THE BOTTOM LINE:
Author Note: I was mortified when I discovered this one phrase keep repeating at the end of each and every paragraph in my last week's (1/7) 'bottom line' commentary, at least in the e-mail version. It was corrected on the web site. Mia culpa/my bad.
The S&P 500 faces what looks like tough resistance around 1300 but the comparable overhang for the Nasdaq Composite is further away at 2800. Maybe the Nasdaq Index is going to lead for a while as it doesn't have all those struggling financial stocks, like banks, within it. SPX kept stalling just under 1300 this past week, although scoring a weekly gain.
I suspect the Nasdaq Index may lead for a while as it doesn't have all those struggling financial stocks, like banks, within it. We could be in one of those 'leap frog' points when tech stocks have the next upside spurt; the S&P, not so much.
The bank stocks have had a decent bounce from lows over August-November, but are in some resistance again. The big financial firms may weigh heavy in the near-term in the S&P 500 (SPX) if this sector underperforms Q4 earnings expectations.
Technically, SPX is pausing in the area of prior highs and got overbought in the process of getting there so could stall out here as in sideways to (probably moderately) lower. Bullish sentiment has been rising along with renewed concerns in the Euro zone. It looks like a risky deal to stay on in calls.
The weekly charts remain bullish however and are not at overbought extremes so I can't short this market with confidence either. I'd rather re-enter bullish plays on pullbacks. The seasonal trend is typically bullish. Enough so to overcome concerns about a Europe slowdown? Probably, for a while longer as in some weeks more.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart is bullish but the question with Friday's stumble, is whether upside momentum has peaked for now while the index formed a line of resistance still quite close to its late-October high.
The 13-day Relative Strength Index (RSI) hit the levels I consider having high risk of a correction/pullback. Key resistance is at 1300, extending to 1330 or so.
A pullback to support in the 1265 to 1250 area wouldn't be surprising and would remain in the area of a nominal correction to a market headed higher. A close below 1250 would be a warning of a deeper correction then the current chart suggests as this chart, this week, points higher.
No can say the trend is not UP, short, intermediate and long-term. I mostly don't like the increased risk to my bullish plays, after prices stalled near prior highs with accompanying overbought RSI extremes and when Europe concerns seep back into the minds of investors.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart remains bullish. This will be the case absent a downside penetration of my highlighted up trendline. OEX kept hitting resistance/selling pressures in the 587 area and Friday brought a sharp intraday sell off, although short-covering brought the Close back up substantially.
The increased volatility coming after the RSI got into its 'typical' overbought zone, makes banking on further upside dicey. The question here is WHEN is a downside correction going to happen not IF it will. The market has been holding up well going into the thicket of earnings announcements and further gains are possible. Still, from now until after another rally (or two), a correction of more than a day is overdue.
Resistance is seen around 587; 587 to 590 is somewhat pivotal resistance. A push above 590 suggests that 600-603 can be reached.
OEX has support initially at 577 in the beginning of the week; support then extends to 570. Pivotal technical support then comes in at 560 and my lowest current downside target.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) chart remains bullish but Friday's low penetrated INDU's up trendline which suggested some slippage. To regain bullish footing would lows on Monday-Tuesday that held at or near trendline support at 12370. A dip to the 12200 area keeps the trend within a modest downside correction, but to break under 12000 shifts the intermediate trend to down again.
The sideways move after the Average hit repeated highs in the 12480-12500 area coupled with this latest dip suggests that the Dow is vulnerable to a pullback. Suggesting otherwise would be a decisive upside penetration of the 12480 line of resistance and an advance to 12600 or at an outside chance, a rally that carries to the 12800 area.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart is bullish as the recent move above 2700 suggests. A rebound from the 2700 area would continue the bullish pattern; versus a decline under 2685 as bearish in the near-term. Upside resistance is 2710, 2725; pivotal next resistance 2750-2755, extending to 2800. COMP is yet to climb above its late-October highs in the 2750 area. But, depending on how COMP keeps its trendline, 2750 is in easy reach.
Next COMP support below the highlighted up trendline is in the 2626 area with still lower support at 2595, at COMP's longer-term up trendline; pivotal support on a deep correction is 2595-2600.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) remains bullish, but with some recent slippage under its current, and steep, up trendline. It has been a strong advance which is why the 13-day RSI just reached its 'alert'/overbought zone. High or low extremes means many days of a strong directional move as measured by the Relative Strength Indicator, a ratio comparing up versus down days over some period of time; i.e., the 'length' setting. A red flag about a possible upcoming jump in volatility for sure.
2350 is key near support. If NDX starts slipping below 2350, it sets up a target back to 2300 again.
Conversely, a push now to above the prior highs in the 2400 area keeps the bullish move going as 'proved' by the new highs. A game changer for a bullish trend is clearing the top end of the last rally peak. Next resistance above 2400-2412, at 2428, is projected or expected based on my upper envelope line, with resistance extending to 2450.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) is stalled around 58.3. Yet to be cleared are prior highs in the 59 area. With this kind of pattern or picture, you have to be wary of a big double top. It depends now if the Q's can climb above 59. A big jump in trading volume seems needed to suggest a decisive new up leg.
If this market was trading strictly on US earnings trends the big double top idea would be of less concern. The European wild card remains the big unknown. The current 'best' upside potential I envision is for a move into the 59 to 60 zone. If you judge the overall market by the Nas 100 tracking stock, it still looks like a trading range market.
Key near support is at 57.3, at the up trendline. If the trendline is pierced, look for next support in the low 56-56.2 area.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) this past week rallied to a key area, namely to prior highs in recent months as seen below. A move above 769-770 keeps bullish momentum going and suggests a possible target to the 800 area.
Conversely, a dip to much under 760 at this juncture suggests potential for RUT to test support in the 740 area. A close below 740 sets up objective back to as low as the low-700 area again.
GOOD TRADING SUCCESS!