Market Internals

Introduction

This weekend, China's president warned that the country must accustom itself to slower growth, and pro-Russian Ukrainians in two regions voted to separate. European and U.S. markets shook off those worries.

Within a few minutes of the open today, the Dow Industrials and Dow Jones Transports had hit new intraday highs. While not at a new intraday high in the early trading, the SPX had pushed above the April 2 closing high, a move some were already terming a move "into record territory" for the SPX, too. They were a bit early, since it wasn't yet clear where the SPX would close. The OEX, the S&P 100, reached a new high during those first moments of trading, too.

The wait was on to see if those indices settled at new record closing highs. For SPX traders, that wait was a long one. The Dow, Dow Jones Transports and OEX all produced both record closing and intraday highs. The SPX was a few cents shy of producing a new intraday high today, but it did end up with a new closing high, long after that "record territory" label was applied to it.

The SPX gained 0.97 percent; the Dow, 0.68 percent; and the NDX, 1.60 percent. The RUT jumped 2.39 percent, and the SOX, 1.83 percent. The Dow Jones Transports ($DJT) added 1.92 percent. The IBB, the iShares Nasdaq Biotechs, a formerly beaten-down sector, added 2.42 percent. The BKX, the KBW Bank Index, rose 1.49 percent. Meanwhile, the defensive $DJU, the Dow Jones Utility Average, dropped 0.94 percent.

Gold futures (/GC)for June delivery settled at 1295.8, up 8.2 points. Silver futures (/SI) for July delivery settled at 19.543, up 0.422 points. Copper futures (/HG) for July delivery settled at 3.1495, up 0.665 points. Light sweet crude futures (/CL) for June delivery settled at 100.59, up 0.60 points. In each case, I have chosen the futures contract with the highest volume.

Market participants went bargain hunting, sending formerly beaten-down stocks and sectors higher. However, those equity gains were on lower volume for the markets, not higher volume. What's going on? For several weeks, I and others had been warning that the RUT was approaching a 10-percent drop off its 1,212.82 intraday high from March 3, with that 10-percent drop at 1091.54. Such a test might prompt buyers to step in, whether or not the buying stuck, I and others warned, and the better-behaving SPX, Dow, and NDX might be carried higher with relief, too. The RUT hit that 10-percent correction on Friday. We knew the bounce was likely, but is it likely to stick?

Monday's Developments

Asian bourses turned in mixed performances last night. The Nikkei 225 dropped 0.35 percent, the Hang Seng gained 1.82 percent, and the Straits Times lost 0.91 percent.

This weekend, China's President Xi Jinping advised that the country must grow accustomed to a new normal standard of slower growth. Some experts interpreted his comments to mean that China will not be quick to ramp up further stimulus. China's stance has been that such efforts have limited long-term effect. China's Shanghai Composite gained 2.08 percent, which might appear strange after President Xi Jinping's warning, but China also announced financial market reform plans, including plans to reform the IPO structure. Those changes are meant to increase access and transparency. Some pundits caution that the new announcement is mostly a rehashing of previous announcements and that exuberance just took over after the announcement.

This weekend in eastern Ukraine, pro-Russian activists prevailed when voters participated in a referendum held in two areas. Only ten percent of those voting in the Donetsk region in eastern Ukraine voted "no" in the referendum. Results from the referendum held in Luhansk went to the pro-Russian side, too, as well they might with photos of armed pro-Russian militia marching to the polling sites.

Acting Ukrainian President Oleksandr Turchnov called the yes-no vote a farce and said it had no legality, and other countries also called the referendum illegal. At least one recent poll showed that the majority of people in eastern Ukraine want to stay united with Ukraine. These days, I don't trust any news source or polling entity to be unbiased, but a search turned up a consensus that the firm conducting it was considered one of the most reliable and unbiased.

Leaders of the separatist movement in Luhansk have now declared themselves to be the Luhansk People's Republic. Separatists in Donetsk have now declared themselves to be a sovereign state and have asked the Russian Federation to consider making them a part of the Russian Federation. Some of the population in those eastern Ukrainian regions have vowed to boycott the upcoming May 25 Ukrainian elections. Russia, of course, "accepts the will of the people," and offered hopes that the implementation of the people's resolve will proceed smoothly.

European bourses shook off the worries about the Ukrainian situation, perhaps focusing instead on ECB President Mario Draghi's comments last week that easing could come next month, if needed. The FTSE 100 gained 0.55 percent; the DAX, 1.26 percent; and the CAC 40, 0.37 percent. Spain's IBEX 35 rose 0.76 percent, and Italy's FTSE MIB, 0.48 percent.

The economic calendar was light in the U.S. Moody's weekly Business Confidence inched up to 30.0 from last week's 29.9. The summary was in line with recent summaries, continuing to comment on upbeat businesses, sturdy hiring intentions, and optimism about the future.

The National Association of Realtors (NAR) said today the median existing home price increased year-over-year in 74 percent of the measured metropolitan markets. In the first quarter, year-over-year price growth in metropolitan areas proved strong, but the quarter-over-quarter increase was smaller in the first quarter than had been recently seen. The association also examined income requirements to purchase a median-priced home and concluded that the typical buyer was well able to buy an existing home in the Midwest and South. The NAR's chief economist, Lawrence Yun, characterized the slight cooling of prices as a good thing in order to maintain the affordability of housing. On the West Coast, for example, limited inventory is driving prices at an unsustainable clip, he cautioned.

At the quarter's conclusion, 1.99 million existing homes were for sale. That's more than were available in the year-ago quarter. The average supply was 5.0 months, also higher than the 4.6 months in the year-ago comparison quarter. That's still below the 6-7 months that represents a balance between buyers and sellers, the NAR press release says.

Total sales for existing homes dropped 6.9 percent quarter-over-quarter and were 6.6 percent below sales in the first quarter of 2013. The brutal weather was blamed in the Northeast and Midwest, and limited inventory and reduced affordability due to rising prices was blamed in the West. The national commitment rate on a 30-year conventional fixed-rate mortgage rose when compared to either the fourth quarter of last year or the first quarter of 2013.

In somewhat related news, the Mortgage Bankers Association said that applications for jumbo mortgages of $729,000 or more rose 4.9 percent in March when compared to the year-ago levels. Wells Fargo (WFC, 49.76, up 0.68 or 1.39 percent), Bank of America (BAC, 15.07, up 0.33 or 2.24 percent) and J.P. Morgan Chase and Co. (JPM, 54.65, up 0.64 or 1.18 percent) now offer such jumbo mortgage loans again. Applications for loans of less than $150,000 fell by 21 percent in the same time period. In the week that ended April 18, the average purchase application loan amount rose to the highest since the survey began more than 24 years ago, to $280,500. The mention of jumbo loans, particularly jumbo ARMs, leaves a bad taste with some market watchers who blame such loans for contributing to the housing froth that preceded the Great Recession.

We're beginning to hear more warnings, too, from those worried about leveraged loans, corporate high-yield bonds, and a loosening of underwriting standards, with FOMC Chair Janet Yellen specifically mentioning such concerns in her testimony last week. Multiple market pundits said such an explicit mention means that the FOMC takes such activities into consideration when making taper and rate decisions. Some market experts worry that FOMC Chair Yellen's comments were not heeded, but I found numerous articles today worrying about the froth and leverage. Those included everything from articles pointing out how many houses could be bought in the Midwest for the price of a single house in San Francisco to UBS's warning to investors to trim back their investments in high-yield and investment-grade corporate bonds.

At noon EST, Federal Reserve Bank of Philadelphia President Charles Plosser delivered the welcoming remarks at the "Reinventing Older Communities" conference in Philadelphia. Plosser is a current voting FOMC member. He did not discuss monetary policy, so there was little attention on his comments.

The participation rate in the labor force has been much discussed lately, but Plosser addressed an issue I have wondered about but haven't heard many pundits address. The lower participation rate may be due to the number of people retiring or on disability, Plosser said, with about 75 percent of lowered participation rate due to retirements. The leading edge of baby boomers has begun to retire.

This afternoon, the Treasury Budget showed a surplus of 106.9 B. The consensus for the expected number was $112.6 B, with a range of expectations from $95.0 B to $116.0 B. April typically shows a surplus because of tax payments. The surplus was $6 billion lower than in April 2013. The deficit for fiscal 2014 is expected to measure $492 B, less than fiscal 2013's $680 billion. The deficit for fiscal 2014 is expected to measure 2.8 percent of GDP. To date, spending for fiscal 2014 has dropped 2 percent over the prior fiscal year while receipts have climbed 8 percent. The deficit has been decreasing since fiscal 2009--with that fiscal year beginning on October 1, 2008--but spending is currently expected to rise again after 2015.

Story stocks included Hillshire Brands Co. (HSH, 35.76, down 1.19 or 3.22 percent), maker of Jimmy Dean sausages. HSH announced today that it will buy Pinnacle Foods Inc.(PF, 34.47, up 4.02 or 13.20 percent), owner of the Birds Eye and Duncan Hines brands. The $6.6 billion deal will be a stock-and-cash one. Each holder of a share of PF common stock will receive $18 in cash and 0.50 shares of HSH common stock in exchange. Taken together, holders of PF shares will be receiving $36.02 per share, 18.3 percent above PF's Friday closing price of 30.45.

One merger-and-acquisition idea was rejected, however. Allergan Inc. (AGN, 159.72, down 1.58 or 0.98 percent), manufacturer of Botox treatments, rejected an unsolicited offer from Canada's Valeant Pharmaceuticals Inc. (VRX, 130.16, down 1.01 or 0.77 percent), with that offer first extended in April. AGN said the bid undervalues the company. In explanation, AGN mentioned EPS expectations would increase 20-25 percent in 2015 and said that revenue growth should continue to be in the double digits into 2015. The company also announced other growth expectations.

Companies in the solar technology sector such as SunEdison Inc. (SUNE, 17.88, up 1.14 or 6.81 percent), Canadian Solar Inc. (CSIQ, 28.00, up 1.68 or 6.38 percent), SolarCity Corp. (SCTY, 54.12, up 2.08 or 4.00 percent), SunPower Corp. (SPWR, 34.11, up 1.11 or 3.36 percent) and Yingli Green Energy Holding (YGE, 3.10 up 0.16 or 5.44 percent) gained today. On Friday, President Obama unveiled a push to support job training programs for the solar industry as well as to upgrade federal buildings for energy efficiency. President Obama said major corporations have also pledged to join the effort by upgrading their facilities. Major investment banks have said they will invest more in solar and renewable energy programs.

Several pharmas were among the story stocks. Merck (MRK) received FDA approval of Zontivity, a drug meant to reduce cardiovascular events after a heart attack or among the population with peripheral arterial disease. Amgen (AMGN) and AstraZeneca (AZN) announced encouraging results in a Phase 3 evaluation of a drug to treat moderate-to-severe plaque psoriasis.

Companies reporting earnings today included Gogo Inc. (GOGO, 12.67, up 0.74 or 6.20 percent), reporting before the bell. You may remember that this aircraft communications service provider has been in the news recently. AT&T and Honeywell had announced plans to build a 4G in-flight broadband service. As mentioned in the April 28 Wrap, GOGO is a current in-flight broadband provider, but one with its detractors. It has so many detractors, for example, that going into today's earnings announcement, it had a short float of 25.26 percent according to my research. We know what happens when a company with a high percentage short float reports better-than-expected earnings, don't we?

GOGO spiked higher after reporting a less-than-expected loss of $0.20 per share. Revenues of $95.7 million beat expectations, too. Service and equipment revenues both increased, too. Expenses increased, too, but the company noted that those higher expenses could be pegged on the increased business that produced those higher service and equipment revenues. The company reaffirmed future revenue guidance in line with estimates. Most certainly, shorts forced to cover fueled at least part of today's gains. Do your homework into researching the long-term impact of the AT&T/Honeywell announcement before you decide to buy this stock.

MagicJack (CALL, 19.03, up 1.54 or 8.81 percent) fell in after-hours trading after announcing earnings. As this report was prepared for publication, the stock was last at $18.00, down 1.03 points from the day's close. The company reported earnings of $0.53/share against expectations of $0.49. Revenue was light at $35.3M against expectations of $37.18M. In concert with its earnings announcement, magicJack numbered its registered subscribers at 8.4M as of March 31, saying that number represented a 21-percent increase, quarter over quarter. The company said full-year revenue would be $158M-$163M, above the prior $157.5M consensus. The company also noted that it had formed a strategic commercial agreement with Telefonica (TEF). Under the terms of the agreement, magicJack devices will be sold in several Latin American countries. A pilot program is planned for later this year. If it is successful and country-specific agreements are completed, magicJack products will be aggressively marketed.

McKesson Corporation (MCK, 174.23, up 3.23 or 1.89 percent) had last jumped to 179.00, up 4.77 points, as this report was prepared. After the close, the company announced earnings results, beating forecasts on both earnings and revenue. Earnings were $2.55 a share, beating estimates of $2.40 a share, on revenue of $38.1 billion. The revenue expectation had been $35.9 billion. The company's CEO mentioned "a record year for operating cash flow generated by business," with particular strength seen in its distribution and technology solutions units.

Rackspace Hosting, Inc. (RAX, 27.53, up 1.25 or 4.76 percent) rose in afterhours trading after reporting earnings. The stock was last at 30.42, up 2.89 points from the day's close, as this report was prepared for publication. The company reported earnings of $0.18 per share against expectations of $0.12 per share. Year-earlier earnings had been $0.19 per share. Revenue was $421M. Analysts had forecast revenue of $419.3M for this quarter. The company guided second quarter revenue expectations to $434M-$440M with the $437M midpoint of that guidance well above prior consensus at $435.53M. The company's server count rose to 106,229 from the prior 103,886. RAX has been the subject over the last week of renewed takeover speculation.

Let's look at daily charts.

Charts

Those new to my Monday Wraps might find the following paragraphs useful when interpreting my charts. Those who have read the Wraps can skip straight to the charts. I set up nested Keltner channels on my charts. It's a run-of-the-mill channeling system like the more familiar Bollinger Bands. As with those more familiar BB's, channel boundaries are often targets for upside or downside moves. They also mark levels where prices might find support or resistance on closes. When several channel lines converge, that potential resistance or support might appear stronger, just as it would if 20-, 50- and 100-sma's all converge in one spot.

For the benefit of subscribers, I mark potential upside and downside target/support/resistance levels with rectangles, usually green for upside and red for downside. Orange rectangles are sometimes used when the darker-colored ones would not allow for a clear examination of the next target. From now on, I will mention the nearest potential support or resistance level in the discussion on the chart, but not the further-out ones. They can be located on the charts if price breaks through the nearest levels on consistent daily closes. If an interpretation such as "support levels appear stronger than resistance, so up looks more likely than down" is possible, I'll tell you. Often we traders must be able to defend our trade against a move in either direction.

As with any type of potential support or resistance, those with profits should be protective of those profits as support or resistance is tested. If prices find support and climb, look to the next higher rectangle, even one just broken through, as potential resistance. Do the reverse when resistance is breached. Hopefully, this format provides you with the information you need without requiring all night to read as happens when I list each potential support or resistance level individually.

Legend for Keltner Channels and Moving Averages:

This legend references the SPX, but the Keltner and moving average setups are consistent across all the charts utilized in this Wrap. You can refer back to this chart for information about the Keltner lines.

Annotated Daily Chart of the SPX:

The SPX headed higher this morning, soon running above its last peak high from early May and also above its all-time closing high of 1,890.90, achieved on April 2. Yet the SPX, unlike the OEX, Dow and Dow Jones Transports, hesitated just underneath its all-time intraday high of 1,897.28, frustrating traders who were waiting to see if it broke through or was knocked back. What would happen next? The SPX did achieve a new closing high but not a new intraday high.

The SPX has been chopping back and forth across its red 9-ema enough over the last few weeks that its movements have rendered that moving average less of a benchmark of short-term bullishness or bearishness than it typically is. Instead of watching the red 9-ema alone for potential support, we must watch a potential support zone that also includes the peach-colored 45-ema. That necessity makes the potential support zone uncomfortably wide, but breaks of the 9-ema's support have often seen the 45-ema's support tested.

As long as the SPX maintains daily closes above the top of that support zone, at about 1,882, it sets a short-term tentative target at about 1,900-1,905. The next potential target would be at about 1,911-1,927, if daily support can be maintained above about 1,905. Another potential upside target is also marked on the chart near 1,940, but that target is likely to have risen if the SPX charges up that high.

What if the SPX rolls over? Today's low volume and hesitancy just below the prior intraday high should alert us to be careful about our assumptions. If the SPX retreats to retest support, SPX daily closes between about 1,860 and 1,882 unfortunately don't tell us much about eventual SPX direction. That's now a chop or congestion zone.

Sustained daily closes beneath about 1,860, however, show a difference in the short-term pattern seen over the last month and set up a potential downside target at about 1,807-1,830. That's the "must hold" level for sustained daily closes. I would of course expect that a sharp decline could push that target zone down to the round-number support of 1,800. Sustained daily closes beneath about 1,800, then, would look like a serious change in tenor. According to the Keltner charts, such a pattern of consistent closes would set up a potential downside target as low as 1,700-1,718. However, there's interim potential historical support at about 1,775 and again near 1,740.

Annotated Daily Chart of the Dow:

The narrow Dow outdid the SPX on several fronts. Not only did the Dow jump above the previous closing high, but also, within a few minutes of the open, it had jumped above the previous all-time intraday high, too. On a Keltner basis, the Dow rose straight up to the smaller Keltner channel's upper boundary, analogous with the 1,900 level on the SPX. Not only did the Dow drive up to that upper boundary, but also it pushed that channel's upper boundary a bit higher than it had been.

As long as the Dow maintains daily closes above about 16,632, it nominally maintains a newly set upside potential target at about 16,771-16,889, but the Dow hasn't been hitting that potential upside target on the last several peak highs, so be careful about assumptions that it will this time.

If the Dow does hit that next upside target instead of rolling down now that it's testing the grey channel's upper barrier, sustained daily closes above about 16,889 would set a new potential upside target just under 17,200. That target is likely to be pushed higher by any sharp or sustained move toward it.

What if the Dow rolls over? The Dow's breakout has separated Keltner support levels, and the narrow Dow can be pushed around more easily than the SPX. Those factors mean that it's hard to ascertain which nearby support levels are strongest. Sustained daily closes beneath about 16,535 appear to set a potential downside target of 16,323-16,435. The 45-ema enclosed in that 16,323-16,435 zone appears to have been a more important benchmark for the Dow than the 9-ema. Test of that moving average have prompted many bounces over the last months, so it must be considered important potential support at least over the short-term.

Sustained closes beneath the peach-colored 45-ema have often sent the Dow's price straight down to the next Keltner channel line. Remember that the moving average will move in the direction of price movement. Therefore, sustained Dow daily closes beneath about 16,323 set a potential downside target of 16,115-16,205. Sustained daily closes beneath about 16,115 would in turn set a potential downside target of 15,900-16,025. A lower potential Keltner target is also marked, but it would be driven lower by a sustained or sharp drop. Before it could be hit, potential historical support, particularly that near the December and February swing lows, would be tested and could hold.

Annotated Daily Chart of the NDX:

The NDX has been chopping back and forth across its converging 9- and 45-ema's, rendering those two average less trustworthy benchmarks than they might be at other times. It's probably more useful to look at sustained daily closes above about 3,610 or sustained daily closes below about 3,500 as benchmarks, with most everything else between them just chop.

Sustained daily closes above 3,610 set a first short-term target at about 3,621-3,658. Sustained daily closes above about 3,658 or perhaps 3,660 set a possible eventual target of 3,718-3,756, although we should know to expect some sellers to be waiting as 3,700 is approached. The several-years' intraday high of 3,738.32 is within that range, lending potential resistance to that zone and probably to any approach to 3,700, too. A higher potential upside target is also marked, but it's likely to be driven even higher by a bounce up through the previous many-years' high made in early March. Right now, we must consider that zone around that March high to be particularly strong potential resistance.

What if the NDX rolls down again? Sustained daily closes beneath about 3,500 sets a potential downside target of about 3,388-3,427. That zone represents a "must hold" level for the NDX on daily closes. Not only would a breach of the Keltner configuration there on sustained daily closes mark a change in the long-term pattern for the NDX, but also it would mark the confirmation of a head-and-shoulders pattern on the daily chart. The second shoulder of that potential head-and-shoulders formation is extending too long for my liking, and that shoulder is beginning to look more like a bullish triangle formation with a flat top and rising lows. Still, the bearish potential certainly would not be undone if the NDX rolls down sharply and falls through the 3,388-3,427 zone. Such a breach would set a potential downside target near 3,200, although we all know to watch for potential support from about 3,300-3,330, too.

Annotated Daily Chart of the RUT:

Last week the RUT dropped to retest the zone that included the February and April swing lows. It was also testing potential Keltner support. That potential support on daily closes now resides from about 1,079-1,094. It's one of those "must hold" zones seen on several charts. A breach of this support on sustained daily closes would mark a long-term change in tenor for the RUT. That zone also marks the confirmation of a potential head-and-shoulders formation, although it's a more roughly formed one than on the NDX.

Sustained daily closes beneath about 1,079 now set a potential downside target near 1,020, marked on the chart. The RUT, has however, tended to chop out potential S/R zones in about 20-point intervals, so interim support might be found at 1,060 and 1,040.

Today, though, the question wasn't whether support would hold but rather whether resistance would. The RUT rose to test potential resistance on daily closes found from about 1,130-1,146. So far, that resistance has held. Maybe it was just that the RUT understandably ran out of steam after making such a large percentage gain.

Sustained daily closes above about 1,146 would set a potential upside target of about 1,193-1,205. However, that target is likely to be pushed up toward the early March all-time intraday and closing highs of 1,208.65 and 1,212.82, respectively, if the RUT continues gaining. Those congestion zones that the RUT tends to churn out at 20-point intervals might provide at least short-term resistance along the way toward testing that potential upside target, even if it is eventually approached. A higher potential target is also marked in case the RUT can push through the early March high, but it's likely to be pushed much higher before it can be tested.

Annotated Daily Chart of the BKX:

I often place the bellwether index, the Dow Jones Transports, in this space. That's because the transports often lead the SPX, OEX and Dow, at least. The transports highlight unexpected strength or weakness in the economy. Right now, they're doing what the Dow is doing, confirming the Dow's behavior. There's nothing new to be discovered there. However, the financials and biotechs have been underperforming the Dow, SPX and OEX. It's understandable that the volatile and perhaps less liquid biotechs might be underperforming during times when there's uncertainty in the markets, but what about the financials? The $BKX, the KBW Bank Index's chart looks much like the RUT's. Those who want to see continued gains in the markets would prefer a renewal of strength in the financials.

Tomorrow's Economic and Earnings Releases

This week's important economic events are carried forward from Jim Brown's weekend Wrap.

Tonight's look at China's industrial production is likely to garner much attention and may impact overnight trading and our futures.

Companies reporting earnings tomorrow include ECA and TTWO, among others.

What Short-Term Moves Tomorrow?

Annotated 30-Minute Chart of the SPX:

The SPX today charged up through the upper boundary of its purple (45-ema based) Keltner channel on this chart today. It carted its smallest grey Keltner channel higher with it, bringing the red 9-ema up below it to form potential support. Yet, the SPX spent every single 30-minute period producing closes at, slightly under or just barely above the upper channel line. Did it truly break out or is the gravitational pull of that purple channel still holding it?

To maintain the potential next short-term upside target of about 1,903-1,908, the SPX needs to maintain 30-minute closes above about 1,895. Drops back to retest the support at the lower boundary of its smallest Keltner channel are not significant as long as the SPX maintains closes above about 1,891, and then breaks back above the 1,895 level and sustains 30-minute closes above it. Short-term bulls don't want to see the SPX forming consistent 30-minute closes below about 1,891, however, setting a new downside target or pulling back, climbing and then failing on a retest to sustain 30-minute closes back above about 1,895.

If the SPX breaks above about 1,908, look to the daily chart for next potential upside targets. If the SPX sustains 30-minute closes beneath about 1,891, it sets a potential downside target of about 1,878-1,884. The SPX has been zooming back and forth through the entire width of the purple channel on this 30-minute chart, however, so it's uncertain whether that mid-channel support is significant at this juncture. Sustained 30-minute closes beneath about 1,878 may target the lower boundary of the purple channel, likely by then to be located at about 1,870-1,874. A lower potential short-term target is also marked in case the SPX sustains consistent 30-minute closes beneath about 1,870.

Annotated 30-Minute Chart of the Dow:

The Dow's 30-minute chart is similar to the SPX's. The Dow broke above its purple Keltner channel, dragging the channel line higher and hauling its smallest Keltner channel along with it, but it could not pull away from that channel's gravitational pull. In cases like these, it's uncertain whether the next upside potential short-term target has indeed been set. That target would bring the Dow up to about 16,745-16,778. In case the Dow breaks higher and maintains 30-minute closes above about 16,778, look to the daily chart for next potential upside targets.

While a pullback to about 16,656 and a bounce back above today's high would not look significant, a pullback to that area that then finds resistance on 30-minute closes near 16,700 would signify that resistance might be strengthening. Thirty-minute closes sustained beneath about 16,656 would set a potential downside target of 16,585-16,618. Short-term bulls would like to see the Dow bounce right back after testing that support, however. Sustained 30-minute closes beneath about 16,585 set a potential downside target of 16,509-16,550. A next potential downside target is also marked, if needed.

Annotated 30-Minute Chart of the NDX:

The NDX's 30-minute Keltner setup is similar to the SPX's, with the gravitational pull of that purple channel making it uncertain as to whether the NDX has actually set a new upside target. If the NDX can maintain 30-minute closes above about 3,610 and pull away from that Keltner channel it will have set a potential short-term upside target of about 3,640-3,651. If it breaks above about 3,651 and maintains 30-minute closes above it, look to the daily chart for next upside targets. If the NDX retreats to about 3,596 and then bounces back up through 3,610, no damage has been done. However, if it retreats to about 3,596 and rolls down again when it tries to bounce, resistance may be strengthening.

If the NDX falls beneath the lower boundary of its smallest Keltner channel, sustaining 30-minute closes beneath about 3,596, it sets a potential short-term downside target of about 3,565-3,575. Like the SPX, the NDX has been zooming all over the place lately, so it's not certain that the central channel potential support will hold. The next lower target is at about 3,531-3,541. A lower potential target is also marked, if needed.

Annotated 30-Minute Chart of the Russell 2000:

By one measure, the RUT outperformed the other indices pictured. Not only did it break above its purple channel, but also it made headway pulling away from that channel. In the last hour of trading, prices stalled and the RUT was pulling back toward a retest of that former resistance. Short-term bulls who hope to see the next potential upside target of about 1,144-1,149 achieved shortly want to see the RUT find support near the top of the 1,127-1,132 support zone and bounce from there. However, as long as the RUT finds support at or above 1,127 and bounces from there, soon clearing the 9-ema on 30-minute closes, no harm is done.

Sustained 30-minute closes beneath about 1,127 sets a potential downside target at about 1,115-1,119. Two lower potential target zones at about 1,103-1,107 and 1,088-1,092 are also marked, in case the RUT fails to maintain 30-minute closes at or above the support of the next highest support zone.

Before we talk about what I think, we need to look at another chart.

Daily Chart of the VIX:

This chart whispers "danger, danger" to me, and that danger is to those in long equity trades. It's not shouting those words and it's not overly confident since the VIX can and has sunk below 12.00 and stayed there a while. However, the VIX is clearly at levels from which reversals often come. This is not a good market-timing tool. Even when the VIX reverses higher from this level, that reversal sometimes comes after days or even a couple of weeks of consolidation near 12, while SPX prices climb. However, this chart does suggest that those who are long equities need to make what-if plans just in case the VIX reverses higher as equities reverse lower. Even if this is not a great market-timing tool, it's certainly a good time-to-make-a-plan forecaster.

I didn't like today's light volume. I didn't like the way the SPX couldn't push those few cents higher into a new record high. I didn't like the look of the 30-minute charts, and I'm not at all certain that even short-term gains are set on them. Yet, nominally those upside targets are set and I've outlined them on the 30-minute charts as well as the daily ones.

The evidence is confusing and contradictory at times. The NDX's second shoulder is morphing into a bullish-looking formation, so is the NDX rejecting the potential bearishness? Even if the RUT's formation is eventually bearish, it could jump as high as 1,175-1,180 and not completely undo the bearish potential. The NYSE composite ($NYA) is still chugging along higher, not a care in the world. Confused? So am I. I've listed the potential upside targets as well as the potential downside targets. I've taken profit on my May trade and I've not yet entered my June one. If I had, I'd have been looking at some just-in-case cheap puts today.

Linda Piazza