THE BOTTOM LINE:
Predictably, price action since the end of 2013 has been a correction. And, so far this has taken the form of more of a sideways move than down. A dip ahead would 'normally' be next but this market has been well supported on dips and not heavily sold.
The indexes to watch are the big cap S&P 100 (OEX, the Dow 30 (INDU) and the big cap Nas 100 (NDX). The pattern on the biggest cap indexes look more like a further dip could lie ahead. However, OEX, INDU and NDX aren't giving much ground either and haven't broken below their 21-day moving averages. Those expecting or hoping for a pullback should watch for any back to back closes below this key trading average.
Meanwhile the call to put ratios and its clues as to bullish/bearish trader sentiment show call volume substantially trumping puts. Typical has been to see daily CBOE equity call volume running at or close to double that of daily put trade. Stocks of course might not pull back much and traders are right to remain steadfastly bullish. Either 'complacency' reins supreme or it's completely realistic to expect more gains ahead and very limited sell offs.
What I'm watching is any daily Close(s) below 1820 in SPX, 810 in OEX, 16200 in the Dow, 4100 in the Nasdaq Composite, to below 3515-3500 in NDX and to below 1150-1147 in the Russell 2000. Absent any closing dips below these levels would continue to suggest that bullish influences or expectations rule.
On the upside, I am simply watching to see if prior Closing highs are exceeded. And, then after that, if the there is upside follow through in the next 1-2 sessions after any such new closing highs.
To date only RUT has managed to eke out a new closing high. Seasonally, the Russell tends to see some increased buying interest in the first part of the year.
The major stock indices are still very much in 'overbought' territory and such indicators are also a means to measure price momentum and not just how 'overbought' or how 'oversold'. On a weekly chart basis, upside momentum has slowed some and this could be the start of a slow sideways to lower trend that would tend to 'throw off' the overbought condition. What else could we expect but a little slowing after 30/30+ percent gains in the year just ended!
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX), which has been in very strong long-term bullish trend has seen a recent sideways trend. I'd normally say that another dip lies ahead with this kind of pattern if I didn't also know that economic growth has been picking up. I'm not sure who is going to do much selling in the current environment absent some bearish market/economic news ahead.
I look at charts first and foremost but I also know that corrections in such a strong bull market are slow to develop in terms of much downside. A sideways move is ANOTHER way that markets 'correct' which is a time correction rather than much of a price correction. Either a time or price correction will cause overbought indicators to throttle back.
I see key near support at the 21-day and then especially at the 50-day moving average. I'd be surprised to see a closing dip below the 50-day average; not so much if SPX dipped below the 21-day moving average for awhile.
Near resistance is suggested by the prior intraday and closing highs. I've used the prior intraday high around 1850 as representing possible near resistance. Next higher resistance is suggested by the upper channel line, currently intersecting at 1870.
Bullish 'sentiment', according to my 'CPRATIO' line seen above remains quite high but this fact hasn't been handy in predicting much of a dip so far. The Relative Strength Index or RSI is also hanging up there. Something, some report or other, will have to come along to rattle the bulls a little if there's going to be much selling pressure ahead in January.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) is bullish on an intermediate and long-term basis and mixed a short-term basis given the recent sideways to lower dip. This after OEX hit the top end of its broad uptrend channel accompanied by an overbought 'extreme' in the 13-day RSI. As with SPX and the other major indexes, I'm watching to see if the 21-day moving average 'acts' as support which would show the strongest bullish pattern. The 50-day average howeve3r gets the most widespread attention as a key support.
On balance, I'm watching the 813-811 area as potential near support, with the 50-day average at 802 as a more pivotal support. A couple of Closes below 802-800 would be bearish for a possible dip of another 10-15-20 points.
Near resistance is suggested in the 824-825 area, extending to the upper channel line currently intersecting around 830.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow (INDU) has made a minor top and has fallen back about 200 points so far and looks to have some support just under 16400, with next support coming in at 16200. Near resistance is seen in the 16600 area, with next anticipated resistance around 16800.
Last week I evaluated AXP, BA, DD, DIS, GE, GS, HD, JPM, MMM, MRK, NKE, TRV, UTX, V, and XOM as continuing to have strong bullish long-term charts, which was half of the 30 Dow stocks. After another week of trading, there has been some slippage in AXP, DD, S&P/Dow bellwether GE, MMM, NKE, and TRV. UNH tried to break out of a top pattern but got pulled back. XOM looks to be consolidating for another possible leg up. All in all now a less overall bullish pattern for the collective 30 Dow stocks.
INDU does have this common pattern of running up UNTIL it gets to an overbought RSI extreme around 70 to 75 in the 13-day RSI, then starting a substantial correction. Stay tuned on the outcome this time!
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) dipped to near support in the 4100 area, then rebounded to a new intraday high at 4183 and looks like it could take out this resistance. I'd call the very short-term pattern mixed until or unless COMP goes to a new closing high above 4176. Next resistance isn't too far overhead, at the well-defined upper channel line. COMP goes to or near this upper line of its broad uptrend channel, dips a bit, then powers back up. This could go on and on or this time could be different as the Index is rebounding on 'less' relative strength as suggested by the RSI indicator.
The big cap NDX doesn't have the bounce back pattern of COMP so I'm taking a wait and see on expecting much of move higher by the broad based COMP, home to a big mix of smaller tech companies.
I'm watching near support at 4100 as important for a near-term bullish chart; support then extends to 4050. A Close below 4000 is bearish just as a Close above 4250 keeps COMP's long-term bullish chart pattern intact and maintains strong upside price momentum.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart is slightly mixed given the recent dip and subsequent sideways move without a strong recovery rebound. The intermediate and long-term chart is strongly bullish. Even the short-term trend is hanging in there if judged by NDX's ability to hold above its 21-day moving average and I'm watching to see if this average continues to 'act as' support.
I've highlighted initial support at 3515, but take note of the 21-day average as well; currently at 3533. Pivotal chart/technical support is then suggested in the 3450 area.
Near resistance is at 3590-3592. A couple of closes above 3590 could set the stage for another advance to the upper (resistance) end of NDX's long-standing broad uptrend channel, currently intersecting in the 3638-3640 area.
While the chart here suggests that there could be another downswing coming and would be a common outcome to the pattern we see here. While a further pullback wouldn't be surprising, the trend has been so strongly up that I can only suggest adopting bullish strategies on a good-sized pullback if one occurs and not trying to play a possible decline of 50-100 points.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 (QQQ) tracking stock has the same near-term mixed pattern as the underlying NDX index but the pullback to date isn't very much and QQQ could head back up yet again to its upper channel line. The pattern of continuing higher by hugging this upper channel line is the most dominant feature going here. It wouldn't be surprising to eventually see a dip to the LOWER end of QQQ's broad uptrend channel but WHEN is a big if
Near support is seen in the 86 area, extending to 85-84.7. Near resistance is highlighted around 88, with next resistance implied at 89-89.1, at the upper end of QQQ's broad uptrend channel. This has been an amazing advance and even the bears have become 'believers'. Hey, enough of us become TRUE believers and then it will be the end. Meanwhile, even the short-term trend remains up unless there's a decisive downside penetration of 86.
The On Balance Volume line is trending sideways along with prices so there's no fresh input from volume considerations. I did find it a bit surprising to see daily volume spike on Friday's action. This may have due to some early selling, then short-covering going into the close. It's tough even trying to be a bear in this market!
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) managed to eke out a new Closing high on the Index's latest rebound after the brief New Year's dip to the 1146-1147 area where RUT formed a minor double bottom. Next chart support looks like it comes in around 1120.
Near resistance is seen at 1165-1168, with next resistance implied by RUT's upper channel line intersecting around 1180.
It's even money or even risk to reward in my mind as to whether RUT goes up 20-30 points or down by the same. I don't like those odds in terms of staking out new positions. If in calls or other bullish strategies, you probably have to favor the trend even though this advance is 'old' in terms of having a correction. Tops in RUT have come about every 20 trading days, but stay tuned on whether this last top will lead to further downside; if the same cyclical pattern were to continue a further pullback is still ahead.
GOOD TRADING SUCCESS!