THE BOTTOM LINE:
Traders are quite soon again quite bullish and that gives me some pause as a 'contrarian'. Still, the trend is up and the pullback to date isn't severe. The S&P 100 (OEX) as well as the Russell 2000 (RUT) are up against some trendline resistance in terms of their weekly charts. Not so with the other major indexes so, for now, I remain bullish on the prospects for stocks to continue to trend modestly higher.
I've had a 1980-1985 target for the current advance in the S&P 500 (SPX). Relative to the recent SPX Closing high at 1951, a further march to 1980 is just another 1 percent higher. Entering bullish strategies NOW would have a poor risk to reward if downside 'risk' is back to the steeper up trendline currently intersecting at 1886 which; hence a pullback 'risk', relative to Friday's SPX 1936 Close, of 2.5 percent.
In terms of this year, SPX looks like it could wind up above 2000. The question is how much of a correction do we get before that and before 1980-1985 is seen. This market is showing overbought status on oscillator type indicators that attempt to measure trend 'extremes', as seen after periods of steep up or down trends; trendlines get correspondingly STEEP.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The S&P 500 (SPX) Index had the 'inevitable' correction/pullback after seeing a strong prior uptrend which saw 13 days when SPX was up or strongly up. This is the kind of movement that will put the 13-day Relative Strength Index into 'overbought' (RSI) territory which is seen graphically on the SPX daily chart below. The 13-day RSI computes the rate of price change over the prior 13 trading sessions (an 8-day RSI does the same over 8 Closes).
The RSI 'overbought' zone which is typically readings of 70-75. As you see below and as you know, a pullback/correction followed. This market looks like it will go higher over time but this year looks more like a 'normal' year in terms of annual price gains, historically, averaging out to 10% or less.
I'm still seeing chart support around 1920, then in the 1900 area. Resistance areas are highlighted at 1950 and then fairly major resistance at the upper end of SPX's broad uptrend channel, now intersecting around 1990.
Continued gains will see the rising SPX upper channel line reaching 2000 relatively soon. My persistent thought here is that the bulls, if they got the chops at all, will take SPX to 2000. That would be a story for the talking media heads. It's still the Dow this, the Dow that, but there's growing knowledge that the broad indexes rule.
As noted already, bullish sentiment on both a 1-day and 5-day moving average (thick dark blue line) are showing the kind of 'overbought' extremes that I associate with readings over 2; that means CBOE equities daily call volume is at least double that of total equities put volume. Moderating a bearish interpretation is that such extremes are typically hit 2-3 times before SPX sees a steep, not shallow, pullback.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart remains bullish. A corrective pullback as seen this past week was 'bound' to happen I could say, given the prior EXTENDED run of days when the market was rallying strongly again. The associated short and intermediate-term overbought readings that this run brought about are not always significant. But, here overbought extremes encourages profit taking by the bulls. Given especially the many cross-currents in shifting from a stellar market year to one projected to have a more 'normal' gain and even how much gain is a big debate still as we wait for more economic data.
I continue to see potential to the 875-880 from a next move higher or least one that could carry OEX to technical resistance implied by the upper trend channel boundary. This, of course, assumes the recent correction has run its course; that may have started Friday although more selling may spill over into early trading in the coming week. I've highlighted initial resistance at 865 in OEX.
Chart support looks like 850, extending to 840. There's been a slight moderation in the overbought RSI extreme seen the prior week. Ahead, a further price dip or just a sideways trend would see this indicator continue to drift down from its recent highs into a more 'neutral' range. I have a strong aversion to taking on trading positions that depend on prices continuing to go higher in the face of a prior extended run up and a correspondingly high RSI; e.g., 70-75.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 Average (INDU) had me going in terms of seeing a bullish Head & Shoulder's type bottom pattern. The apparent upside breakout above the corresponding (H&S) 'neckline did not however lead to a further spurt higher. Still, the overall chart pattern remains bullish as long as the recent pullback doesn't lead to a decline in INDU below 16600 for a couple days (or more) of back to back Closes. 16700 looks like immediate close by support and the 16400 level should offer fairly major support/buying interest.
Resistance is seen at the line of recent highs in the 16950 area. Next resistance is then projected to 17100, perhaps extending to 17200.
Last week I wrote that "Pullbacks to the 16800 area should be well bought, with chart support down to the low-16700 area." Opps, not so good on the 'well bought' part, but 16700 may hold up as support.
Dow stocks that look like they can continue to work higher are, on my list: AXP, CSCO, CVX, DD, GE, INTC, JNJ, MMM, MRK (maybe with a bit of a question mark), MSFT, TRV and XOM. There are enough INDU stocks drifting lower, off from earlier highs, to give pause to planning Dow 18000 celebrations later this year. But, the year is only half over so stay tuned!
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite Index (COMP) hasn't 'confirmed' or renewed its intermediate bullish trend, unlike the still-hot big cap Nasdaq 100 (NDX) which shot to new highs. Tech fever is still with us but it's more selective. The whole market has gone more selective in terms of stock picking. That said, COMP looks like its pausing here than being 'arrested' or stopped shy of re-testing its prior high.
Near resistance is 4350, extending to the 4370 area of the prior key top from early-March. Assuming COMP makes it through to a new high, a next target/resistance looks like 4450.
Technical support is initially seen at 4250, extending to the 4215-4200 area.
NASDAQ 100 (NDX); DAILY CHART:
I've had a target for the current move in the Nasdaq 100 (NDX) to 3850. The 13 trading day rally, prior to this past week's pullback, pulled the 13-day Relative Strength Index up to 75, which shows high 'relative' strength as they say and suggests risk of a pullback. Since all this is RELATIVE (there's that word again), peaks in RSI can occur multiple times before a bigger top forms; by 'bigger' I mean a top with substantial downside potential such as seen after the early-March peak. By the way, no RSI extreme (e.g., at or over 70) occurred in March, but there was a Head & Shoulder's top pattern that formed, highly correlated with tops.
Near resistance is seen at 3800, and then is projected next at 3850. 3900 also isn't a wild extreme guess as an objective for the current move either.
Near support comes in at 3750, about as expected so to speak in that this area was a prior recent high. Prior highs, once exceeded, often get 'tested' as a support floor. Next support comes at 3715-3700.
Volatility remains quite low, as measured by the VXN for the big cap Nasdaq 100 Index. There tends to be a correlation with HIGH VXN readings (e.g., 21-22) occurring in conjunction with bottoms. I can't find a meaningful historical correlation with LOW volatility readings as correlated with a key top as least in a meaningful time span AFTER a period when VXN is low. Such' low readings are a challenge in trying to sell some fat time premiums; they isn't much 'fat' to be had!
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) was in a strong bull move and this past week saw the QQQ tracking stock pull back a bit with the underlying NDX index. If QQQ holds 92 the stock is doing quite well from a bullish pattern perspective: the stock has a strong move on an upside price gapabove 90 then rallies 3 points to 93, followed by a slight giveback so far of 1 point (a 33% retracement) making for a mild correction to date.
I've highlighted chart/technical support in the low-91 area, 91.3, with next support at 90. I doubt we'll see QQQ lower than 89.5. Near resistance comes in at 93 even, with next resistance of importance technically at 95.
95, extending to 96, is potential resistance implied by bumping up against the top end of QQQ's broad weekly chart uptrend channel. The weekly chart isn't shown here and doesn't add much to what we see below in the daily chart where the KEY pattern is seen in QQQ's decisive move to new highs. The subsequent pullback was modest, which continues a bullish chart.
Daily trading volume expanded a bit on Friday's rebound, which is a bullish sign on rallies in a company stock; such volume expansion on price rises is not often the case in an ETF representing an index, like QQQ.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) continues in an emerging rally that has seen RUT retrace fully 3/4ths, 75%, of its prior decline. Passing the 2/3rds retracement level like it has, suggests that RUT's current recovery rally has the potential to also retest its prior top. In another way of looking at it a return to the prior top is a 100% 'round-term' retracement of its prior decline. Such re-tests are how double tops form OR can mark the point where the index or stock breaks through in a new up leg that carries to decisive new highs.
Time will tell on how much there is left in RUT's new found strength. Key near support is at 1154, extending to the 1140 area and RUT's current up trendline.
Near resistance is at 1180, at the prior intraday high, with resistance extending then to 1200.
GOOD TRADING SUCCESS!