THE BOTTOM LINE:
The Market tends to go from 'extreme' to extreme (bullish to bearish or the reverse) and a key way to measure where the major indices would be at support or potential next 'resistance' is to track the 21-day moving average and pivotal moving average envelopes. These envelope values vary per my individual index charts seen below.
Upside momentum has slowed and we see the appearance of a possible rounding top on hourly charts. Meanwhile the Relative Strength Index readings suggest the major indices are more or less at overbought extremes. A Market probably a bit ahead of itself is occurring as bullish sentiment was rising over the course of this past week.
This most recent rise in bullishness comes AFTER the S&P 500 has gone UP a whopping 9 percent from its Closing low of mid-October. When it takes that long to recognize that we're IN a bull market I'm ready to exit calls, go to my corner and stand aside.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The SPX chart remains bullish with Friday's Close now UP 9 percent from its mid-October Closing low. Upside momentum has understandably slowed a bit after such a climb and the recent sideways trend most bullish interpretation is as a pause or 'consolidation' of the aforementioned very strong rebound.
The bullish chart has to be tempered somewhat by upside momentum slowing down and the appearance of a possible 'rounding-top' on hourly charts. Meanwhile the Relative Strength Index readings mostly suggest the major indices are more or less at overbought extremes. A Market probably a bit ahead of itself is occurring as bullish sentiment was rising over the course of this past week.
And this rise in bullishness comes AFTER the S&P 500 has risen a whopping 9 percent from its Closing low of mid-October. When it takes that long to recognize that we're IN a bull market I'm ready to exit calls and stand aside.
Use of the Moving Average Envelopes is a way of ascertaining outside extremes from the 'centered' mean, a 21-day moving average in this case. This technical model or 'tool' would suggest selling moves to the 2100 area.
Resistance is highlighted at 2060-2070, then at 2100. Support is seen in the low-2000 area; noted below at 2013, with support extending to 2000. Next support is in the 1960 area. A Close below the 21-day moving average, followed by another such down day, would turn the intermediate trend down.
S&P 100 (OEX) INDEX; DAILY CHART
The OEX remains bullish in its pattern although this past week OEX didn't climb much in point terms relative to the 3 weeks before. A sideways 'consolidation' of prior steep gains is what is most suggested with this recent slowdown. The possibility of what I call a 'mini-top' is present although I currently don't anticipate much of a dip below 900-895. Going sideways also 'throws off' the overbought RSI extreme in that this indicator will trend lower to a more 'neutral' mid-range reading.
A typical range of the big cap S&P 100 in a bull trend in terms of the 21-day moving average 'envelope' is that the Index doesn't go above or below 2 percent the 'centered' 21-day moving average. With the recent sharp expansion of OEX to 5% BELOW the 21-day average, will sometimes result in a subsequent equivalent move to that same value ABOVE the (21-day) average. This rule of thumb 'measures' a potential next target and potential 'resistance' at 930 per my chart below. Near resistance comes in at 915.
Initial or near support is at 900, with the key must-hold support for the bulls AT the 21-day moving average, currently at 885. Generally in the Indexes, trade ABOVE the average is bullish, below it assumes a bearish hue.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) has the same bullish chart as the broader S&P indices. The Dow also has the same slowing momentum this past week, as INDU was up a scant 61 points on the week. More important (than a 'pause' here) for the longer-term bullish outlook is that selling is light and after such a strong recent rally hasn't pulled prices down much.
Bullish sentiment has risen over this past week perhaps partly helped by the fact that the Market has held its recent gains so well. This rise in my bullish sentiment indicator, while probably realistic ('CPRATIO' indicator on the SPX chart above) over the long run, in the near-term this suggests to me many 'Johnny-come-lately' bulls. Enough so as to suggest risk of a pullback, exiting calls and waiting for the next trade with a lower risk of a counter-trend move or sideways trend and declining call premiums.
Currently INDU is closer to near resistance at 17650-17700 then it is to 17400 support. Potential for a dip in the Dow has increased some with the 13-day Relative Strength Index registering in its overbought RSI zone. This could mean risk to gains in DJX calls bought on the initial upswing by the Dow moving sideways ahead or dipping to 17400 near support or to more pivotal support around 17200.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite is bullish in its pattern and shows a stronger steadier gain in the past week than the S&P side of the Market. The last bounce took COMP a 100 points higher, trough to intraday peak.
Given the very strong bullish ascent a further gain to the 4840 area could occur and carry COMP to the SAME envelope extreme (5 percent) on the UPSIDE as was the case at the recent mid-October lows. See my chart highlights below. At an 'envelope' extreme above 4800 I'd exit Nasdaq related index calls.
It's been my experience that moves to EQUAL index envelope 'extremes' will tend to then be followed by either slowing trend momentum OR by a dip back to the 'mean', which in the case of the trading the major stock indexes is the (Fibonacci) 21-day moving average.
COMP support is highlighted at 4600, extending to the 21-day moving average at 4553 currently. Technical support then is seen next at 4500. Important for those holding bullish positions, betting on a further rise over the coming 3-4 weeks, to see COMP hold at or above its 21-day moving average.
COMP is in the overbought red zone, so beware shakeouts bullish ones. Moreover bullish 'sentiment' was rising this past week and that's 'too many' bulls for me generally. Still no sign yet of even a 'mini-top'.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index is strongly bullish and saw further gains this past week; more so than was seen with the more sideways trend in the S&P and Dow.
The recent rebound from 4200 suggests potential to the 4300 area next, perhaps to 4350 which would represent a type of 'overbought' extreme as this (21-day moving average envelope) model often suggests so accurately; i.e., the lower 'envelope' extreme at 5% suggests that a gain of 5% ABOVE the 'centered' 21-day moving average is an opposite 'overbought' extreme. This based on the observation that EQUAL 'extremes' tend to come along in pairs in alternating Market swings.
I'd be scaling out of call positions on a move into the 4300-4350 zone. I'd also be thinking bullish on NDX pullbacks to its 21-day moving average, only exiting on a 4050 Close. Pivotal near-term chart support is at 4100, extending to 4060, with next support at the 4000 milestone level.
This last little upward squeeze higher puts NDX finally 'fully' into its RSI overbought zone, so potential pullbacks become a bit higher on the prediction ladder.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
If NDX looks bullish, its ETF, symbol QQQ, looks even a bit more bullish in terms of its run up just less so in terms of volume which is low. However, in QQQ this is the 'norm'. It's the sell offs that 'brings out' sharp spikes in daily trading volume.
So, bullish chart, relatively low Volatility (VXN), but overbought in the Relative Strength Index which can mean a possible tendency ahead for a sideways move or pullback. The RSI tends to come back down from 'extremes' over time.
Very strong support is suggests at the top of the gap area at 100.2. Near support comes in a bit higher, at 101, but 100.2-100 is the must hold for the bulls, ahead of a plunge risk to the 96-95 area.
'Resistance' or a next potential upside 'target' is to 105, extending to 106. I'd be shorting the stock in that zone one way or another. Since similar upside AND downside 'extremes' are often seen in Index in BOTH directions, I can anticipate taking profits on long positions and/or betting on the short side based on the envelope 'extreme' and other overbought indications or reversal patterns.
On Balance Volume (OBV) continues to trend strongly higher so this key volume measure is 'concurring' with the strong advance.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) is the first of the major US indexes to show not only slowing upside momentum, but the possible start of a pullback. Stay tuned on that but given how weak RUT has been I'm quicker to see a bearish downturn ahead than not, such as a dip back to the 1160 area. Support then extends to the 21-day moving average, currently intersecting at 1148.
If RUT extends recent gains, probably due to a strong Nasdaq market, it could again tackle near resistance in the 1186 area. Assuming a move to new highs for this move there's the prior highs in the 1200 area to consider as potential major resistance. I've noted resistance on my chart at 1210 and implied by the
5% upper (moving average) envelope line relative to the 'centered' 21-day moving average.
GOOD TRADING SUCCESS!