THE BOTTOM LINE:
With the Nasdaq breaking out above down trendlines, traders remained relatively cautious to bearish on the S&P. Good time to
'fade' (trade against) this viewpoint as the 2-year uptrend continues.
As I wrote last week: "I only have to look at the charts and it remains that there's more upside potential suggested technically at this point than down." I did think the Dow would be stronger than it's been this past week but it has gone to a new weekly high.
I also have noted that S&P volatility index (VIX) readings under 12 (Friday: 11.36) has periodic correlations with tradable tops in the Market. However, this is not always true and I can point to March 2013 when VIX hit 11.3 and the S&P 500 (SPX) was at 1560. By May SPX got up to around 1670 before a downside correction set in; i.e., back to the 1570 area.
A key Market event chart wise was the advance in the Nasdaq Composite (COMP) above a line of prior resistance at 4150 (Friday Close: 4185), although the initial technical 'breakout' was above COMP's down trendline at 4135. The apparent(early-Feb/mid-May)double bottom in COMP made in the 3970 area now looks increasingly 'solid'.
In the Nas 100 (NDX), the Index pierced its down trendline initially in mid-May (5/12, at 3615), pulled back, then ran back above NDX's down trendline a few days later and has rallied since then to a Friday Close of 3677.
Even the laggard Russell 2000 (RUT) has followed the Nasdaq to a minor breakout Friday of its down trendline and managed to rally to above its 200-day moving average. Traders had seemed to be 'mesmerized' by its steady relentless March to mid-May decline. Seemingly not noticing that RUT also formed an apparent double bottom relative to its February low.
As I've been saying for awhile now, I'm mildly, not wildly, bullish as the direction of least resistance appears to be up for now.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The S&P 500 (SPX) Index has resumed its bullish intermediate-term uptrend as SPX has pushed above its prior line of resistance. As I note on the daily chart below, a SUSTAINED advance above 1897-1900 suggests a possible next up leg that could take the Index up toward the upper end of SPX's broad uptrend price channel.
SPX is approaching a near-term 'overbought' condition but could nevertheless press on and reach resistance around 1920 before a next pause or dip; conversely, SPX could dip back to near support around 1880 before attempting another advance above 1900. Intermediate support begins at 1860 and extends to 1840. I've pegged near resistance at 1920, then next around 1940.
The S&P in terms of the 13-day Relative Strength Index (RSI) is more or less at a 'mid-range' reading so I can't point to an overbought extreme on a 2-3 week timeframe. My sentiment indicator is bullish in that prices were advancing this week but without enough daily volume in index calls, relative to puts, to suggest that traders really 'believed' that the S&P was NOT going to top out again in the area of prior highs.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) has resumed its bullish chart pattern, whereas OEX had been in a more or less 'mixed', sideways, trend; although the Index did have an overall bullish pattern of HIGHER relative pullback lows and importantly, rallied from its 50-day moving average on every recent dip.
Next OEX resistance now looks like 850, extending to 860. Very near support comes in at 830-826, with next support suggested in the 820-817 area.
OEX, like SPX, at its last low retraced approximately 50 per cent of its early-February to early-April advance, which is a 'nominal' pullback only. In very strong trends, retracements might be only a third or so (38%) of the prior advance, but a one-half giveback is also common in uptrends.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 Average (INDU) is lagging the broader S&P indexes in that INDU is still well below its prior recent highs. I thought that the 30 Dow stocks had more bullish potential than seen this past week given my analysis for further upside potential in up to 2/3rds of the 30 Dow stocks.
Instead the big name Dow stocks aren't attracting the buying going back into sexy tech. Dow bellwethers like General Electric (GE) are not re-igniting their prior long-term up trends. Plus, the two Dow oil stocks (CVX and XOM) look like they may have topped out for now. Thank goodness if we don't have to face $5 a gallon regular gas just yet!
In terms of the 'mainstream' market, I'd be involved in bullish plays in the big cap OEX, versus the staid current Dow 30. INDU will be 'pulled' higher on further advances in the S&P and Nasdaq, but the Dow isn't taking a bullish lead role.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite Index (COMP) has resumed a bullish advance in that COMP has at least pierced its March-May down trendline as is highlighted on the chart. How much upside there is ahead is hard to tell. More will be known when COMP is not rebounding from an oversold extreme. There has been bargain hunting buying going on from the point at which COMP made an apparent double bottom low and got to an oversold extreme such as seen with the RSI.
Given the present upside momentum, although COMP could face a short-term pullback in the near-term, the Index could reach the 4250-4275 zone in this current up leg.
Near support is suggested at 4100, then around 4066 and lastly in the 4025 area and COMP's 200-day moving average.
Bullish Market sentiment has been moderate of late even though Nasdaq was having a decent recovery rally. This dynamic, from a contrary opinion perspective, tends to keep me on the bullish side of things. I much prefer trading against bullish caution or outright bearishness among traders, when chart patterns are at least looking modishly bullish again.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) has resumed strong bullish upside momentum again and has retraced 80 percent of its prior major down leg since making NDX's likely double bottom low (I could now probably take out the 'likely' modifier).
If you didn't 'believe' the double bottom low and were holding off on bullish plays because you didn't want to risk a short-term shakeout, let me know how that has worked out for you. Double bottom lows, coupled with an oversold RSI extreme (WITHIN a bull market), have a favorable risk to reward for taking on bullish strategies. I especially like having a 'defined' risk point in calls, which is to exit on a dip below the second low.
Speaking of 'waiting' for a pullback, the Nas 100 is now 'overbought' on a short-term basis, with potential for a sideways to lower dip.
Near support in NDX is at 3615, extending to 3600 and then to the 3555 area. Near resistance comes in at 3700-3706, extending to the prior intraday high at 3738.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) has come roaring back with strong upside momentum like NDX of course; coupled with a fair amount of 'disbelief' in the staying power of this recent advance and upside acceleration. The disbelief I'm referring to can be seen on the chart in the very low daily volume on this recent rally. Not like company stock chart where we expect 'confirming' volume expansion on rallies. A perfect situation for the bulls: where the bears are over-confident so to speak.
Speaking of volume 'confirmations' or not relative to price action, the key volume measure with the Q's is On Balance Volume (OBV), which has been trending strongly higher.
Near support is seen at 88.6-88.5, then at the juncture of the two key moving averages coming in around 87.6.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart is bearish but with potential for the last low to form a key double-bottom. Short-term upside momentum is seen with the recent advance above the lower down trendline highlighted on the chart. I don't generally favor jumping in with bullish plays on laggard sectors because they are the last to move and may seem 'cheap'.
However, RUT is back above its 200-day moving average and could well get pulled higher as long as Nasdaq continues to rally.
Near support is highlighted in the 1116 area, extending to 1100-1095. Near resistance is suggested at 1140, with probably more stubborn resistance at the upper down trendline, currently intersecting at 1161.
I think we can figure that RUT has formed a key double bottom and I may next remove (after another week) the 'possible' double bottom notation.
GOOD TRADING SUCCESS!