THE BOTTOM LINE:
The S&P 500 and the Nasdaq Composite traded about as I expected, this past week. The Market was too overbought to suggest another up leg without some consolidation of recent gains. As long as that consolidation remains ABOVE the top end of the August to mid-October trading range the charts suggest at least a retest of the July top. Traders are not terribly bullish and this cautious psychology and chart action point to higher levels. Sentiment) numbers, as in my CPRATIO indicator is seen only on my S&P 500 chart, but its level represents all the indices.
If they get Europe sorted out and they will, the market might have to (GASP!) trade on earnings and their projections ahead. And on that basis, the major indexes should work modestly higher.
The Dow will hit major resistance in the 12900-13000 area. The S&P 500 (SPX) should get back above its 200-day moving average again, currently at 1273. The Nasdaq Composite (COMP) looks to do the same; COMP's Friday Close was just a hair's breath under this key average. The Nasdaq-100 big cap tech stock Index (NDX) has been comfortably trading above ITS 200-day moving average (currently at 2300). Where the leaders go, expect the troops to follow.
Must hold levels for charts to maintain current bullish patterns:
1225 in SPX; 550 in OEX; 11600 in the Dow 30 (INDU)
2600 in COMP; 2300 in NDX
If there was more of a sideways drift it will continue to bring down the Relative Strength Index (RSI) and in that sense 'throw off' any overbought extreme. If not in the next few days, then later in the month I anticipate a continuation of the October rally although not necessarily as strong as the October advance; e.g., the Dow went from the 10400 area at its low up to 12200 for an 1800 point move.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
I suggested last week regarding the S&P 500 (SPX) that if there was: "early weakness on profit taking; or, analysis of possible European snafus relating to the grand consensus announced in the midnight hour last week, the downside risk looks to be a dip to the 1250 area, possibly back to 1225 extending to 1200, which is key support..." As it happened this is the way the thing unfolded with Greece seeming to upset the prior week's Euro zone deal setting off a sharp retreat to the 1215 area (briefly) before buyers push prices up again.
As long as the 1225 area continues to hold up as support, the SPX looks quite capable of continuing its advance and retesting prior (July) highs in the 1350 area. This is a 'minimum' projected upside where SPX's upside 'breakout' move at 1225 would lead to a further advance that tacked on a next gain at least equaling the repeated rallies from the low-1100 area to 1225.
On the bearish side, any sustained dip below 1200 would turn the chart mixed again.
OVERBOUGHT/OVERSOLD AND 'SENTIMENT' CONSIDERATIONS
RSI values seen above have come down from their recent peak and a further sideways move even would continue to pull the 13-day RSI lower, at least to the 'neutral' mid-range area.
Sentiment numbers have dipped this past week, which I 'read' as bullish in a contrary opinion sense.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart continues bullish even with the pullback of this past week. So far, OEX has had a 'consolidation' of recent gains above the 550 breakout point, and this kind of pullback is within expectations for a renewed bullish trend.
I wrote last week that traders were almost 'too' bullish as they had pushed OEX to resistance implied by an upper 6% envelope line. I anticipated the 6% upper trading 'band' (up from a 'normal' 4%) 'acting as' resistance or an upper limit for rallies, simply because the last low had reached the same extreme in percentage terms (-6% relative to the 21-day moving average). I've seen this pattern before after a period of major volatility where the next 'extreme' in the index is equal to the last extreme in terms of these percentage envelopes, of course relative to a 21 period moving average. This concept tends to 'work' on hourly charts as well.
I was also anticipating a possible pullback to 560-550 and the 550 area was tested as support at the Tuesday (after a blue Monday) and Wednesday lows.
I anticipate OEX working higher and retesting resistance in the 580 area. A sustained dip below 550 would say that bet is OFF. Support highlighted in the coming week is 555 or in the area of the 21-day moving average; with next key support coming in around 540.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) chart is bullish as long as price dips and consolidation is above the recent 11600 'breakout' point; i.e., the level that was the top end of the trading range that occurred over many weeks from August into mid-October.
The INDU pullback of this past week was to the area of the 21-day moving average, which maintains a bullish pattern. I anticipate support in the near term developing in the 11700 area; if however, there was a decisive downside penetration of the 21-day moving average, a next pivotal support comes in around 11400.
Key resistance is at the prior recent intraday highs in the 12250 area. More major resistance begins around 12500 and extends to 12750.
I rate only about 3 of the 30 Dow stocks as 'on fire' bullish (e.g., IBM, MCD & WMT); many of the others could correct or sell off a bit more or simply trend sideways to a bit lower a while longer. I see less likelihood of a sustained decline than of a sideways to higher trend in the near-term.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart is bullish and prices are to date consolidating not only above its recent breakout point at 2600-2628 but above its 21-day moving average. Subsequent intraday lows after this bullish breakout at 2600 suggest that prior resistance (once overcome) had 'become' support and is what we expect technically on a renewed uptrend. Conversely, a sustained dip below 2600 would turn the chart mixed again.
COMP could bounce between the 2600 support and 2700-2750 resistance awhile longer but I would see this as a necessary consolidation prior to another good-size advance which leads to at least a retest of prior highs in the 2850 area.
I highlight support (green up arrows) initially in the area of the 21-day moving average, currently at 2640; with next support in the 2565 area and with further significant support at 2500.
Immediate resistance looks to be in the area of the 200-day moving average at 2700. Pivotal resistance next comes at the recent intraday high at 2750; more major resistance comes in at 2850.
NASDAQ 100 (NDX); DAILY CHART:
In terms of its ease with breaking out and then staying above its 200-day moving average, the Nasdaq 100 (NDX) continues to be the leader of the pack for the major indices. NDX found resistance again in the area of the 5% upper (resistance) envelope line and pulled back to its 21-day average and has been mostly consolidating above the average. This is bullish index action. Less bullish would be a sustained dip below the average; at that point I assume the LOWER envelope line is a target even if only a potential 'maximum' objective.
I'm anticipating a next push can carry NDX into the 2412-2438 area which would offer the key technical test of whether the index can exceed its prior 12-month highs. Next pivotal resistance is in the 2460 area, extending to 2500.
Near support has been developing on dips below the 21-day average, currently at 2333. The key support zone is at 2280-2300. A break below 2300 would be bearish. Next lower support then would be suggested in the 2225 area, at the low end of NDX's broad uptrend channel.
If NDX dropped back to the 2300 area it would be an initial buy, with the chance of a further slip to 2250-2230 as a better buy, risking to just under 2200.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) remains in a bullish pattern of course as it mirrors the Nas 100 index. I anticipate another test of the prior recent high in the 59 area; resistance then extends to 60-60.5. Whether there's a correction, such as back to the 200-day moving average, before the stock is in a position to rally to that point is too speculative for me to want to call it.
Near support is at 57, then 56, and further support at 55.
QQQ mirrors the strongest bullish pattern when it consolidates in the area of its 21-day moving average which in turn suggests good potential for another rally toward prior highs and beyond, such as to my upper trading 'band'. Conversely, a bearish fall down and away from the 21-day suggests potential for a move to the lower envelope line; intersecting around 54 currently.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart remains bullish. RUT hasn't been able to regain its prior uptrend line, but that was a very steep slope reflecting a barn-burner rebound.
I've highlighted resistance on my RUT daily chart at the aforementioned up trendline, currently intersecting at 760, with next resistance at RUT's 200-day moving average in the 780 area. Substantial resistance then starts at 800; and on up in 20 point increments to 860. Support is seen in the 720 area, then at 700, extending to 680.
RUT's chart as I said looks bullish in its pattern and suggests to me that it can mount an eventual retest at least (if not a spurt above this area) of the prior 12-month highs in the 845 to 860 price zone. I should suggest to look at longer-term charts for the reminder that RUT topped out in the summer months of '07 at 850-855. The 850-860 area is clearly a key area of potential supply (stock for sale) for the Russell 2000.
GOOD TRADING SUCCESS!