THE BOTTOM LINE:
The Market continues to advance as I've been forecasting. My caution is that volatility is very low and bullish sentiment unusually high.
If we take very low S&P 500 Volatility Index (VIX) readings below 11 as a sign of 'complacency' and compare to a similar period of VIX readings, we need go back to the period from November 2006 into February 2007 when VIX also fell to below 11.
There was a steady rise in the SPX in the aforementioned period. After a minor dip in March (2007), there was another strong advance, with increasing volatility into a double top a few months later (July-October). Bullish 'sentiment' reached high levels prior to the July top and then again into the November price peak.
I continue to hold to an SPX objective in the 1980-1985 to 2000 price zone. I'm not forecasting a significant downside reversal but recognize that prices could stall as the Market is vulnerable to a price dip based on being overbought. Leading stocks higher has been the bullish performance of the Nasdaq 100 (NDX), but NDX has stalled around prior highs in the 3800 area. The Nas 100 Volatility Index VXN is also unusually low, ending Friday around 12. In and off itself, low volatility is showing less 'fear', more complacency regarding the dominant trend which isn't always bullish longer-term. While NDX may reach the 4000 area later this year, the tech sector acts a little 'tired' recently.
The high level of bullish sentiment as seen with my 'CPRATIO' indicator accompanying my SPX and COMP daily charts below can be a concern in getting 'complacent' regarding bullish positions. It may seem counter-intuitive, but a predominately bullish outlook by a majority of traders can precede a fall.
No 1-2 indicators are conclusive in a strong bull move like reversal type price action. When a pullback does get underway as signaled by topping at prior highs, key downside reversals, etc. the 'ground' was simply set so to speak in that various (technical) indicators suggested increasing risk for a pullback.
A chart 'correction', beside giving up much ground, can also be as simple as a sideways move or lateral price trend that helps 'throw off' an overbought condition; a sideways move also tends to cause bullish sentiment to taper off. We saw a minor pullback in bullish sentiment on Friday, although not by much.
CBOE equities daily call to put volume rose on Wednesday to as high as total daily call volume being 2.6 times total daily equities put volume. My 5-day moving average of my call to put volume ratio got over 2.1, which I haven't seen since mid-April 2010 when the 5-day average got up to 2.4. Later that month a correction started that took SPX down around 200 points, peak to trough, over a several week period.
At the same time (April 2010), the 13-day Relative Strength Index (RSI) was registering over 75. The key CHART pattern back then was a rounding top or what could also be viewed as a Head & Shoulder's top pattern. Be tuned to any such bearish price action 'trigger'!
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The S&P 500 (SPX) Index is bullish as the Index has yet again pushed on to new highs for the current uptrend. Recent lows found support at the latest SPX up trendline as can be seen in my chart highlights below. My target for a move to the 1980-1985 area seems on track. Fairly major resistance then comes in at the 2000 level which is a major milestone and representing a doubling of the Index within the last 5 years.
My concerns as expressed in my initial 'bottom line' comments above, is an RSI approaching an overbought 75 again and especially by another type of 'overbought' extreme in that traders have gone from bearishness in April to a bullish extreme recently, which may also be unrealistic. That said, there's been no bearish PRICE action in the S&P suggesting a pause or trend reversal, but the Dow is lagging some and the hot big cap tech Nas 100 may be stalled currently. SPX can go its own way of course but tech has been a bullish influence on mainstream S&P stock valuations previously.
Near support is seen at 1945, with next support in the 1925 area, with fairly major support at 1900. Near resistance is suggested in the 1980 area, extending to 2000.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is bullish in the same way as the larger S&P 500 given OEX's similar push to yet another high for the current move.
My concerns about a stall in the trend, taking prices either sideways or lower, is an overbought situation both in terms of the Relative Strength Index (RSI) and extreme bullishness among options traders as I measure it; see my 'CPRATIO' indicator accompanying the SPX chart above.
A next objective and potential resistance in OEX is highlighted at 875, with upper trend channel resistance coming in currently at 885. It's hard for me to imagine an OEX move to close to 900 without OEX testing this level. Timing is an issue here as OEX may well hit 900, but WHEN is another story as it could be after a pause or pullback.
Near support is suggested at 860, with next support around 840, extending to 830.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 Average (INDU) hasn't quite yet pushed on to a new intraday high but has gone to a new weekly Closing high. Right now the hourly INDU chart (not shown here) looks a bit toppy and has a pronounced bearish price/RSI divergence. Stay tuned on this hourly chart pattern being significant for the week ahead.
Near support is seen at 16800, then at 16600, which is also where the current 50-day moving average intersects. Near resistance is at 17000, then 200 points higher, in the 17200 area.
Very strong to continuing strong bullish moves are seen in less than half of the Dow 30 stocks currently but those 8 include CVX and XOM (oil!), INTC, JNJ, MMM, MRK, MSFT and TRV.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite Index (COMP) is tentatively bullish as the Composite is retesting prior highs in the 4370 area, but it's of course yet unclear what happens next: a bullish breakout to new highs or a stall and potential double top formation.
Working against a new up leg is the fact that COMP is already in an overbought area in terms of the Relative Strength Index AND a lot of bullishness among options traders as seen in my call to put (CBOE equity options) daily volume ratio, where mid-week, call volume was an unusually high 2.6 times put volume. Seems more bullish than the fundamentals of this economy warrant, regardless of what the Fed head says.
I had some trouble calculating next technical/chart resistance but it looks to come in above 4450, extending to 4465. Support is highlighted by the usual green UP arrow at 4300, extending down to 4250.
I wouldn't want to bet on a push to new highs in the Composite just yet but am waiting to see what the coming week brings.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) as I noted in my initial 'bottom line' commentary above, is stalled in the 3800 area, although, like the broad Composite, NDX went to a new weekly closing high.
I'd say that NDX is at key juncture here, currently trading at the LOW end of its uptrend price channel. A move to the HIGH end of its channel would carry the Index to 3900, where I've noted potential resistance. Next resistance comes in around 3950, with fairly major resistance at the even 4000 level; nothing like a new 1000 mark to get trader/investor attention.
Assuming that the Nas 100 pieces its up trendline, near support lies at 3760, with technical/chart support extending to the 3720-3700 area. I don't anticipate any pullback to below 3700, but a move to 3650, no lower, would successfully retest a next technical support implied by NDX's up trendline.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) is currently drifting sideways in terms of its daily chart, as prior highs in the 93 area have not been pierced. QQQ did eke out a new weekly Closing high. Above 93 resistance, I've highlighted next resistance at 94.3.
93 take on pivotal near importance as a pullback from this area would suggest at least a minor top. 92 is key near support, with next support highlighted at QQQ's up trendline currently intersecting at 90.3. I should re-define chart support here as a zone from 91.5 to 90.8, with the strongest support at 90.3-90.
The On Balance Volume (OBV) line has dipped after the highest daily Close from Wednesday of this past week, which could represent a mildly bearish omen.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) has retraced most of its prior steep decline, from the 1208 area to its double bottom low at 1083; and, what a buy in that area! Double bottom lows may look like an overly 'simple' pattern for a definitive bottom but it is one of the most reliable such patterns, especially accompanied by an oversold RSI.
I have no strong opinions as to whether the Russell re-tests the line of its prior highs around 1208 and then extends gains, versus forming a double top or just making a lower top then back in March. It depends most likely on what the Nasdaq does ahead.
Near resistance is noted in the 1193 area, extending to 1208 (to 1212). Very near support is suggested at 1171-1170. On the chart, I've noted key near technical support around 1155-1156, with next and lower support at 1140.
I would also note that RUT has a tendency to make tradable tops at the time of or somewhat later than when the 13-day RSI hits the upper extremes (at or near 70) of its typical range.
GOOD TRADING SUCCESS!