THE BOTTOM LINE:
There is little change in the charts for the holiday shortened week just ended. It does mark the third week of only modest gains but gains nevertheless. One major index, the Nasdaq 100 (NDX), touched its prior major high (late-2007) as seen in my first chart. I'll continue to point out the overbought extreme suggested by the long-term weekly chart RSI and MACD indicators. However, this market doesn't seem destined to come down much, at least not yet. Overbought extremes do point to the risk of an overreaction on bearish news. However, in a major bull market, it's often not until the second/third time of overbought extremes that a substantial correction follows.
The Nasdaq Composite would have to climb to 2860 (from 2665) before the index would equal its 2007 top. Demonstrating how far ahead Nasdaq is however, the S&P 500 (SPX) is only just approaching (at 1272) a two thirds/66% retracement of the decline from SPX's October 2007 top to its March '09 low. Ditto the Dow 30 (INDU) as it also closes in on a 66% retracement (at 11600) of its prior bear market decline.
Hitting the prior top in the case of NDX and the fast approaching 66% retracement levels might suggests potential technical resistance is at hand, or near. Still, no one ought to guess at a top until we see a day or more of major selling. For example, where the 'TRIN' or Arms Index where this indicator climbs above 2.0. Daily TRIN levels over 1.0 suggest selling pressure, something I just wrote about in my latest Trader's Corner of 12/23. And even the last bouts of heavy selling (and three daily TRIN levels at or above 2.0) ended up just part of a sideways move before our latest rally. This market doesn't appear to want to come down. Earnings are good even in our lackluster economy. Other major investment classes are low yielding bonds and devastated real estate.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) index is bullish in its pattern, same as last week. Upside momentum has slowed but low volume levels are generally a two-week phenomena this time of year.
1227, at the 21-day moving average, is an expected support. Next support, at the trendline, is at 1212 currently. Support should extend down the prior lows in the 1180 area.
I haven't highlighted this on my daily chart below, but 1280 looks like next resistance (by Tuesday, 12/28), with 1300 then a more major resistance.
RSI AND SENTIMENT INDICATORS:
As discussed ad nauseam by me, I always look at the above indicators and they continue to suggest an overbought market, meaning up the scale of 'vulnerable to a correction'. I also tend to discount the immediate 'timing' usefulness of high RSI levels in what is still a powerful bullish trend in stocks. (A closer in time to a top signal is 3 such successive RSI extremes.)
What should be least encouraging to the bears is the drop in trader bullish sentiment in the week just ended. Of course, this is squaring up ahead of a long holiday period also.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) index's chart is bullish also and OEX took out my 560, my indicated near resistance from last week. Based on hourly chart (not shown) projections, 570 is noted as next resistance on the daily chart below.
Major resistance doesn't seem likely until the 580 area; and if at 580, it's not a big stretch for the bulls to bid OEX up to 600 over time.
Very near support begins now at 560, extending to the low 550 area and the 21-day moving average. Next support, and more key in my opinion, is seen at the intersection of the lower trendline around 540. The intermediate trend wouldn't shift to down unless the prior 527 low was pierced.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The bullish Dow 30 (INDU) Average continues to move higher as it keeps churning out new highs. The slowed price momentum isn't a factor in this bullish chart assessment. Guesses at resistance technically are mostly that, but 11600 is one of mine for nearby resistance.
Near support is at 11450-11400, and I'll continue to watch the 21-day average as a pivotal support; the average is currently at
I've bumped up my estimated next resistance slightly, to 11600. More major resistance is projected in the 11770-11800 area.
Stand out Dow performers continue to be 'usual' suspects mostly with exception of our two on-fire INDU energy stocks (CVX & XOM): AA (beware! its gone 'ballistic'), CAT, CVX, DD, HD, KO, UTX, VZ, XOM.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) Index chart remains bullish even with the slowing momentum of recent days. While slowing upside momentum often is the first sign of a top, we're also headed into a week when the market doesn't typically have full investor/trader interest and the price swings tend smaller.
COMP can be considered to be at just under the midpoint of an uptrend price channel that suggests key technical support at 2600 and key technical resistance up around 2800. It would take a break below 2600 to turn the chart picture the first notch bearish. I've also noted support at 2550.
As far as projected resistance, I've noted what may be a next resistance at 2700. Major resistance looks like it could began at 2800, extending to the 2007 highs in the 2860 area.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) chart is bullish as with the Composite but upside momentum has slowed too. NDX appears like it might be drifting down to trendline support in the 2195-2200 area. The bulls will want to see a rebound if prices get into this area as it would look technically strongest that way.
Below the key 2200 level, I've highlighted next support as 2130. Really it's a ZONE of intermediate support that extends from 2130 to the cluster of prior lows around 2100.
I've noted resistance at the prior recent intraday high which is equal to the peak level reached in the week ending November 2007, prior to a 15-month bear market. Assuming the rally resumes the way it has been, 2239 will just be a milestone reached before prices continue higher in a new up leg. The upper end of my projected broad price channel suggests technical resistance around 2400.
The 13-day RSI seen above with NDX is no longer in the overbought zone it was in before the last pullback. You could say there's a bearish divergence here or a 'failure of relative strength'. However and again, in a strong bull market, these indicators are less reliable as trading inputs. If you got out (and didn't get back in) every time this market was registering high RSI readings, you would have lost big parts of the move.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQQ) chart remains bullish above 54.2 currently. If trade starts to go below the 21-day moving average chart and below the up trendline, the chart pattern would turn mixed near-term. On an intermediate-term basis, a close in QQQQ below 52 would look like galloping weakness, but no reversal in the Intermediate trend absent a close below 51.45.
Daily trading volume continues to be low and I don't see much change absent a break below 52.0 which would probably come with a high volume selling stampede.
Near support: 54.2
Next support: 52.0, then 50.8
Near resistance: 54.9-55.0
Next estimated resistance: 56.0
Major resistance: 58.5
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) has continued on its roll and this past week the index nearly reached the top end of the projected uptrend channel. All the way to that line is at 806 by Monday and could be key resistance.
Given how far RUT has come without any significant pullback, a correction could come anytime. The RSI is certainly at a level consider to be extreme and index quite vulnerable to a correction. But even more of a sideways move will 'throw off' an overbought RSI extreme.
A pullback to near the low end of the uptrend channel, followed by another strong up leg would also be a characteristic move given the strong bullish pattern RUT has been in. The seasonal bullish tendency does wane some after the end of the year.
Immediate support is at 780, then at 767-763, with a pivotal technical support at the up trendline, currently intersecting at 754.
HAPPY HOLIDAYS and GOOD TRADING SUCCESS IN 2011!