THE BOTTOM LINE:
Tech stocks are again leading the rally and the big cap Nasdaq 100 has cleared its 3-month highs. There was a clear cut upside weekly chart break out for the Composite. I need to also be aware that the major indexes are also overbought and am cautious in projecting a lot more upside.
I wrote a Trader's Corner article this past week (9/15) on the subject of the Bollinger Band indicator. You can go this article online by clicking HERE.
Bollinger Bands (BB) combine a centered simple moving average, which is part of the indicator but this 20-day moving average is not commonly shown as in my next chart. Unlike simple moving average envelopes, each Bollinger band is a fluctuating line that is equal to two standard deviations relative to closing prices. Theoretically, 95% of all price action will occur within the upper and lower lines. Each band or line represents implied support or resistance.
The upper Bollinger band seen in my first chart, plotted on the Nasdaq Composite (COMP) index, indicates that recent closing levels for COMP are 'high' on a relative basis. It does not tell us how LONG this might continue to be the case as prices can keep going up and 'hugging' the upper band. The BB indicator at a minimum suggests that there is a substantial risk for a correction, either a sharp pullback OR more of a sideways move. Combined with an 'overbought' RSI and the fact that the S&P and Dow haven't yet cleared prior key highs, there is further reason for caution regarding downside risk.
A final general note is that Bullish sentiment readings over the past week are not suggesting 'excessive' bullishness, so this key indicator isn't flashing the degree of caution as other technical measures of the current market.
On many of my index charts, I show an upper envelope line that is set to the same percentage (above the center moving average) as was seen at the lower envelope line intersecting the last lows. When the trend reverses strongly to the upside, the next top often at least makes an equal percentage gain above the 21-day (center) moving average, as was seen below the average at the last bottom.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) is back up at the top end of its 3 month range and overbought. Not a great prospect for another big up leg from here. I view 1140 as tough resistance in the coming week. It looks like S&P is along for a ride with the rally in tech stocks. This chart shows hesitation at prior highs as most of the heat (as buying enthusiasm) is over at Nasdaq. Volume is not weak but it's not as robust.
This is the third time of hourly highs in the 1128-1130 area. If SPX makes a decisive upside penetration of 1129-1131, it could be headed to the 1170 area next. It's not what I think will happen but in this market, would it surprise me? No.
Near support is at 1090; next technical support the 1050 area, extending to 1040.
Bullish sentiment does not indicate any kind of buying frenzy going on in this recent strong price surge; which, in its usual 'perverse' way, should be reassuring to those looking for even higher prices. The market is not getting 'overheated' by a buying 'frenzy'. In terms of my CPRATIO line seen above, 'overheated' on the bullish side is when daily call volume for individual stocks starts popping up above 1.9 times that of total daily put volume for individual stocks. Daily ratios above 2.0, 2.3, 2.5, etc. is indicative of the bulls in a feeding frenzy. (That's also when I tip toe away and let the titans fight it out.) Such spikes in my indicator aren't happening yet, which 'supports' still higher prices in the S&P, but best still in the Nasdaq.
S&P 100 (OEX) INDEX; DAILY CHART
A bullish chart for a further swing to perhaps 520, but not much more at least in the near-term. This assumes however, that the S&P 100 (OEX) gets through what could be formidable resistance at the cluster of prior intraday and closing highs around 512. longer-term the index could get back up the 440 area resistance, the big 'breakdown' point during the market collapse in early-May.
Immediate support 498, then 475.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow (INDU) is lagging the hotter tech sector indexes, which is typical of the phase that we're in. When there were more doubts about economic growth ahead, the Dow was doing very well indeed, especially with cyclical and consumer defensive type stocks doing well. The really outstanding (i.e., strong momentum) stocks in the Dow 30 are still in the defensive and 'basic' necessities type companies like Kraft, MacDonald's; also CAT, DD, and now T and VZ having rocket blasting charts.
INDU seemed to run into selling above 10600 but Fridays don't always tell the complete story. The definite challenging resistance is in the 10700-10720 area; with next resistance around 10800. A move to 10800 area and above in the coming week would put INDU 4% above its 21-day average, equal to the percentage dip below the average at the last (late-Aug) bottom. There's a tendency for volatility swings like these equaling out.
Near support is at 10500; then at 10330-10305.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
I've kept Bollinger bands on my Nasdaq Composite (COMP) Index chart. There's a reason to say that 'theoretically' the Bollinger bands contain 95% of trading in a stock or index. John Bollinger devised his indicator by doing a whale of a lot or research with individual stocks. When prices touch the upper band as they're recently doing, there is an increasing probability for, at a minimum, a 'time' correction, where prices go sideways. More likely is a pullback.
I'm also well aware of the 5 percent of the times of occasional monster moves, where prices rocket higher (or lower), pulling the Boli band along so to speak. I don't see what would set off such a buying stampede currently. Encouraging technically for the bulls lately is traders not going overboard on bullish bets. When my call/put ratio starts getting above 2, with occasional spikes to well above 2, I'll take my exit from what the herd is doing. It's just my maverick instinct. What tends to keep me from shorting a still-strong trend is my respect for trend momentum. It's tougher picking a top just right, less so with bottoms.
Immediate resistance 2340, then 2374, extending to 2400. Support is 2250-2246, then 2200.
Bullish sentiment does not indicate any kind of buying frenzy going on in this recent strong price surge. Which, in its usual 'perverse' way, should be reassuring to those looking for even higher prices. The market is not getting 'overheated' as they say. In terms of my CPRATIO line seen above, 'overheated' on the bullish side is when daily call volume for individual stocks is running more than 1.9 times that of total daily put volume for individual stocks. Daily ratios above 2.0, 2.3, 2.5, etc. is indicative of the bulls in a feeding frenzy. (That's also when I tip toe away and let the titans fight it out.) Such spikes in my indicator aren't happening yet, which 'supports' still higher prices in the S&P, but best still in the Nasdaq.
NASDAQ 100 (NDX) DAILY CHART:
This past week's run up, started very strongly with the Nasdaq 100 (NDX) leaping above 1900, on a gap up Monday. After that the index was in an accelerating advance. Very bullish action NDX is the first of the major indexes to reverse its intermediate-term up trend to up; the long-term trend never reversed to down.
This is the first pattern of higher rally highs, and a breakout of a 4-month price range. Oh, how we miss the doldrums and craziness of summer. NOT.
Looks like easy further gains, right? There is the matter that prices have a greater likelihood statistically of going down from here than going up, at least substantially more. Such after-burner type rallies do occur but only about 30% of the time. Emm, 70/30, how are those odds for a correction.
Key support is at 1900 with next pivotal support at 1850. Key resistance from Friday's 1955 close on up 1983.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
What a power move for the Nas 100 tracking stock this past week. Current levels are 5% over the index's 21-day moving average, which is startling for what's come before. If QQQQ gets to 48.6 that's the biggest upside I project before there's a correction. On the other hand, a strong further move above 48.6, would set up not only 49, but 50 as potential further upside targets.
An up surging On Balance Volume (OBV)line suggests higher prices ahead, consistent with the look of the NDX chart, currently on fire. Certainly volume analysis, for a change, is 'confirming' the current strong advance. The tech rally of late has been fueled by solid buying.
Near support: 46.7
Next support: 45.5
Near resistance: 48.6
Next resistance: 49.0; then 49.5
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) looks like it is consolidating for a next move to retest prior highs at 665-672. If RUT breaks out above its 665-670 resistance zone, extending also to the 677 prior high, next stop or a key test would be on a move to the 700-720 area.
Near support is 640, then 620. Resistances I've gone over already. If a break below 640 support, good odds exist for a dip to 620.
GOOD TRADING SUCCESS!