THE BOTTOM LINE:
The S&P indices plus the Dow broke out above key down trendlines with strong rallies this past week. The Nasdaq, in a switch, is lagging and hasn't or hasn't yet achieved similar upside breakouts above bearish (down) trendlines. The S&P reflected a good-sized rebound in the financial stocks; e.g., the Bank Sector Index (BIX), stocks represented in the S&P, experienced a strong rally.
The upside breakout in the S&P 500 (SPX) came as the Index pierced 1247. The Dow pierced technical resistance when the Average crossed above 12200.
The Nasdaq Composite and Nas 100 once again lagged the S&P in terms of lacking a similar upside breakout above its down trendlines. It looks like the S&P can pull the Nasdaq higher although the market is now 'overbought' on a short-term basis and a short-term correction could be coming up after the 3-day holiday weekend.
Pullbacks should be well supported. The "Santa Claus" rally has a fairly well established history and we've got an end of the quarter/end of the year 'window dressing' period over the upcoming final 4 trading days of 2011.
INDUSTRY GROUP INDEXES:
Relevant as a bellwether for the tech heavy Nasdaq, the Philly Semiconductor Index (SOX) held above its key up trendline at 346. SOX would achieve a bullish breakout above its down trendline at 378; SOX Friday Close: 368.
The Bank Sector Index (BIX) accelerated some to the upside as it moves up and away from a recent bounce from support implied by a key weekly up trendline. One reason for the S&P strength of this past week was a good-sized rally in BIX.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart has regained its bullish footing with the upside breakout above a well-defined and sizable symmetrical triangle. This type formation doesn't forecast a directional move until there's a decisive and sustained breakout above or below the converging upper and lower trendlines. SPX fell under its 21-day moving average which was mildly bearish. However, key technical support was at the up trendline and prices didn't touch or test this trendline before rallying.
The two (Thursday and Friday) Closes above the 200-day moving average was a definite bullish plus also. For the period seen on my SPX daily chart, there's only one prior instance of two consecutive days above this key longer-term moving average; a 3rd and 4th day above the 200-day average would give credence to a shift in momentum to the upside.
Pivotal next resistance is at the prior 1292 intraday high; the prior high Close was 1285 and the 1285-1292 price zone looks like it may get at least retested if not exceeded. For the current move, the 1300 area should offer tough resistance.
Key near support is at 1244, at the prior down trendline; what was resistance, once penetrated, 'becoming' subsequent support. The chart maintains a bullish pattern by holding above the upper trendline. I've highlighted next support at 1200; I'd also note intervening support at 1220, extending to around 1209. Major support comes in around 1160.
Bullish sentiment as seen above had fallen to a low, potentially bullish, level coming into the past week. I wrote last time that... "The most recent daily readings fell enough to get the 5-day moving average close to bullish territory in a 'contrary opinion' sense."
While my equities call to put daily volume ratio ALONE wasn't enough to take a plunge into calls, it was a definite bullish harbinger of the rally that followed. Bullish sentiment then rose fast, but my indicator isn't yet in high-bullish 'overbought' territory. If traders get increasingly bullish, as suggested by further upward spikes in the CPRATIO line, I'm likely to want to cash in some index calls.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX), like big brother SPX, turned bullish after the strong rebound that developed after OEX retraced 50% of the prior advance. The decisive upside penetration of the down trendline was a 'confirming' bullish chart development.
I anticipate at least a retest of the prior high at 580. It wouldn't be surprising to see a move to the 590 area, where I've highlighted potential next resistance. The 600 level is the start of fairly major resistance.
565 as near support is suggested by the prior down trendline and the chart maintains a bullish pattern above this line. Next support comes in around 554, extending to the 546 low of the recent downswing.
DOW 30 (INDU) AVERAGE; DAILY CHART:
I assessed the Dow 30 (INDU) chart last week as having established "the high end of a well-defined trading range." As it turns out, this prior line of resistance was just waiting to be exceeded. There was a dip below the 21 and 200-day moving averages, but only one Close below the 21-day average followed by a strong rally. When this advance took out the prior 4-day high, it was bullish game afoot.
I did note last week that a case could be made for a rally back above 12000 and an eventual move above 12200, but not anytime soon. Well, INDU realized sooner rather than later the bullish potential of what I counted week before last as 22 of the 30 stocks having potential for further gains.
Where to from here? Assuming the 12200 area holds as support on dips, there's potential to 12400 or higher, such as to 12600.
Below 12200, support should be found at 12000. 11800 is next support which I don't see being retested anytime soon. There's that 'time' forecast again!
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
Unlike the S&P, the Nasdaq Composite (COMP) hasn't achieved a bullish breakout above its down trendline, currently intersecting at 2615, or to above its prior (up) swing high at 2674; Closing high at the time, 2655. So, does the S&P pull COMP higher or does COMP act as a drag on further gains for SPX, OEX and INDU? If past experience when the two markets play leap frog is true, COMP gets pulled gradually higher; but the strongest market play is not so much in tech currently.
A bullish chart breakout starts with COMP piercing its down trendline, then retesting its 2674 intraday high, 2655 Closing high. Next resistance is 2700, extending up to the 2750 area.
Near support looks like 2580, extending to 2550-2545; next support and a key one is at COMP's up trendline, currently intersecting at 2517. Fairly major support begins at 2450.
Bullish sentiment numbers jumped this past week, with one day at or near a typical bullish 'extreme' as the market outlook continues to swing from bullish to bearish and back again.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart is near to what could be a bullish breakout above its down trendline. Current resistance implied by the bearish trendline is just under 2300, at 2291. The NDX close at its intraday high bodes well for a breakout above its resistance trendline and to back above its 200-day moving average. Next resistance levels are at 2335, then at 2365. 2400 begins fairly major resistance.
I mentioned before that Apple (AAPL) is a bellwether stock to watch for how NDX could fare. The fact that AAPL cleared resistance at 393-395 is a good omen for NDX at least getting up to the 2335 area and extending its recent gains. (The next challenge for Apple is at 410 resistance.)
NDX support is highlighted (by green up arrows) at 2250, then at its up trendline, currently intersecting at 2212. A decline to below 2250 at this juncture would suggest that NDX isn't going anywhere fast on the upside.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) chart exactly mirrors the underlying (NDX) index; only the levels are different of course. The upside 'breakout' point for QQQ (to above its down trendline and the 200-day moving average) is at 56.2. Next resistance then comes in substantially higher, at 57.4-57.6, with resistance extending to 58-58.2.
Support is highlighted at 55.4, then in the 54-54.1 area.
I anticipate QQQ working higher, but not if the stock can't clear its trendline on a Closing basis and for more than a day. The existing down trendline I'm working with has several instances of intraday highs that carried a bit above the resistance trendline but with no real traction and upside follow through.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart is still somewhat mixed. Bullish in that RUT rebounded from support implied by its previously broken down trendline and has made a new Closing high relative to peak levels seen on its rally into an early-December peak.
The chart is somewhat 'mixed' in that RUT hasn't yet pierced its prior 753 intraday high. Resistance then extends to the late-October highs at 769 on an intraday basis, 765 in terms of its prior Closing high in that period.
RUT has a 'measured move' objective to around 780, so I think the index has potential to go to a new high for the current move but not by a lot based on what I'm seeing currently. Still, it's better than a kick in the head as an options market maker I worked with used to say; quite often said in fact.
GOOD TRADING SUCCESS & HAPPY HOLIDAYS!