THE BOTTOM LINE:
In this latest phase of the accelerating S&P/Dow uptrend, bullish sentiment among options traders is not overly high. A cautionary stance among shorter-term trader types is not surprising, versus the bullishness among equity fund managers who have a trend following mindset. The lack of bullish 'extremes' in equity options call to put ratios is a net plus for a continued advance. The day we see daily CBOE equity call volume hit 2.5 to 3 times the daily put volume is a day suggesting that traders are overconfident regarding a continued run up.
With the financial stocks AND the energy stocks having good recent gains, it's not surprising to see the S&P accelerate to the upside compared to Nasdaq.
There is advisable caution in that Nasdaq started marking time and trended sideways from midweek on. There is a 'line' of resistance that the Nasdaq 100 (NDX) is hitting around 2400. Will this lead to a dip and the end of the buy every dip mentality? Possibly. We have to also remember that NDX has decisively cleared its November '07 top; the Composite (COMP) is nearing its prior (2007) intraday high at 2862 (versus Friday's Close at 2833). Compare this to the S&P 500 (SPX) which has to date retraced 74% of the distance, trough to peak, to its high made in the same period of 2007 (at 1576, versus the 1343 Friday close). It's not surprising that as economy revival evidence gains credence, the big cap 'mainstream' economy businesses have their day also.
It's difficult to measure any S&P/Dow 'resistance' short of prior tops. With COMP there is the prior '07 intraday high (2862) to watch, but I don't think 'technical' factors like a reversal at a prior top will rule here. This market is overbought on a daily and weekly time frame; not yet on a monthly chart basis. 'Overboughtness' is not a timing indicator. Apparent 'key' downside reversals on a daily chart basis haven't led to much of a pullback such as seen late last month. Watch and wait is my advice to the bulls. If you want to continue to trade for more upside take some money from Nasdaq profits if you have them and buy dips in SPX of 30 points or in OEX of 12-15 points, with suitable exit points just under the 21-day moving average.
Anyone who is standing aside from taking on any new bullish strategies is doing the conventionally prudent thing. Especially since any tradable correction may start out of nowhere so to speak. There is what I think is major resistance at the top end of the uptrend channels I've highlighted on my charts, but that's some distance higher in most cases; not so far in terms of the Dow 30 (INDU), which hits the upper end of its bullish uptrend channel around 12600 versus Friday's close at 12391.
I was forced to lay off my weekly column last week, which is pretty rare for me but I was busy all weekend with a family wedding in Cali. My younger son then gets married in July but that should be it as far as my being AWOL from this space absent acts of God or illness. May lightening not strike me down!
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) index chart is bullish and it accelerating to the upside as can be easily seen by looking at the SPX price trend relative to the 21-day moving average; i.e., the 'gap' between the two is widening.
As I noted in my initial 'bottom line' comments, the S&P and Dow stocks are now leading the overall market, versus the superior gains made by the red hot Nasdaq stocks in recent weeks and months. This is a 'broadening' out of the market into more cyclical stocks, which get a boost when a depressed economy starts to revive.
The only potential technical resistance I can point to is the top end of SPX's broad uptrend price channel; currently, the intersection of that line is at 1377. major support is implied by the lower uptrend line, currently intersecting at 1290. Near support is implied by the 21-day moving average at 1312.
Helping keep this rally going so to speak is still-moderate bullish sentiment, especially compared to the recent accelerating price trend as highlighted on the chart.
SPX is at another overbought extreme in terms of the Relative Strength Index or RSI on a daily chart basis but this is also a mostly 'normal' condition of such a strong advance. In terms of the long-term (weekly and monthly) charts, a second strong up leg is apparent, relative to the Mch '09 to April 2010 advance.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) index chart is bullish and OEX cleared some resistance on its move above 600. I envision possible technical resistance at the top end of OEX's uptrend channel. The upper trendline intersects now at 613, within striking distance of Friday's 602 close. I place more credence in watching for a possible reversal and pullback based on what happens if/when SPX hits ITS upper channel line so will tend to key off the bigger index.
Near support is suggested by the 21-day moving average, currently at 590. Next chart support is implied by the up trendline, which presently intersects at 574.
There's no way of telling how long this rally keeps rolling along with investors buying every dip. I'm cautious now due to the lagging Nasdaq, but get very cautious if OEX reverses in the area of the upper channel line or if there's breakdown below the 21-day average; e.g., a Close below this key average that is followed by further weakness the next day.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) average is in an accelerating uptrend due to prior INDU leaders but also due to the rebound in the financial stocks as well as with oil/energy stocks. I count 16 of the 30 INDU stocks now in strong uptrends: AA, BA (breaking out above a multimonth trading range), CAT (construction), CVX (oil/energy), DD, DIS, GE (a prime Dow bellwether), HD, IBM, INTC, JPM (banking), MMM, PFE, TRV (financial), UTX and XOM (oil).
There's no technical resistance I can measure before 12600, the current intersection of the upper trendline comprising the broad uptrend price channel for INDU. The Dow is within a 1-3 day rally of hitting this area. The average is overbought enough to pull back or go sideways after INDU reaches resistance implied by the top end of its broad uptrend channel.
Support is 12200, then in the area of the 21-day average currently at 12113. Trendline support is in the 11800 area.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) chart is bullish, as prices continue to work higher within the index's steep uptrend channel. I feel like a broken record on the bullish action part for all major index charts and by pointing out the obvious. The channel lines give us some parameters on possible resistance and certainly on key support.
Important technical support is suggested both by the up trendline and the 21-day moving average intersecting around 2760 currently. 2677 is an even more key support as piercing this prior low would suggest a significant downside reversal.
I've estimated near resistance as coming in around 2862, with likely major resistance in the 2987-3000 area. I don't think that COMP is going to blow through 3000 so easily, especially when the index is overbought.
Bullish sentiment, as I pointed out with the S&P 500, is moderate relative to the still-strong uptrend, which bodes well for a continued advance. If daily CBOE equities call volume spikes to 2.5 to 3 times that of the same day's put totals, it implies that traders are getting extreme in betting on a further rise. Extremes in the RSI and my sentiment indicator together suggest a high risk situation for a pullback. We aren't there yet in terms of bullish sentiment. And, the 13-day RSI can rise again into the 80's. It likely will take real indicator EXTREMES to suggest a pause or pullback in this market.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX), which has led the overall market for some time, paused this past week. It's likely just a minor consolidation, especially with the recent pullback in Apple (AAPL); and Cisco systems (CSCO) too for that matter.
I suspect a consolidation-only prior to a move above immediate overhead resistance at 2400. Next resistance is estimated for the 2438 area, with fairly major resistance significantly higher, around 2550.
The up trendline represents a first technical support and currently intersects around 2327. 2258 is the prior (down) swing low and is a key support. A decisive downside penetration of a prior swing low suggests at least a near-term trend reversal.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQQ) chart has the same bullish pattern as the underlying NDX index. The recent 3-day sideways pause in QQQQ is probably a consolidation of the existing strong uptrend, but if the stock starts falling under 57.5, a short-term downside reversal could be underway. 57.1, the current intersection of the dominant up trendline is the key technical support.
I've estimated near resistance at 59.5, with major resistance well above this at 62.5, at the upper end of the Q's broad uptrend channel.
There's not much that recent volume figures tell us except that the most recent rally occurred on relatively low volume. A declining volume trend versus a strong price advance is typically a somewhat 'weak' technical pattern with the exception of QQQQ in my experience. There is portfolio hedging and 'proxy' long positions that get put on in the stock. It may be that volume spikes related to dumping proxy long positions or shorting the stock occurs most intensely at key upside or downside reversal points.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) turned around in the past couple of weeks and is showing the kind of strength that it had prior to its corrective pullback into late-January. RUT now looks to be on track to reaching the top end of its uptrend channel. Potential resistance at the upper channel line comes in around 864 currently.
Key technical support is seen in the 800 area. The bottom of the prior downswing low at 772 is an even more key level; i.e., if 772 is pierced, a near to intermediate term downside reversal is suggested. Absent that, look for still higher prices.
GOOD TRADING SUCCESS!