THE BOTTOM LINE:
Now that the summer doldrums are almost upon us, the market is showing some signs of slowing upside momentum. There's no 'confirmation' of a trend reversal unless the major indexes pierce prior downswing lows but bullish traders should be cautious.
Big upside moves are getting fewer and far between and the market acts 'tired' so to speak. The weekly MACD (Moving Average Convergence Divergence) technical indicator of momentum has been on a 'sell signal'(i.e., showing declining momentum) since the week ending 3/18. This indicator will be shown on my first chart with the weekly S&P 500 index (SPX).
What may be bellwether patterns relative to this market is the major double top that could be developing in the Nasdaq Composite (COMP) relative to the COMP highs of October-November 2007 and on a smaller scale relating to the S&P is Exxon's (XOM) recent double top (at 88). On a shorter-term basis, the key 21-day moving average, has now recently been 'acting as' resistance as you'll see especially in the S&P 500, Dow and Nasdaq Composite charts.
I'm always looking to see if the key trendlines I've been working with are still valid, or should be re-drawn. Going back to the late-August 2010 lows as an 'anchor' point(s), its become apparent to me that the lows of mid-March and mid-May have formed NEW up trendlines as can be seen on my S&P and Nasdaq index charts. I had been working already for awhile with an emerging up trendline for the Nasdaq 100 (NDX) and this most recent low in NDX rebounded right from support implied by that trendline. If these support trendlines get pierced, this will suggest the market has tipped bearish.
A caveat to a big bear take on this market is that tops can be quite tough to trade on an outright position basis such as buying and holding puts. A top here might not be a major one as buying rotation among sectors goes on, providing overall support. We could just get choppy back and forth trading swings for weeks ahead. While I tend to concentrate on the indexes and this column is all about them, there are always opportunities in trading individual stocks, such as those in the Dow 30. My most recent Trader's Corner piece of Wed, 5/18 highlighted trading opportunities in individual stocks that were at least partially sussed out by seeing where and how upside and downside chart gaps developed.
I feature the weekly chart of the S&P 500 first for two reasons. One is to highlight the up trendline with key support noted in the 1325 area. A weekly close below this line is not conclusive for a top but it could warn of an eventual test of 1250 support, or even the low end of the broad uptrend channel, currently intersecting around 1220.
The other, indicator aspect of the chart seen above, shows declining MACD values for the past 2+ months as mentioned above. The MACD indicator has been showing downside momentum on balance since the downside crossover of the two lines in mid-March. The blue vertical bars that point downward from the zero level are for each week that the heavier black MACD (mackdee) has a value that is below the thinner (magenta) MACD average line.
One to two strong rally weeks will bring a reversal of this downward (MACD) drift, which is certainly not a pronounced trend. Such longer term momentum indicators provide a cautionary note only. Bullish sentiment has already fallen from what it was as traders have seen the sort of muddled trend in economic data and are not buying every dip any longer.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX), while still in its broad uptrend channel, has lost the strong upside momentum leading up to the February peak. This loss of momentum is apparent in that we're seeing more two-sided trading swings. Nevertheless, there has continued to be a bullish pattern of higher rally peaks and higher correction lows. If the last (down) swing low is penetrated at 1300-1295, this bullish picture shifts and becomes another story.
This past week's low occurred in the area of SPX's 50-day moving average and above its up trendline, although the most recent minor rebound hasn't gotten very far. The 21-day moving average appears to be acting as resistance recently, which in the indexes usually suggests lower prices ahead although in the last instance a sell off was short-lived and another rally ensued.
Pivotal support is first at 1320, then at 1300-1295. If 1300 is pierced, this could set up a test of support in the 1250 area.
Resistance is apparent at 1360, extending to 1370.
RSI and TRADER 'SENTIMENT'
A noteworthy feature is provided by my sentiment indicator which is seeing single-day readings dipping into 'oversold' territory where traders have gotten more bearish, less bullish. The 5-day average is almost also at the low end of my CPRATIO indicator above. If the 13-day RSI were to also reach an oversold level by another shot down, SPX and the overall market would be in a position to launch another tradable rally.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) this past week dipped to and then rebounded from, an up trendline dating from its late-August lows. OEX's most recent low held above the prior OEX pullback low which keeps a bullish pattern going. Still, there's some question as to whether a next rally is going to get off the ground here. If support at 586-587 gives way then 580-577 should get tested as next support. Next support is assumed to then lie in the 560 area.
Conversely, a move above 600 would be a bullish plus where 610 would then be a next key test of buying interest in the big cap S&P stocks. A possible trading range in the next 1-2 weeks is between 580-575 on the downside and 610 on the upside.
Another decline would again put the index into oversold territory and good-sized rallies from at or near the RSI 35-30 zone has been a feature of this market. If that didn't happen, it suggests that the market has become more vulnerable to bigger declines just as seen with the sizable sell off of late-February into mid-March.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) average saw its most recent rebound from the area of its 50-day moving average stop short at resistance implied by the 21-day average. The pattern here suggests some weakness to come, perhaps back to the 12200 area or a bit lower, such as to around 12100. I also noted possible near support implied by this past week's 12378 intraday low. As long as the low end of the current broad uptrend channel doesn't give way the chart remains bullish.
Resistant is first suggested for the 12600 area, then approximately 200 points higher, at 12800, extending to 12876.
As to the individual 30 Dow stock charts, what I'm struck by is the strongest remain the consumer 'defensive' type names like KFT, KO, MCD and PG. The stocks still being bought are narrowly focused on basic consumer purchases and not suggestive of an overall strong Dow ahead.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) chart is mixed. It has the overall pattern of higher highs and higher reaction lows that is the hallmark of an uptrend. On the other hand, the 21-day average now seems to be 'acting as' resistance, which suggests the index involved is heading lower. As to moving averages, another key one, the 50-day, has so far held as support, intraday dips below it not withstanding. Hey, the battle of the moving averages!
If prices break below COMP's up trendline, currently intersecting at 2767 it would suggest that the prior 2706 low could be tested. Therefore support levels suggested are 2767, extending to 2759; even more pivotal support comes in around 2706-2700.
Immediate overhead resistance is at 2883, with the most pivotal resistance apparent in the 2884-2887 area.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) has a mixed chart and technical pattern. The chart is not confirmed bearish until/unless the 2255 low is pierced, but I've highlighted in the yellow circle what could be an 'island' top; this pattern forms with an upside price gap or two (or three), followed by a sideways move and then a gap down below that price cluster. I'm talking possibilities only as, so far, NDX has 'held' its up trendline.
I've noted a key support around 2331, at the current intersection of the up trendline. If the island top pattern is true, NDX is headed to retest its prior low in the 2255 area. I'm waiting to see how things unfold and am not assuming anything just yet.
NDX resistance is pretty clear given the numerous highs at 2417. I always find it interesting how sometimes the same exact index high or close to it comes up again and again until f-i-n-a-l-l-y there's a breakdown. Tops often take this form, unlike the V-shaped bottoms we so often see.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) has a mixed chart. I wouldn't say bearish; a break below 55.3, the prior downswing low would be another story. The Q's recently rebounded some from its up trendline but it was a weak rally and almost immediately more selling came in (Friday). The pattern to me suggests that the stock could be headed back to a retest of its 55.3 prior low; that outcome is to be determined by whether QQQ will again find support at its up trendline.
If the stock mounts another rally, there's a substantial line of resistance at 59.3 to be overcome. We have the possibility of a significant double top given that the recent rally peak was quite close to the mid-February high at 59.0. A .3 spread is mere 'noise'. It's a top in the same area and there ware many failed attempts to better the 59.3 high.
I've highlighted potential support at 57.3, as suggested by the up trendline intersection early this coming week and by the 50-day moving average.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) has been loosing momentum since it made a new relative high at 868 recently and came within a hair's breath of piercing its previous downswing 816 downswing low. It got to 815 but then rebounded some. RUT is trading below its 50-day moving average, which is a visual on the momentum aspect. The up trendline that I started working with less than an optimal number of lows to use in drawing it, suggests possible upcoming support at 823. Overall, I'd rate the chart as mixed as the trend is at best sideways right now.
There's also a possible Head & Shoulder's (H&S)top formation here with the Left Shoulder at the first peak at 859, the Head being the middle rally to 868 and the Right Shoulder having formed at the recent rally to 856. If this is the correct interpretation, the recent break of the 'neckline' of the H&S pattern suggests a 'minimum' downside objective to 796.
Potential support at 823 extends to 813 with more significant support at 800. I wouldn't be surprised to see the 800 area tested and weakness might carry to around 780. Resistance looks like 860, extending to the 868 area.
GOOD TRADING SUCCESS!