THE BOTTOM LINE:
While upside momentum slowed from mid-week on, the recent mostly sideways movement looks like a consolidation before the indexes move still higher. How much higher is a big question however and whether the major indexes can exceed a half to 2/3rds retracement of the last big decline.
A weak rebound of a prior bearish move might typically be only about 1/3 to a Fibonacci 38% retracement. A next common retracement is around 50% of a prior move. Our strongest index, the Nasdaq 100 (NDX) has retraced slightly more than half of its late-April to early-June decline and looks to keep going to test potential resistance around 1950.
In terms of the 'main' indexes, the S&P 500 (SPX) would face a key test at 1160 (a 2/3rds retracement) and the Nasdaq Composite (COMP) would face a potential challenge in exceeding 2400. A move above these levels would suggest a potential to retest the late-April highs.
I haven't written anything in awhile on the long-term or primary trend based on the interplay of the Dow Industrials (INDU) and the Dow Transportation Average (TRAN) in terms of Dow Theory. The theory being and it's held up as a telling indicator for more than a century, that the two Averages should 'confirm' each other.
For example, if INDU falls to a new closing weekly low relative to its prior bottom, but TRAN is above ITS prior low, no sell 'signal' is given. (TRAN would also have to go to a new closing low to confirm the major trend has shifted from up to down.) This is exactly what happened when INDU fell under 10000 briefly as highlighted below. This chart shows how various past INDU/TRAN chart comparisons could or should have kept investors long since the March '09 bottom.
Of course, this trend model is a 'lagging' indicator in that Dow theory sell or buy 'signals' usually occur after prices have made a significant move already; e.g., the Dow falls from the 11200 area to under 10000, TRAN confirms and you exit the market.
This compares to a situation such as the Dow (or whatever major index) stopping dead in its tracks at a prior major high. Such a potential double top might suggest shorting the market or otherwise protecting your downside risk at close to the most recent high.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The move in the S&P 500 (SPX) above stubborn resistance and prior highs in the 1100-1105 area, was a 'confirming' follow through to the earlier bullish breakout above the down trendline highlighted on the chart. The further ability for SPX then to get back above its 200-day moving average was also a bullish plus.
After the sizable upside move of Tuesday, the subsequent Wed. to Fri. trade near the high end of Tuesday range, suggests a consolidation for a move still higher. That said, I view an upside penetration of 5/12's 1172 Close as 'confirmation' of a shift in the intermediate trend to up; the intraday peak was in the same area at 1173. It might be said that the move above the prior 1105 rebound high at 1105 marked a trend reversal but I would look for SPX to exceed 1160, a 66% retracement AND go on to pierce the 1172 mid-May closing high.
I've noted resistance (beside 1172-1173) for the 1142 area, then at 1160.
Near support is 1100, then at 1080. A Close below 1100 not reversed (back to the upside) in the following session, would suggest that prices might have to drop back again to attract buying interest. Fairly major support/buying interest should be found on dips to the 1050 area, extending to the double bottom low at 1041-1042.
As I noted last week also, bullish sentiment readings seen above have moderated and are registering in a 'neutral' range or at least have not risen to an 'overbought' extreme on this latest recovery rally. This is an encouraging sign for those long calls and long stock trades. If and when traders get extremely bullish again, it will be time again to keep close tabs on price action for any signs of another pullback.
S&P 100 (OEX) INDEX; DAILY CHART
I'd no longer rate the S&P 100 (OEX) chart as mostly bearish since OEX pierced its prior 501 high. There's also of course the exact double bottom low seen to date at 473; as I wrote last week, this ..."suggests that the OEX can continue to recoup more of its recent steep decline dating from its late-April high into the recent twin bottoms."
There are of course some technical hurtles to overcome on the way to further significant upside, especially taking out the cluster of mid-May highs in the low-530 area. Resistance is noted at 510 and then in the 520 area. I should also note that a move above 524-527 would exceed the important 62 to 66% retracement zone (and always potential resistance) for the April-June decline.
Near support is at 500, extending to the 490 area.
DOW 30 (INDU) AVERAGE; DAILY CHART:
There's a change from last week as more of the 30 Dow stocks are trading above their 200-day moving average, a gauge of upside momentum as anticipated. We've gone from 10 to 15 or fully half of the 30 INDU stocks now trading above this key moving average.
Some profitable and quick trades could have been made by buying the stocks that best resisted the decline when they dipped to the line representing the 200-day simple moving average (SMA); e.g., BA, CAT, DD, KFT. (Not, so far, PG, which is 'lying' on top of this average.) This past week, joining the 10 from the week before in trading above the 200-day SMA, were INTC, MRK, MMM, TRV and UTX. Tech (UTX, INTC) got a tech boost but even MRK and TRV rebounded and drug and financial stocks haven't been in favor.
Pivotal resistance is noted at 10600, then at 10680-10685. Immediate support is around 10330, then at 10200.
Based on a bottoms up approach of studying the 30 individual Dow stocks, which I look at daily and weekly to help analyze the overall market, I'd say INDU is headed higher still. Key INDU retracement level tests exist at 10504 (50%) and then at 10681, representing a Fibonacci 62% (61.8) retracement.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) Index has continued to work higher after the index formed the second half of a "W" type bottom. And, as I expressed last week..."I wouldn't bet against tech just in here or going forward".
Key resistance now has moved from 2250 up to 2350, which also is in the area of the 50-day average, another widely followed momentum benchmark. Next resistance is noted at 2387 on the daily COMP chart. When I wrote last Saturday, COMP had already moved back above its 200-day moving average and the bullish omen of this proved correct.
I would see a move above 2400 and a 66% retracement (of the March to early-July decline), as putting this index back on a bullish footing. A close above the prior mid-May closing high at 2425 should also be significant in suggesting a retest of the prior highs above 2500.
Near support has also moved of course, now up to the 2250 area, extending down to 2200. I would take any close back below 2200 as renewal of a bearish chart. Right now the chart is mixed.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) continued to move higher, tacking on another 50+ points this past week when good follow through buying lifted the index after it pierced its down trendline. The chart and indicator patterns suggest more upside to come although the situation is still volatile in terms of potential Market influences, whether Greece, jobless numbers here, consumer spending here, Spain, China or beyond. One world economy anyone?
NDX is now the closest of the major indexes to a possible challenge of resistance implied by the 62-66% retracement levels. Piercing the down trendline at 1850, then the prior 1900 upswing high were big initial technical moves in suggesting a bottom was in place.
I've noted 1950 as a next key resistance area to be overcome in keeping the NDX bullish express rolling. A close above 1982-1983 would suggest that highs in the 2050 area might be retested.
Key support is at 1850, extending to around 1822.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
I never can quite get over how the Nasdaq Tracking Stock (QQQQ) can advance with almost no concomitant increase in daily trading volume, contrary to what you usually see in individual stocks. With QQQQ, volume is not often a 'confirming' type indicator for increased upside (or downside) momentum. When the Q's reverse lower however, we tend to see those daily volume bars really jump and this generally becomes part of a downside reversal pattern.
The chart and indicator patterns suggest more upside to come currently. This past week, after piercing its down trendline, the stock did end up retesting, then exceeding, its prior 46.8 upswing high. I've noted (per the red down arrow) next resistance at 47.7, then as being in the 48.8 area.
Pivotal support is now up to 45.4 this week, extending to 45 even.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) has seen a continued advance after it pierced its down trendline at 650. An immediate overhead line of resistance is at 670. Yet to come is then a test of the Big Kahuna of trendline resistance, RUT's previously broken long-term up trendline currently intersecting around 680. RUT's chart pattern suggests potential to get back this key trendline. I foresee resistance next coming in at 700, with fairly major resistance at 720.
I've noted support around 648, extending to the 636 area.
GOOD TRADING SUCCESS!
NOTES ON MY TRADING GUIDELINES AND SUGGESTIONS
1. Technical support or areas of likely buying interest and highlighted with green up arrows.
2. Resistance or areas of likely selling interest and notated by the use of red down arrows.
I WRITE ABOUT:
3. Index price areas where I have a bullish bias or interest in buying index calls, selling puts or other bullish strategies.
4. Price levels where I suggest buying index puts or adopting other bearish option strategies.
5. Bullish or Bearish trader sentiment and display the graph of a CBOE daily call to put volume ratio for equities only (CPRATIO) with the S&P 100 (OEX) chart. However, this indicator pertains to the market as a whole, not just OEX. I divide calls BY puts rather than the reverse (i.e., the put/call ratio). In my indicator a LOW reading is bullish and a HIGH reading bearish, consistent with other overbought/oversold indicators.
Trading suggestions are based on Index levels, not a specific option (month and strike price) and entry price for that option. My outlook often focuses on the intermediate-term trend (next few weeks) rather than the next several days of the short-term trend.
Having at least 3-4 weeks to expiration tends to be my guideline for trade entry choice. I attempt to pick only what I consider to be 'high-potential' trades; e.g., a defined risk point would equal in points only 1/3 or less of the index price target.
I tend to favor At The Money (ATM), In The Money (ITM) or only slightly Out of The Money (OTM) strike prices so that premium levels are not as cheap as would otherwise be the case, which helps in not overtrading an account. Exit or stop points, as well as projected profitable index price targets, are based on my technical analysis of the underlying indexes.