MAILBAG QUESTION:

"Now that 1800 s&p has been hit and 16000 dow, what higher targets do you see if any?"

MY RESPONSE:

I will be looking at many, but not all aspects of the major indexes tomorrow (Saturday) in my Index Wrap commentary but there are some patterns I'm seeing here that do pertain to some chart principles that are useful in 'measuring' potential market objectives.

If just one of the major indexes traces out a pattern that results in a measurable technical/chart trend objective, this can become worthwhile to key in on. The Dow 30 (INDU) recently broke out above a multimonth rectangle pattern that suggests a 'minimum' next upside objective to the 16600 area. If we look at the upper end of INDU's broad uptrend price channel, we could see the Dow moving to 17000 before it hit a resistance area.

On the Weekly INDU chart seen first, I've highlighted a so-called rectangle pattern, that Charles Dow first talked about more than a century ago. Hard to believe but the same 'cycles' do repeat over and over. A sideways move, whether occurring over hours, days, weeks or months often see the same lows being ' repeatedly traced out as well as highs occurring in the same area. When you have this kind of pattern, look for a 'breakout' above or below the rectangle pattern. The most likely breakout is in the direction of the dominant trend that preceded the breakout and the Dow provides a good example.

A 'minimum' upside objective is usually considered to be a further move at least equal to the point distance between the lows and highs of the rectangle, ADDED to the topmost line of the 'rectangle' pattern in the case of an upside breakout, which here suggests a 'minimum' upside objective to the 16600 area as highlighted on the weekly INDU chart. A higher objective, implied by a move to the UPPER end of INDU's broad uptrend channel is to the 17000 area as also noted on the chart.

In the case of the Nasdaq, specifically as seen with the weekly Nasdaq Composite (COMP) below, I don't really see higher objectives than 4000 currently. COMP has reached resistance implied by the high end of the broad COMP weekly chart uptrend channel, which has 'slowed down' its recent rate of advance over the past 5 weeks.

There could be an upside breakout above this line; anything is possible in the market but given the overbought extreme suggested by the 13-week Relative Strength Index (RSI) I would rate this possibility as quite unlikely. If the tech-heavy Nasdaq just marks time, can a near-term correction in the NYSE-related indexes be far behind?

Hard to say; the S&P and Dow look headed higher but when small investors finally get more intently interested in stocks as is the case recently, the professionals tend to go the other way. Still, fund managers have to keep employing money on the buy side as long as those dollars keep coming in.

Again, I'll just say watch the 4000 level in COMP for signs of a top, at least in tech. Conversely, a decisive upside penetration of 4000 suggests COMP could move modestly higher and at least wouldn't be a drag on the overall market.

Last but not least and switching to a daily chart view of the S&P 500 (SPX) and ITS uptrend price channel, there's some further room on the upside in SPX before it would hit minor technical resistance implied by its upper channel line, currently intersecting in the 1820 area. Only modestly higher objectives are implied near-term in SPX on both a daily AND weekly chart basis (not shown); e.g., to 820-830.


GOOD TRADING SUCCESS!