The Market consolidated recent gains and made some further upside progress this past week. The major indexes are approaching an overbought
condition and we have earnings announcements ahead. Keep in mind that the S&P 500 (SPX) hasn't yet cleared prior highs in the 1285-1292 area so this is a milestone or not in coming week. The S&P 100 has cleared its prior peak levels but not yet decisively.
The Dow 30 (INDU) is well enough over its prior 12200 double top to suggest that it can continue to make gains. A pullback to 12200 support would 'throw off' some of its overbought hourly chart readings; on a daily chart basis, the 13-day RSI is getting up toward its 'typical' overbought zone. You can see on my charts how many prior Relative Strength Index (RSI) peaks were associated with tradable tops.
I consider an extreme in RSI either high or low to mark a period to look extra hard to see if and when price and sentiment patterns confirm a shift in the trend that offers a trading opportunity. Assuming Dow 12200 finds good buying interest on any pullback, the Dow trend is up, and to buy pullbacks, especially one that retraces 38-50% of its prior run up. On a longer-term weekly chart basis, there's potential for the Dow to retest major resistance at 13000 in the next 2-3 months.
The S&P and Nasdaq indices broke out above 'symmetrical triangles' patterns, which is a bullish plus. Still, I'm cautious about another significant sell off the next time that dismal news out of Europe spooks the market.
Will stocks trade off good earnings next, rather than whether Italy pays more than 7% interest to roll over their debt? I assume earnings are going to be decent overall but its hard to know if this is priced into the market already. The S&P is trading around 11 times earnings, which is below its historic PE ratio. The financial stocks continue to make some gains and maybe their earnings will show some improvement.
My caution is especially acute for anyone taking on new bullish positions. I'd rather buy a good sized pullback rather than betting on another up leg taking off from current levels. Last, but not least, we're in a generally good 'seasonal' period as Q1 into Q2 tends to see the best part of overall yearly gains; that is when we have them, unlike 2011.
Two bellwether stocks, GE for the S&P and AAPL for big cap Nasdaq are acting well. What to watch? GE has technical resistance at 19.3 (last at 18.6) and AAPL around 425-426 (last at 422).
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart is bullish but the Index is yet to clear prior highs so we have to watch for resistance in the 1285-1292 zone. I've highlighted potential further resistance around 1320.
While I'd watch the near-term up trendline for any breaks, I've pegged key support at closer to 1250 and the 21-day moving average. Next support looks like it comes in around 1234.
Note the relatively high 13-day RSI. When the RSI gets to or near its upper 'overbought' zone (and the Market isn't in a runaway advance) the odds of a big further advance without some pullback or pause as in a sideways move, isn't huge.
Bullish sentiment isn't overly high and reflects caution about where prices go from here and no doubt as to whether prior highs will be cleared. When caution goes out the window is when I want to phase out bullish options positions.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is bullish; more so even than big brother SPX in that OEX has cleared its prior 577-580 top and the index looks like it could be consolidating for yet another push higher; such as to 590 or beyond, such as to 600, a significant benchmark level.
Near technical support is at 570, extending to 567. A close below the 21-day average would be initially bearish, especially beyond a single day. I've highlighted next lower support at 558; beyond this, technical support should be found in the 550-547 area.
OEX has had a nice run up from near 520, at my lower trading band (aka 'moving average envelope line'). If the current move extends its gains to at or near 600, I wouldn't expect more upside than this without another retracement of the advance such as was seen in the December 570 to 550 pullback.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) chart is bullish as INDU has continued to move above its prior 12200 double top. What was resistance, in the case of INDU in the 12200 area, 'became' subsequent support, which is characteristic of an uptrend. A decisive downside penetration of 12200 would be an initial bearish chart development. Next support comes in around 12000.
I've projected next resistance in the Dow at 12600, with further overhead next resistance at 12800. Fairly major resistance begins in the 13000 area. I anticipate 13000 will be retested. The question is when and how this will unfold. Does INDU rise a bit further, then sell off for a 1 to 2-week period, then go on later to extend gains to 13000 again. 13000 was last seen at the May 2011 top.
As mentioned above in my initial 'bottom line' commentary, watch INDU/S&P bellwether GE as to whether it can take out resistance around 19.3 (versus its Friday Close at 18.6). Conversely significant is whether GE retests (or dips below) support in the low-$18 area.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) has turned more bullish in that the Index has cleared important resistance at its 200-day moving average and prior recent highs around 2650. Next resistance comes in around 2700, then at 2750. COMP pierced the upper end of a so-called 'triangle' formation, which is a bullish chart development. Most important is whether COMP stalls in the area o of prior highs.
Near support is highlighted at 2645, near support implied by its up trendline; next support comes in at 2600, extending to around 2550.
A cautionary note is the relatively high RSI reading. Given the back and forth price swings we've seen in recent months, this indicator hasn't been getting much more that TO or near its 'typical' overbought zone before upside momentum gets tougher to maintain.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) is bullish in its pattern as it achieved a decisive upside breakout above resistance implied by the well-defined down trendline and the upper end of its triangle formation. NDX looks like it's in another up leg that could carry to a challenge of prior highs in the 2400 area.
The 2400 area is a maximum upside in my estimation before NDX would be quite vulnerable for a correction. Pullbacks to the 2300 area should offer an opportunity to buy calls but with bullish strategies to be exited if NDX fell below 2250.
I've highlighted estimated support at 2300 and the approximate low end of its recent upside price gap, with next support coming in around 2265-2250.
I most like betting on the upside when the RSI is at or under 40 (and/or at or near my lower 'envelope' line) and most definitely not when the 13-day RSI is in the 65-70 zone.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) has a bullish chart, but with resistance implied by prior highs around 58, with further resistance in the 59 area.
Near support is expected on pullbacks to the 56.5 to 56 zone, with next lower support around 55. The chart would look bearish on a break below its up trendline.
Daily trading volume picked up on this latest rally, which is what we expect to see with a company stock and so rarely see with the Q's.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart needs to clear its 753-760 resistance zone and then go on to clear its prior 769 high to suggest that RUT could tackle next resistance at 780 or to go on to the 800 area again and the beginning of fairly major resistance.
Near support comes in around 740. A Close below 740 would suggest downside potential to the 720 area again. As Nasdaq goes, so should the Russell go. I don't see small to mid-cap stocks to do better than the Nasdaq as an independent play; although RUT tends to find an increase in buying interest in the early part of a new year.
GOOD TRADING SUCCESS!