THE BOTTOM LINE:
The S&P and Dow have shown a tendency for new highs that they can't 'hold', a pattern typical of a Market shifting gears. It's not your Grandfather's bull market any longer!
A point I'd make is that we continue in a bull market but perceptions of this year's upside potential is far under the unusual 30/30+% gains of 2013. Historic Market return, meaning mostly appreciation, is around 10%. This causes a lot of cross selling as investors start to seek more yield.
We're seeing a more down to earth expectation of the potential gains in THIS year's market. As soon as the economy actually begins showing increasing strength, investors are nervous already speculating that the Fed may have to raise rates much sooner than current consensus expectations. Crazy the contortions that we go through around the Fed.
I only have to look at the charts and it remains that there's more upside potential suggested technically at this point than down. The Dow 30 group of stocks has come alive and may take the leadership for a time. I've noticed the shift.
The only correlation I could make to sizable further downswing is that fact of the VIX getting so low, to around 12. There's occasional correlations to a very low S&P volatility index marking a high; after which prices continue lower. I don't bank on such correlations, but do take note of them. Price action, always my number one trading guide, is not currently suggesting to be wary of a new down leg.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The S&P 500 (SPX) Index continues to trade sideways in a narrow trading range. The line of lows is consistent in showing strong buying interest in the 1860 area; from that base recent rallies are reaching higher highs.
I write often that what appear to be upside or downside breakout moves that go strongly through widely perceived resistance or support levels needs to be 'confirmed' by the ability of prices to SUSTAIN a move above or below these trigger point levels.
1900 was going to be tricky to navigate through and it shows in the chart. Still, a sideways move within an overall uptrend is assumed to be a bullish consolidation. It's true well more than not. In ANY rectangle pattern there potential for a substantial move above or below EITHER well-defined support or resistance levels. The tendency is for breakout type moves that continues the dominant trend.
Pivotal SPX resistance is seen at 1900; next resistance 1930, then above 1960.
Near SPX support is at 1860; if breached technical support area expected around 1832 at SPX's up trendline.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) wasn't able to sustain its move to new highs above 840, making the short-term chart picture still mixed, within a long range uptrend as suggested by the continued pattern of higher relative upswing highs on long-term weekly and monthly charts.
A couple of daily Closes below the 50-day moving average would suggest broken upside momentum. Now, upside momentum is intact as prices drift trend gradually higher from the 805 recent low.
I remain as I've said, mildly, not wildly, bullish. Prices are in the middle of OEX's broad uptrend price channel. A downswing to the low end of channel would be to 808-805, like the last low. A decline to the most recent to develop up trendline would only take OEX back to 822. A strong advance could carry to the HIGH end of the channel and above 870. Just saying!
The 50-day average should hold up as support and another move takes the Index above 840, maybe headed toward a next technical target, 853.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 Average (INDU) should also be currently judged by the collective performance of the relatively small number (30), such that you can gain a sometimes clear view of upside, or downside, potential, by perusing the 30 weekly charts involved from week to week.
I took notice when a number of Dow stock chart patterns were showing potential for at least further modest gains with a number showing strong uptrends. 25 of 30 INDU stocks with moderate to strong potential for further gains is seen with AXP, BA, CAT, CSCO, CVX, DD, DIS, GE, HD, IBM, INTC, JNJ, KO (extra +), MCD (extra +), MMM, MRK, MSFT, NKE, T, TRV (extra +), UNH, UTX, V, VZ, XOM.
INDU continues to show support at its 50-day moving average. Some automated trading programs like this area, with good reason, as a buy. I anticipate support in the 16400 area again. If so a next rebound could reach the 16800 area. A break of 16400 is not good for the bulls, suggesting support back in the 16200 area. Major support continues at 16000.
Initial resistance suggested by prior highs around 16720; next resistance is projected at 16850.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite Index (COMP) chart is trending strictly sideways into more weeks of a lateral trend. It continues to look to me that the tech heavy Nasdaq is 'building' a bottom and the Composite will make it above the down trendline intersecting at 4135; next resistance suggested at 4150, then 4170. My upside expectations are modest ahead as it looks iffy for a really strong move such as to the 4285-4300 area again.
The near-term trend goes bearish again on a dip below 4025, then especially with back to back Closes below 4000.
COMP is still in the lower area of the 13-day Relative Strength Index (RSI) but isn't at an 'oversold' extreme. Bullish sentiment has been gradually trending lower. I like to take the other side of bullish-bearish bet when most are finally bearish; in an accelerating economy no less. There's should be a name for mild paranoia of the never completely predictable FED.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) has managed to END the week above its minor down trendline as seen in my highlights below. If this bullish action is going to lead to something, it would be a move to above 3625 next on the way to 3650, possibly higher.
The overall sideways trend after an apparent double bottom low suggests 'base' building and potential for gathering momentum for a recovery rally. That is playing upside/downside probabilities in chart patterns which is most of what I do. Sometimes boring too!
Near support is highlighted at 3535 and holding above the emerging up trendline seen there suggests at least a mildly bullish outlook. Staying above 3500 keeps the intermediate-term uptrend intact but a weekly close below 3500 support is bearish.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) is showing the same upside minor upside breakout of a near-term bearish down trendline as seen with NDX. I take this as a continuing, mildly bullish pattern in the tendency for prices to drift higher from recent lows.
88 in the Q's is a key near area for QQQ to pierce if this EFT is on its way to retesting the recent 88.6 relative high. Next stop in an increase in upside momentum could be a move to the 89.6-90 zone.
Pivotal support is 86-85.7; below this area we'd be looking at possibly seeing 84 again. Stay tuned on this one.
Daily trade volume did pick up on this most recent rally attempt and some traders or their computer programs or both were doing some buying. The pattern of higher relative highs and higher pullback lows should be bet on bullishly if you want to be in it. Oh, of course, selling premium in spreads, a direction neutral strategy, could work out if this range-bound trade continues.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart is bearish to mixed as the Index could have formed a double bottom. A continued move higher AND ability to hold the 1100 area on dips suggests that we seen the lowest RUT level for now. There's value in the small cap sector at the right price, like everything. The Market got a little panicked as to the NEXT winners and losers!
I wrote last week that ..."a bullish play, on a risk to reward basis, in the Russell is at or near at hand, with an exit on a close below 1080." I was thinking in terms of a bullish buy in on another dip to the 1085-1090 area. In answer to "How's that working out for ya?" OK so far.
The technical aspect that got me thinking that RUT 'had' to be near a bottom, at least trading risk-to-reward wise was the Index getting 'fully' oversold again with prices holding at the prior major downswing. A possible trade to like: in prior cases this kind of price/indicator patterns suggesting limited downside relative to even a modest rebound.
Resistance is seen at 1120, extending to 1130, with a next zone of resistance at 1160, extending to 1167 currently. Near support 1085-1083 to 1080. A Close below 1080 is bearish if it lasts, as really long-term support is down nearer 1000 than not.
GOOD TRADING SUCCESS!