THE BOTTOM LINE:
Instead of even a short-term pause, the market powered ahead, with the Dow and the Nasdaq closing at new weekly highs. Not many weeks ago I wrote that the Nas Composite's breakout above a bullish triangle suggested upside potential to 3000; a faraway target then but not today.
Another topic you may have heard from me before (probably, too many times) is that the 'pressure' of an overbought condition gets relieved so to speak, by EITHER a dip in price OR a sideways move. I like to talk about a sideways move 'throwing off' an overbought condition.
It wasn't too much of a surprise to see at least a short-term rally after the sideways move seen on the hourly chart below caused the important 21-hour oscillator to drop back into a neutral to lower range. Assuming a strong trend, when the 21-hour RSI drops back to 45 to 40 this will be about as low as its going to go; next up is the next buying wave. This rule of thumb applies to the indexes only since stocks are all over the place.
The S&P 500 (SPX) and the other major indexes such as the Dow had appeared to be forming 'Head & Shoulder (H&S) Tops' on an hourly chart basis, so I 'flagged' that last week as a concern for a minor pullback; minor being the operative word here. The Head and Shoulder's top pattern was negated so to speak when prices rebounded to above the assumed Right Shoulder of this kind of 3-prong top figure. INDU looks headed still higher and the key test will come in the 12950-13000 area.
This past week saw the Dow 30 Industrials (INDU) going to new Weekly Closing high. In terms of Dow Theory benchmarks, the Dow Transportation (TRAN) will need to Close above 5548 to 'confirm' INDU as pointing to still higher prices for stocks longer-term. With TRAN closing the week at 5368, a move above 5548 is some distance to cover. Overall, the key thing is that INDU, what so many consider to be 'the' market, is still in very strong move.
The Semiconductor Index (SOX) say further strength this past week and closed well above a key resistance at 420. The SOX index is a bellwether for COMP and NDX. It's rare for a major move in the broader tech indexes without help from the semiconductor stocks.
The S&P Bank Sector Index (BIX) had a strong move and closed at its highs for the week. This was helping boost the S&P of course and can some more. The 150 area may offer next BIX resistance.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) renewed its strong uptrend and then some this past week as it decisively cleared prior highs at 1325-1330.
The highs of May and July 2011 in the 1350-1370 area form the big potential resistance. But then next resistance is implied by the prior up trendline, intersecting currently just overhead, at 1375-1380. I don't rule out a move to big even round number '1400' but the current rally has been a prolonged one without much of a dip. I'd guess we get a sell off before 1400 but the bull is loose. I'd tend to exit any bullish trades if 1380 is seen and not wait for whether 1400 is too on this current rise.
Key near support is the 1310-1307 area, then back at the trendline at 1285.
The RSI seen above is at more of an overbought extreme than it was last week but my CPRATIO sentiment indicator is not yet at a similar extreme so my guess is there's no immediate top.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is strongly bullish but is now entering its key resistance zone at 607-611. Above this band next resistance looks like 620 which the index looks capable of reching.
Key support is in the low-590 area, then at 580. OEX looks to be headed still higher even though 'conventional' technical measures would say the rally is living on 'borrowed time' without a significant correction setting in.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) is strongly bullish in its pattern, as INDU accelerated in its advance above prior key resistance at 12800. I think it's a no brainer to think the Average will see 13000 tested. When is the question. The Dow is pretty overbought but strong rallies often get more overbought and stay there for periods sometimes long ones.
Next projected resistance above the important 13000 level looks like 13150-132200.
Key support is at 12600, then at 12400. A decisive break of 12600 says to me potential to carry at least 200 points lower.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart is strongly bullish. I wrote last of COMP's potential to test or reach 'pivotal' resistance at 2900, making the 2905 daily and weekly Close an important breakout; assuming this wasn't a closing 1-day wonder. The fact that my sentiment indicator hasn't run up to bullish extremes (not yet) suggests more upside potential.
Last week I also wrote of potential for at least a minor pullback. Instead tech stocks went into an accelerated run up which was wild. When COMP pierced the top end of a triangle a few weeks back, a 'measured' objective suggested the Index could go to 3000; I didn't believe that kind of objective realistic at the time, but here COMP is nearly at that technical target.
I've highlighted 'resistance' in the 2965 area and this should easily extend to 3000. Whether this current barnburner rally makes it to the top end of the projected uptrend channel and to the upper 'overbought' envelope line is a hard guess but this past week was a bullish surprise and more may be in store.
Near support is 2825, extending to 2775.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) big cap index of course has seen and in fact as led this last even more accelerated advance in the tech heavy Nasdaq. When the rate of advance or decline already forms a STEEP angle trendline and the move accelerates still noticeably more, there's also a much greater likelihood of a sharper and rougher than usual shakeout.
NDX's advance to date has been impressive but you would be hard pressed to know what a strong trend its been in from listening to most media; a power move led by a power company, Apple (AAPL) of course. I project NDX bellwether AAPL hitting resistance around 470, more at the pivotal $500 level.
Next NDX resistance may come around 2550 and more strongly at 2600. Key technical support is seen at 2470, the current crossing point for NDX's up trendline. Next support is 2400.
NDX is overbought now on BOTH a daily and weekly chart basis although the Index is showing a greater extreme in terms of the 13-day RSI. On a weekly chart (not shown), the 8-week RSI is high but has annually gone higher for a few weeks or more in the past two year period.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nas 100 tracking stock QQQ offered me some thrills and chills in trying to short the stock, but at 61.6 I was out of that notion. The strong close for the week suggests that people are putting some more cash to work and/or re-allocating into more tech. QQQ offers a good way to move into or out of this tech segment, the 100 biggest Nasdaq stocks in capitalization terms. Capitalization of course can reflect an overinflated price for the stock; hmm, some social network IPO comes to mind.
That volume fell off at week's end on a further sharp run up, suggests some others with the notion of throwing in the towel on ideas of shorting this thing and threw in the towel ahead of the weekend; short squeeze! Otherwise, there aren't a lot of buyers chasing stocks at these levels; bearishness is still too engrained and the Q's so far off their bottom. On Balance Volume (OBV) has mirrored and 'confirmed' the very strong advance.
I've highlighted 62.6-63 as potential resistance, especially 63. Key technical support is at 60 even currently.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) accelerated to the upside this past week. It's a very bullish chart but one that looks like its gone/going into a runaway 'straight up' kind of move; for awhile anyway.
The risk of a shakeout grows with this latest spurt higher after what had already been a strong advance. A move like we're seeing with RUT and its sharply curving arc higher is both exciting to watch or profit from, but it also makes for scary shakeouts.
I can't suggest potential technical resistance at new highs like this except by reference to the upper end of my re-drawn and broadest uptrend channel at 860.
Key support is at 800-793.
GOOD TRADING SUCCESS!