage that stocks and indexes "SLIDE faster than they glide" suggests fearful laced selling on perceived breaks, with caution in buying into a first rally after said break. When an advance is quite extended, getting cautious on buying dips after new highs seems appropriately cautious.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart is mixed. On the bullish side, support seems to have come into play on the recent dip to near the low end of RUT's uptrend channel. Support is suggested currently in the 1080-1070 price zone.
Near resistance is at 1100-1108, with pivotal next resistance suggested by the 'line' of prior highs at 1122-1123. Next resistance is suggested at the upper end of RUT's well-defined uptrend price channel, currently intersecting in the 1150 area.
RUT's recent rebound from support implied by the 50-day average suggests some further near-tern upside especially if RUT climbs above 1100 and holds this area. A test of the prior highs would then look feasible if not likely.
GOOD TRADING SUCCESS!