THE BOTTOM LINE:
Technically, the S&P 500 and Nasdaq Composite rebounded enough that by week's end the indexes remained within their broad uptrend channels. The prospects are for a further modest advance and possibly for the market to settle into a broad trading range.
There is no indication that the intermediate or long-term up trend has reversed since the indexes have held above their prior downswing lows. This market doesn't look like it will have a dynamic further rally, or start any prolonged decline. It's a classic meandering trend with dampened volatility as we head into summer.
Two key indicators, RSI and my sentiment model, got almost fully 'oversold' early in the past week and preceded the modest Wednesday to Friday rally. Is there enough buying interest to keep this recent rebound going after the long holiday weekend ahead? I would give a tepid yes to that question.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) remains bullish in its pattern in that so far the index has held above its prior downswing low. SPX briefly fell below its up trendline as well as support implied by its 50-day moving average but then recovered to close above this technical support. As long as SPX doesn't start falling under 1325-1312 and especially below 1300-1295, its uptrend is intact.
A big question is can the index mount another sustained rally such as to challenge resistance in the 1360-1370 area. I don't envision new highs above 1370. On the other hand, I don't anticipate a bearish drop below 1300. SPX may be held within a 1370 to 1300 price range in the coming 1-2 weeks.
Since SPX is back above its up trendline, I've noted near support at the current intersection of that line at 1325, extending to 1312, with pivotal lower support at 1300, extending to 1295 at the last intraday low. Immediate overhead resistance is at the minor down trendline (not noted on the chart) at 1334-1335, with key resistance in the 1360-1370 price zone.
RSI and TRADER 'SENTIMENT'
Bullish sentiment this past week got to as low as we've typically seen in recent months before another advance got underway. After this there was a rapid rise in trader bullishness into the end fo the week. The RSI has lifted off the low end of its range. Both indicators together suggest further rally potential from the 5/27 close.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) this past week held above its prior intraday low (at 577) and then rebounded to resistance implied by its previously broken up trendline. Unlike SPX, OEX hasn't regained its 50-day moving average and is a benchmark to watch for. The chart remains bullish given that OEX hasn't pierced its last (down) swing low. However, resistance at 595-600 needs to be overcome to suggest that the bulls are again taking charge.
I've highlighted near support in the 583 area around the last cluster of lows, with pivotal support at 580-577. A couple of closes under 580 would suggest that intermediate-term momentum was slipping further. A weak rally, followed by another decline would suggest a possible bearish tipping point.
Another rally up to the 595-600 zone followed by another decline would raise the possibility that a Head & Shoulder's top had formed. Additional resistance is seen at 604, extending to 611. A close above 610 is needed to suggest that a new up leg was underway.
DOW 30 (INDU) AVERAGE; DAILY CHART:
After a multiweek decline the Dow 30 (INDU) average has rallied some from a level above support implied by its up trendline, currently intersecting in the 12200 area. INDU had fallen to below its 50-day moving average but ended the week back above it. There's resistance at the 21-day average however. It's questionable from the chart whether INDU won't slip lower and test support in the 12200 area. Of the 30 Dow stocks I can only point to real strength in a couple of stocks; e.g., JNJ and KFT.
INDU resistance is apparent at 12600, then at 12800. Near support is assumed to lie in the 12300 area, at recent intraday lows, but I don't see this as key an area as potential support around 12200, extending to the prior low in the 12100 area.
As mentioned already, looking at the individual stocks, it's hard to be bullish on the Dow even though the Average itself hasn't pierced its prior 12093 downswing low. One more sell off should put INDU into a fully oversold condition in terms of the 13-day RSI and if such an oversold was registered I think there would be more rally potential than currently, especially if accompanied by a successful retest of the prior low and the Dow's up trendline.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) has held so far above its prior 2739 downswing low but the recent decline temporarily fell under its 50-day moving average and support implied by its up trendline. The rebound seen late this past week brought COMP back above technical support.
I think this recent rally can carry somewhat higher but I'm not convinced that the Composite doesn't have another sell off to come soon after any extension of the recent rebound. I'm watching the 21-day moving average as a key upside test; currently this average is at 2816. I'd peg key near resistance at 2816, extending to 2828. Fairly major resistance then comes in around 2876, the area where COMP made most of its highs previously.
Since COMP has regained its up trendline near support is implied at 2787, at the near-term intersection of this line. Next support looks to be 2743-2739, extending to around 2706 at the prior bottom.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) has a mixed chart and technical pattern as I suggested last week. Sure enough, another downside price gap marked another sell off at the beginning of this past week. I pointed out last time the possible 'island top' formation per the highlighted circle on my NDX daily chart. The fact that the index next promptly fell to below its up trendline and hasn't regained it, demonstrates the selling that's still hitting the 100 big cap tech stocks. The minor rebound of late in the week may carry higher but the key test ahead is whether NDX can regain and stay above, its previously broken up trendline.
Near resistance implied by the aforementioned trendline comes in around 2350 currently. Next resistance is at 2365-2374, then at the line of prior highs in the 2417 area.
Near support is at 2300 currently, then in the 2255-2250 area. The prior low at 2255 is a pivotal area. A downside penetration of this prior low, particularly on a closing basis, would turn the intermediate trend lower.
On a related note, I've thought for awhile that Apple (AAPL), a key big cap Nasdaq bellwether could be tracing out a rectangle top. Without a confirming lower low here, I'm not assuming that NDX is also building a top, although the island formation is suggestive of it. Tops are tricky to time and I tend to be cautious about assuming this long time uptrend is done for.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) has a mixed chart like the underlying NDX index. As I noted last week, it would take a break below the prior downswing low at 55.3 to suggest there was a reversal in the intermediate uptrend. The stock did pierce its up trendline and hasn't regained it; or regained its 50-day moving average.
Immediate overhead resistance, at the moving average and at the trendline is currently 57.5-57.75. Next resistance is highlighted at 58.3, with the major line of resistance then at 59.3.
Support is assumed to lie at the cluster of recent lows around 56.5, with pivotal support at the prior intraday low around 55.3. I'm assuming that QQQ may be locked in a 59.3 to 55.3 trading range.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT), like the Nasdaq composite, fell below its up trendline but then regained it; that and its 50-day moving average. I've noted potential near support at the regained up trendline at 831. If RUT moves higher within its broad uptrend channel, the chart will regain its bullish footing. I tend to be somewhat skeptical about the further bullish outlook when a long standing up trendline is pierced. Sometimes the dip below such a trendline is brief and not repeated. Time will tell. RUT could be also simply be slipping into a 800-860/870 trading range.
Support below 831 is assumed for the prior low around 808. Very pivotal next support comes in at 776, the previous intraday low. I didn't take the cluster of lows in the 820 area as the crucial must hold support but the break below 820 demonstrated slipping (upside) momentum this past week; now a moot point with Friday's RUT close at 836.
Resistance is highlighted in the 856 area, then at the previous top made at 868.
GOOD TRADING SUCCESS!
NOTES ON MY TRADING GUIDELINES AND SUGGESTIONS
1. Technical support or areas of likely buying interest and highlighted with green up arrows.
2. Resistance or areas of likely selling interest and notated by the use of red down arrows.
I WRITE ABOUT:
3. Index price areas where I have a bullish bias or interest in buying index calls, selling puts or other bullish strategies.
4. Price levels where I suggest buying index puts or adopting other bearish option strategies.
5. Bullish or Bearish trader sentiment and display the graph of a CBOE daily call to put volume ratio for equities only options (CPRATIO) with the S&P 500 (SPX) and the Nasdaq Composite (COMP) charts. However, this indicator pertains to the market as a whole, not just SPX or COMP. I divide calls BY puts rather than the reverse (i.e., the put/call ratio). In my indicator a LOW reading is bullish and a HIGH reading bearish, consistent with other overbought/oversold indicators.
Trading suggestions are based on Index levels, not a specific option (month and strike price) and entry price for that option. My outlook often focuses on the intermediate-term trend (next 2-3 or more weeks) rather than just the next several days of the short-term trend.
Having at least 3-4 weeks to expiration tends to be my guideline for trade entry choice. I attempt to pick only what I consider to be 'high-potential' trades; e.g., a defined risk point would equal in points only 1/3 or less of the index price target.
I tend to favor At The Money (ATM), In The Money (ITM) or only slightly Out of The Money (OTM) strike prices so that premium levels are not as cheap as would otherwise be the case, which helps in not overtrading an account. Exit or stop points, as well as projected profitable index price targets, are based on my technical analysis of the underlying indexes.