THE BOTTOM LINE:
No more 'trading range' in the S&P given this past week's breakout above 950 in the S&P 500 (SPX), setting up a measured move objective to around 1020 in SPX. This is a minimum objective suggested by simply adding the prior 950-880 range of 70 points to the breakout point.
The Nasdaq Composite (COMP) looks headed to 2000 before it would hit technical 'resistance'. At new highs for a move and no prior recent tops to key off from, it's more possible to set potential objectives rather than point to resistance that is most accurately implied by a prior high(s). 2200 looks like major longer term COMP resistance.
While the 13-day RSI suggests that the major indexes are also at an overbought extreme on a short to intermediate term basis, this isn't the case on long term charts.
As noted by my 'market up, bullishness down' title, an ideal condition for a sustained rally is for prices to go up and traders to get more cautious and anticipate a top as measured by falling call volume relative to a corresponding pick up in put activity as was going on this past week.
The old saying that "the market climbs a 'wall' of worry", is spot on. While this isn't to say that a sell off won't happen tomorrow on some bearish news, the underpinnings for a continued rally are good in this very important respect.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P is bullish in its pattern, although I've noted the rising line of potential resistance on the chart suggested by an approach to the previously broken up trendline. Support points, including up trendlines, once broken, tend to become resistance later on. When you add the overbought extreme suggested by the RSI to this factor, there is risk of at least a short-term correction.
This market has had quite a good run and there will be plenty of traders who will be quick to sell stock and sell previously bought calls when a next selling wave hits. Nevertheless I think itâ€™s a matter of when rather than if SPX will test the 1000 level. Those big fat round numbers are like a magnet to trader iron.
As I noted in my initial 'bottom line' comments, a measured move objective for SPX is 1020, but there's no immediate time frame implied for this to happen and is a suggested 'minimum' objective only.
Near support in the 950 area is suggested by the prior line of highs and prior stubborn resistance. Sellers who exited at what had previously been peak levels around 950 and who didn't buy into this most recent rally or want more participation still, will be likely buyers on pullbacks to this area. 910 is a key downside support currently if there's a deeper correction.
Near resistance is in the 980 area, extending up to 1000 and beyond a bit, to 1020-1025.
Looking at bullish sentiment on the SPX chart above provides a strong visual of bullish sentiment falling off as the market continued to rally last week and to hold its gains. There was a high bullish extreme on the Friday expiration prior to the week just ended as noted on my sentiment indicator chart. We're within the time frame still when corrections set in after such extreme readings. Given the overbought RSI that I also highlighted (yellow circle) above, I'm cautious near term and don't want to chase prices any higher.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) Index chart is bullish in the move to new highs and the 'negation' of a possible Head & Shoulder's top. I don't see resistance coming in substantially before 460-465 near term, extending to 470 which is a 'measured move' objective based on the breakout of the prior trading range in OEX.
Support should be found in the 450 to 435 price range, then around 425-427.
The RSI has risen as high as we've seen in some months. This doesn't guarantee a correction as the market can get more overbought or just go sideways (a time 'correction') for a time. But nearly always such RSI extremes are a tip off to a pullback that lies ahead. We just don't know what will 'trigger' it, what development will cause a bout of profit taking. And there are still plenty of bears out there and they see good reason to be bearish on stocks and the economy. And traders, neither bulls or bears, are always just looking for the next trade.
DOW 30 (INDU) AVERAGE; DAILY CHART:
Well the old lady, the Dow 30 (INDU), broke out too and moved to a new high and looks headed to 9200 next. INDU's wave pattern showed best the classic tendency for a second down leg in a typical correction to be deeper than the first decline. Often there's a second sell off carrying 1.6 to 2 times further than the first. This pattern doesn't tell you where that second bottom is going to end, only that the subsequent next rally should resume the overall/predominant bullish trend.
The tip off (as highlighted on the INDU daily chart) for this last bullish turnaround was the decisive upside rebound back above the prior lows; the ones that got pierced and made the chart look more bearish because of it.
Near resistance, to use that term loosely, is around 9200 in my estimation. The 8880 to 8800 area should be where support/buying interest comes in on pullbacks. 8600 is a next key support and I'd be surprised to see the Dow pushed back below this level.
I keep noting, as with all the major indexes, the high RSI which doesn't make for a 'mechanical' sell but does suggest increasing risk of a correction. Seems too simple to believe sometimes; and the market often 'hangs' up in the air and gets me lulled into thinking that this kind of overbought extreme is just another factor among many. But this indicator tends to be 'first among equals', like the British Prime Minister.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) is bullish in its pattern but has had a very strong run and the very important 2000 level lies ahead. Such a big fat round new benchmark level can work in two ways. One is the profit taking tendency and short seller attraction. Second is the tendency for a new wave of buying when the 2000 hurtle is overcome. I see 2000-2005 as offering 'resistance' first and a natural area for a pause.
Very near COMP support is at 1920, then at 1885, with key support down in the 1825 to 1805 area.
Bullish sentiment was falling on balance last week and this bodes well for a sustained rally into the fall. Hey, September is practically just around the corner. I'm not always a hard and fast contrarian and there ARE times when everyone is bullish and everyone is making money. Those are rare times however.
When prices are rising and trader bullishness starts falling, there is either a new dawn of the herd being prescient and getting the timing just right on the next top OR, as is most common, the herd just follows the prevailing view with the 'prevailors' being weak as market timers.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) chart is bullish but may be at or near a pause here in the 1600 area. I don't have immediate higher targets than 1600. The odds of NDX adding another 100 points is on the low side, especially given the RSI extreme. Such a move could happen, but this outcome doesn't have a high probability in my view; and trading is a game of probabilities!
Near support is in the 1560 area, then at 1525-1530, extending down to 1515. Major support begins at 1470-1450.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQQ) could get up 40 but I'd be surprised to see the stock moving much higher than that without a pause or pullback first.
The On Balance Volume (OBV) indicator turned up on 7/7 and then kept moving consistently higher with a first drop coming on Friday. While not a trend this dip causes me to take notice and protect profits in QQQQ.
Near QQQQ resistance: 39.5-40.0
Next overhead resistance: 41.0
Near QQQQ support: 38.3
Next support: 37.2
First area of major support: 36.0
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) chart broke out along with the Nasdaq which is the leading light for RUT. It's a game of follow the leader here, whereas in the past small to mid-cap have been a separate 'theme' in the market.
I see resistance coming in around current levels. If RUT just keeps chugging higher, I would anticipate only a gradual slow pace higher; to 560, then 580, maybe to 600.
Near RUT support is in the 532-530 area, then at in the 515 area, extending to 500-495.
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.