THE BOTTOM LINE:

The Market has had a very strong rebound from its Mid-October lows but appears to be hitting some technical resistance. A possible 'exhaustion' price gap formed on Friday, the market is overbought and bullish sentiment has grown enough to suggest a potential pause or pullback.

The sideways trend of last week could have been an interim or mini-top but there was another breakout move to above prior lines of resistance. However, Friday's pullback from intraday highs after another upside price gap, suggests a possible exhaustion gap. Meaning simply an upside gap (day's low HIGHER than the prior day's high) that forms after a prolonged move but then lacks upside follow through. In turn, implying that bullish investors may have 'exhausted' how much money they are willing to use in pursuing stocks ever higher. Stay tuned on this possibility.

Use of Moving Average Envelopes with the major indices is a way of ascertaining lower and upper extremes from a 'centered' mean, a 21-day moving average in this case. I've had the thought that UPSIDE possibilities for the indexes might equal the last downside move in terms of an EQUAL percentage gain above the 21-day average as was true on the mid-October lows; e.g., if the S&P fell to a 5 percent moving average envelope or 5% UNDER the moving average, it might next hit resistance around 5 percent ABOVE the 21-day average. As below, so above and vice versa.

Instead, after falling to bottoms that were 5% below their 21-day moving averages, it looks like the S&P and Dow are unlikely to rise to much more than 3.5 to 4% above the key centered moving average (21-days), which is not overly much above their historical tendency for price swings equal to 2-3 percent above or below their 21-day moving averages. SEE THE RELEVANT 'MOVING AVERAGE ENVELOPE' HIGHLIGHTS ON THESE CHARTS.

In the Nasdaq, the historical tendency is for price swings that remain within 4-5 percent above/below the 21-day moving averages for the Nasdaq Composite (COMP) and big cap 100 (NDX) indices. COMP and NDX fell to 6% under their 21-day moving averages but now look like they may not see upside moves equal to more than 4.5% above their 21-day moving averages. SEE THE RELEVANT 'MOVING AVERAGE ENVELOPE' HIGHLIGHTS ON THESE CHARTS.

Another chart that is of interest here is the weekly S&P 500 chart with its broad uptrend price channel highlighted. In terms of resistance implied by the upper channel line, SPX is hitting it. This is not to imply that SPX won't go higher still, but there's a likelihood that the advance will slow.

It's fairly unlikely we'll see a next move that is anything like the oversold rebound off the mid-October bottom from the LOW end of SPX's trend channel; I'd also note the oversold extreme seen at that bottom in terms of the 8-week or 2-month Relative Strength Index (RSI).

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX) DAILY CHART:

NOTE: I suggest reading my initial 'bottom line' comments at top for my overview of the indices technically at this important juncture, up 14%-15% (intraday low to intraday high to date) from the Mid-October lows in the major indices.

The S&P 500 (SPX) chart remains bullish in its chart pattern although further upside potential may be limited. There was limited follow through to what would normally be ANOTHER bullish upside price gap at the end of this past week. The fact that this gap comes at the end of a prolonged and very strong upswing opens the possibility that THIS particular gap represents a so-called exhaustion 'gap', marking at least an interim top. This possibility is a chart interpretation that should be mentioned.

SPX is overbought now in terms of the 13-day RSI and we can see another type of 'overbought' extreme in terms of high bullishness among traders per my CPRATIO (Call to Put volume ratios for all equities trading on the CBOE) indicator seen at the bottom of the price chart.

Resistance per my last week's column remains highlighted at 2060-2070, with next potential 'resistance' suggested in the 2100 area, representing a potential rally 'extreme' at 3.5 percent ABOVE SPX's 21-day moving average.

Near support is seen at 2040, with fairly strong support back down in the area of the milestone 2000 level.

S&P 100 (OEX) INDEX; DAILY CHART

NOTE: I suggest reading my initial 'bottom line' comments at top for my overview of the indices technically at this important juncture, up 14%-15% (intraday low to intraday high to date) from the Mid-October lows.

Like the broader S&P 500, the big cap OEX chart remains bullish in its pattern although there was the same limited follow through to what would normally be ANOTHER bullish upside price gap at the end of this past week. The fact that this gap comes at the end of a prolonged and very strong upswing opens the possibility that THIS particular gap represents a so-called exhaustion 'gap', marking at least an interim top. This possibility is a chart interpretation that I should mention. OEX, also like SPX, is at an overbought extreme per the 13-day RSI.

Near resistance comes now a bit higher than last week, at 920, with next potential 'resistance' suggested by the upper 3.5% moving average envelope, currently intersecting in the 930 area.

Initial support is at 905, extending to 900, near the 21-day moving average. Generally in the Indexes, trade ABOVE the average is bullish, below it assumes a bearish hue.

THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:

NOTE: I suggest reading my initial 'bottom line' comments at top for my overview of the indices technically at this important juncture, up 14%-15% (intraday low to intraday high to date) from the Mid-October lows.

The Dow 30 (INDU) has the same bullish chart as the broader S&P indices and also saw the same somewhat limited upside follow through after the apparent breakout move above the line of prior resistance at 17712-17720. Near resistance is 17895-17900, with a next possible target/potential resistance coming in at 18000, extending to 18160 if the Dow was again to advance to its upper 4% envelope line.

INDU support is highlighted in the 17600 area, then in the area of the Dow's 21-day moving average, intersecting currently at 17440.

The Dow is no longer seeing the 'slowing' upside momentum of the prior week but its continued move higher this past week also takes the Average up to a further overbought extreme in terms of the (13-day) Relative Strength Index indicator. Such 'extremes' can't be seen as meaning this rally is DONE but they do suggest increased risk of a leveling off of prices or a potential pullback. Overbought conditions also often go on much longer than oversold periods do in bull markets.



NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:

NOTE: I suggest reading my initial 'bottom line' comments at top for my overview of the indices technically at this important juncture, up 14%-15% (intraday low to intraday high to date) from the Mid-October lows.

The Nasdaq Composite 'filled in' Friday's upside price gap that occurred initially by its substantially higher opening. COMP not only pulled back to lower support, but the implication is also that the Index couldn't hold early gains. This pattern represents slowing upside momentum, which is what the RSI measures.

Near COMP support is highlighted at 4650, extending to the 21-day moving average intersecting just over 4600 currently. Significant technical support then is seen at 4500. From last week, I'd again note that for those betting on a further rise over the coming 2-3 weeks, it's important to have COMP find support/buying interest in the area of its 21-day average.

COMP is no longer in the overbought red zone but seeing the RSI pulling back from there suggests the possible start of a correction of minor to intermediate degree. Moreover bullish 'sentiment' has risen further this past week. Price action, the RSI indicator falling back and high bullish expectations argues against complacency for those holding bullish positions. Don't get too bullish from a trading perspective, versus the longer-term implications of a primary or major up trend.

NASDAQ 100 (NDX); DAILY CHART:

NOTE: I suggest reading my initial 'bottom line' comments at top for my overview of the indices technically at this important juncture, up 14%-15% (intraday low to intraday high to date) from the Mid-October lows.

The Nasdaq 100 (NDX) Index has been in a strongly bullish pattern and it shot up above this past week's highs on Friday but dropped back substantially from the Open. This past week only saw NDX tack on a slim 26 points.

Slowing upside price momentum is seen graphically in the sideways move of the Relative Strength Index. After such a substantial rise of the past 5 weeks, NDX may be pausing here and consolidating in a further sideways move or topping out for now.

I noted last week that "I'd be scaling out of NDX call positions on a move into the 4300-4350 zone". The Index didn't quite get to 4300, given its weekly high of 4285, 15 points shy of the aforementioned price zone.

Pivotal near-term chart support is now up to 4200, with what looks like it would be substantial buying interest/support coming in around 4100. Key overhead resistance is projected at 4300, extending to 4365.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

NOTE: I suggest reading my initial 'bottom line' comments at top for my overview of the indices technically at this important juncture, up 14%-15% (intraday low to intraday high to date) from the Mid-October lows.

QQQ continues bullish in its pattern but the fall back from Friday's substantially higher Open indicates slowing upside momentum and isn't surprising given how far QQQ has come up from its mid-October bottom.

As an aside, do you recall the pervasive feeling of fear and panic there was a month ago about the Market turning into a Bear. Remember it, as this mood of the pack is what creates such hesitancy to buy when a waterfall type decline doesn't suggest that there's a bottom. This pattern keeps many sidelined when they should be BUYING when risk to reward potential is GREATEST!

I wrote last week that QQQ "'resistance' or a next potential upside 'target' is to 105, extending to 106." And ... "I'd be shorting the stock in that zone one way or another." (i.e., via the stock or options) I may yet get my chance to make a counter-trend play but this past week's High was 104.7. Stay tuned.

I anticipate resistance now coming in at 4.5 percent above the 21-day moving average which forecast resistance above 104.7, as being in the 106.6 area. I didn't highlight close by support at 103, but did at 102 as initial technical support, with the 100 area as fairly major support.

On Balance Volume (OBV) continues to trend higher so OBV is in sync with the strong uptrend. OBV rarely 'diverges' from the price trend as long as Closes continue to trend higher on balance.

RUSSELL 2000 (RUT); DAILY CHART:

The Russell 2000 (RUT) could be the 'canary in the coal mine' in suggesting that peak prices for the overall Market may be at hand for now.

RUT has traced out a possible Head & Shoulder's Top formation. Resistance has shown up at recent highs in the 1188 area. RUT's prior intraday high was at 1212 (Closing high: 1208) and so becomes a pivotal implied resistance area.

Near support is seen in the 1160 area, next at 1140.

The declining RSI in the face of a sideways trend is a mildly bearish price/RSI divergence. Conversely, back to back Closes above 1200, with support developing there on pullbacks would be bullish.


GOOD TRADING SUCCESS!