THE BOTTOM LINE:
While the S&P and Dow seem to be struggling in technical resistance areas and the Nasdaq is going sideways with the Composite not yet at new 12-month highs, the recent week's decline in bullish sentiment is a bullish plus. My sentiment indicator here tends to 'offset' a bearish price/RSI divergence. In the battle of the indicators, I rely somewhat more on my sentiment model.
The foregoing is not to say that the market is not at risk for a downside correction. We've seen so far one day shakeouts only. The major indexes remain at risk for more than a single day fall erased by a next day's rally. Nevertheless, I would guess higher since option traders are less 'believing' of it and price action can't be construed yet as anything more than a consolidation of the prior uptrend. In any recognizable trend, an up trend here, give the benefit of the doubt to the direction of the dominant trend. In the scheme of things, chart/price action is king; indicators (based on price inputs) are secondary. And, you will note further on with my Index charts, that both Nasdaq indexes have so far maintained their very steep up trendlines. Not so with the allied Russell 2000 Index, so its action does raise an alert as to whether Nasdaq will just keep surging higher with little corrective action.
One final note as to the longer-term market picture is to pick up on an aspect or element of Dow Theory. The Dow Transportation Index (TRAN) just made a new Closing weekly high at 4754.9, relative to its 4/23/10 weekly Closing peak of 4751. If the Dow Industrial Average (INDU), in turn, has a weekly Close above 11204, it makes for a re-confirmed Dow Theory buy 'signal'; reconfirming so to speak the original Dow Theory buy signal (of 8/7/09). I'm not sure Dow talked about it in quite my terms, but he always looked for 'confirming' aspects with his two key indexes (e.g., confirming each other in NEW highs) as being the way the market should go if in a primary uptrend.
Support and resistance levels are little changed for the coming week as the goalposts weren't moved much in this past week's continued march sideways, now making for an 8-day streak of mostly sideways price action.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) daily chart continues in its patter of mostly sideways price action. Given the prior trend as fairly strongly up, I have to assume that what we're seeing is a consolidation before a push higher. In the 1180 area, there's substantial stock for sale as I pointed out last week. Once investors churn through the 1180-1182 level, SPX should progress on to 1200, then 1220 at some point after that.
On the other hand, the bear one, a close below 1160 that doesn't see the index bounce back the next day, would suggest a slow down in buying interest as potential buyers look for the possibility of lower prices. Seemingly 'maximum' downside risk, absent an extreme economic shock, is to 1120 currently.
Bullish sentiment declined this past week which keeps me in a bullish camp in that perverse way of contrarians. That factor plus the index being so close to the prior top, makes for a previous high that sort of 'begs' to be challenged. In a significant number of times when I've seen this pattern the return rallies at least set up a double top but often mark the start of a new up leg. We continue to have a strong long-term uptrend.
S&P 100 (OEX) INDEX; DAILY CHART
As with big brother SPX, the S&P big cap 100 (OEX) chart suggests that OEX is on track to still churn through potential overhead resistance in OEX's case at 532-537, on its way to a potential challenge of 12-month highs in the 550-554 area.
Key near support becomes again the 21-day moving average, a great benchmark of near-term price momentum. In a strong uptrend, prices will rarely do more than drop to this key average and then rebound. In some instances (in a continued strong uptrend) a 1-day selling event will drive the index to a close below the average, but which is followed by a next day recovery rally. If however, that second day brings renewed selling, throw away your bullish flag for a bit. I currently see downside risk to around 511, possibly to 500, if the bears were able to stage a full-blown attack.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) upper trendline of INDU's uptrend channel continues to show increased selling pressure as prices move just incrementally higher. When an upper channel trendline such as seen below represents an accurate forecast of increased levels of selling and the rate of ascent slows, prices start just creeping higher instead of prior trot or gallop.
After a continued 'slowmo' move higher, what often follows then is either 1.) a substantial upside breakout rally that WIDENS the prior trend channel boundaries; OR 2.), a pull back toward the upper third to midpoint of the channel. The Dow back at 10700 (and the channel midpoint) seems like a lot, but it's not that much of a stretch relative to INDU's last up leg.
Key near resistance is 11200, which then extends to the prior intraday Dow high at 11258; above 11250-11300, long-term charts don't suggest major technical resistance until around 11700-11750. I currently don't see this much upside potential when I analyze the 30 charts involved.
Pivotal near support at 11000 also represents a downside breakout point, as a decisive downside penetration of 11000 would suggest high risk of a deeper correction to follow. It also depends on the following day's market reaction. We saw a recent (10/19) close below 11000 (10978) followed by a Close the next day at 11108. One day countertrend extremes can be just that, lasting for one day.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) Index chart remains bullish. Some cause for bullish concern is a slowed down advance but probably natural as the index gets near its 12-month high at 2535. Nevertheless COMP has 'maintained' its rather steep up trendline as seen on my next chart. As always with these things, intraday dips that piece such a trendline don't carry nearly the weight of Closing levels being maintained above this line.
Overbought RSI readings continue but I am discounting this indicator relative to the bullish chart pattern. As far as technical indicators, the fairly steep fall in bullish sentiment numbers this past week is trumping any overbought considerations, although I also pay attention to it. 'Indicator' is not even the right word to use as my CPRATIO sentiment model isn't derived from index price action and is mostly a reverse barometer of traders' passions on particular days.
The key overhead resistance remains the same: the prior 12-month high at 2535. There was almost no gain on the week. Key near support is at 2425, then down at 2350.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) chart remains bullish. Although recent upside momentum has slowed, NDX has continued to climb at a rate keeping daily price ranges above the steep up trendline.
The close over 2100 was a bullish plus but in a context that NDX, like the broad Composite, made only slight gains this past week. The rate of price increase isn't likely to rise (it's already quite high), so a key watch is for downside penetrations of the up trendline as predictive for a correction.
I project next resistance in the 2140 area, with increasing resistance on rallies that carry to and above 2200; the prior 2239 high seen below dates to Nov. 2007.
Near support is 2050, then at 2000. A daily close below 2000 would suggest a strong correction was underway. Next day confirmation of that is also key.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
A bullish chart pattern on balance with a potential test this coming week involving the Nas 100 tracking stock's ability to stay at or above its present rate of increase, which visually is of course a trendline! We start the week with the up trendline intersecting at 51, suggesting what should be immediate support. Let the watch begin! A continued march higher won't get 'extreme' in terms of again touching the upper envelope line seen below until/unless QQQQ hits 53.4, with some hourly projections going to 53.7 as resistance.
Friday's advance was on noticeably low volume. Are the bulls flagging, losing courage? Shorter-term traders holding the stock tend to be quick to run, especially such a prior strong advance.
Near support: 50.0
Next support: 49.0, extending to 48.2
Near resistance: 52.4-53.7
Major resistance: 55.0
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT), unlike the Nasdaq, its mentor-sister index, is flagging in maintaining the same rate of price increase as it had going into this past week. This group of stocks just doesn't have the money pouring into them as for example, NDX. The Index above 700 keeps a bullish pattern going but better in that regard would be the potential to rally to the 720 area. Next resistance above my projected 720 is more concretely suggested by the prior high at 746.
If RUT starts falling below 690, I won't be surprised by further bouts of weakness, such as 680 and if selling continues, to 670. Support implied by the 200-day moving average is at 655.
GOOD TRADING SUCCESS!