THE BOTTOM LINE:
This Market hasn't been subject to 'normal' pullbacks as P/E ratios steadily expand (from historically below-average ratios) to reflect increasing economic growth/growth potential. This reality technically, especially with the big cap S&P and Nasdaq indexes, is evident by their steep up trendlines.
For the times that it seemed the major indexes were stalled and were 'too' overbought intermediate-term to continue much higher, key stocks have played 'gotcha' and pushed still higher. I am struck by how for example the highflying Nasdaq 100 (NDX) has held a very steephourly uptrend channel since mid-December as highlighted in my first chart. It seems that it would be 'simple' to buy calls and hold on to them, and resist the 'trader' impulse. You know, to trade in and out a bit or a lot. This could be a costly habit in this current trend!
Since the mid-December lows NDX is up approximately 17%! Hey, keep buying those iPhones, iPads, Macs, etc. Semiconductors, as reflected in the SOX index have had a good run also since its late-December low, which (along with tech bellwether, Apple (AAPL), has been a major propellant for NDX.
No doubt the market will have a deeper correction/pullback at some point but so far some pauses and sideways moves along the way have generally kept the indexes from reaching prolonged overbought extremes on a shorter-term basis. Occasional weeks where gains were moderate has also kept the longer-term weekly overbought indicators (e.g., the 8-week RSI) from reaching the extremes seen in the past when the market has been on one of these kind of super strong bull moves; e.g., the steep advance from September 2010 to May 2011.
The only fly in the ointment in terms of very long-term market models such as reflected by Dow Theory is the lagging transportation stocks. The Dow Industrial Average (INDU) has achieved a fairly decisive upside penetration of its weekly Closing high of 4/29/11 at 12810; its Friday close was 12950.
If the Dow Transportation Average (TRAN) also went to new high, it would 'confirm' the new highs in INDU. Instead, TRAN has slipped the past couple of weeks. Versus its Friday close at 5239, TRAN would need to close above 5548 to mirror the same move (to new closing highs) in the 30 Industrials. Such a move would be a gain of +6% in TRAN from its most recent close. This isn't an insurmountable challenge of course and Dow Theory reflects a market view that is very long-term 'investment' oriented. If there was less danger of an Iran conflict and a huge oil price spike, TRAN might match gains in INDU. Stay tuned.
I lived in Iran for 3 years back before the mullahs had the country in a strangle hold and don't have a lot of confidence in their rationality. We'll see. However, I know they're not suicidal!
A final note is that the Russell 2000 (RUT) has been lagging the other major indexes. Normally, RUT tracks the Nasdaq higher or lower. Once in a while the index is a 'bellwether' and achieves a breakout move first or reverses early. At other times this kind of disconnect simply reflects that the action is the big cap stocks. Besides Nasdaq, we also see this in that the S&P 100 has been tending to lead the broader-based S&P 500 higher. Still, I'm keeping an eye out for any downside reversal action in RUT.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
As discussed in my initial 'bottom line' commentary, the S&P 500 (SPX) went broke out again to the upside in yet another fake out to those expecting a correction and even minor pullback. I was thinking minor pullback last week and SPX did dip to near its rising 21-day average but then broke out above 1350 resistance and now looks quite capable of testing the 1370 high of 2011.
S&P bellwether GE had been stalled and trading sideways over the past month but went to a new 5-week closing high.
I've noted resistance at 1370, then at 1390-1400, at the top end of SPX's uptrend channel. Support is highlighted at 1337, at the intersection of the up trendline; next support is in the low-1300 area.
The 13-day RSI continues to register at or above the level normally seen as 'overbought' and the RSI isn't 'confirming' the move to a new high. This bears watching but a top in a particular time frame can't be predicted from this divergence. The weekly chart RSI isn't yet registering the kind of overbought extremes seen on the run up to the 2011 May peak at 1370. On a weekly chart (not shown) basis resistance is suggested at 1430 currently. Bullish sentiment has risen along with prices but can go higher for a longer period before warning of a reversal.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart continues to maintain technical strength as seen in its bounce this past week from support implied by its up trendline. Friday's strong move with little retracement toward Thursday's lows, broke out above prior recent highs at 612.
611 was a 3+ year high made last May.
I continue to highlight potential next resistance at 620, with stronger technical resistance suggested at the top end of OEX's uptrend price channel currently intersecting at 632.
Implied support continues to be the 21-moving average, suggesting near support at 603 and then around 588-590.
I look for higher levels ahead. If the up trendline is pierced, corrections could fall back to the first or second level of anticipated support. A close below 590 isn't expected here but if it happened, there's potential for a dip back to 580. That's the worst case I see absent an unexpected major crisis especially if it involved a big spike in oil.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) continues bullish in its pattern, especially here confirmed by its move above a line of prior highs around 12900. There wasn't a further huge move of course, but the bullish chart isn't just about how far above prior highs but the fact that the daily range was also well above the prior day's low.
The week ending bullish breakout now suggests very near support at what had been strong resistance at 12900. Next support is 12800, then well under this level in my estimation, at 12500.
Predicting 'resistance' isn't easy or obvious but I've pegged it for the 13100 area, then 13265, at the top end of INDU's broad uptrend channel. I've overlooked so to speak the obvious fact that a big deal will be made for a close above 13000. I just don't see it as a big deal level in terms of potential resistance/selling pressure coming in there, but it should be watched as it has importance as our next big round Dow number.
Dow stocks that looked 'toppy' to me last week that saw more bullish price action this week includes CVX, GE, INTC, JNJ, MCD, MRK, VZ and XOM. These 8 added to the ones still in moderate to strong up trends, especially AXP, BAC, CAT, CSCO, DD, DIS, HD, HPQ, JPM, MSFT, UTX, and WMT. The aforementioned improved 8 and the 12 in strong uptrends are 2/3rds of the Dow. My expectations on a 'bottoms up' approach to the 30 stock charts is higher.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart remains bullish in its pattern, with that latest that the Thursday-Friday advance pushed well above a prior line of resistance at 2932. COMP is now above the midpoint of its broad uptrend channel, which is characteristic of strong moves; more so when the stock or index gets to the top end of a channel like this.
I've written for awhile now on a projected or 'measured' move to the 3000 area for the Composite. Resistance is suggested just over this major milestone level. I anticipate COMP will get there. HOW is another question for COMP as to whether there's a correction coming here between now and a target of 3000. I've highlighted an expected first support at 2900, then at 2840, at the current intersection of COMP's uptrend channel.
I've highlighted an expected first support at 2900, then at 2840, at the current intersection of COMP's uptrend channel.
As noted last week, it was as almost as important to watch how Apple (AAPL) performed around $500 as to watch COMP directly. That continues to be true. It's become a strong bellwether. The stock is looking a little frothy above 500.
The index got quite overbought by daily chart standards judging by the 13-day RSI; it peaked recently at 82. When the 13-day RSI gets into the 80's chances are good that prices will pause enough (sideways moves) or pull back enough to 'throw off' those kinds of overbought extremes.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) continues in its very strong move. NDX did appear to have strong resistance last week when it shot up to the top end of its narrow (and STEEP) uptrend channel. Next anticipated resistance at 2625 is suggested by the upper channel line highlighted on my daily NDX chart.
At 5 percent above the 21-day average, my upper envelope line currently intersects at 2645. This is not 'resistance' in the usual sense of a prior high, a trendline intersection, etc. but moves to this upper trading band in OEX has previously reflected an advance that was unlikely to be sustained much longer, at least without a nominal pullback.
On the subject of potential upside targets, the only longer-term technical 'resistance' I can project currently on the weekly chart (not shown here) comes in starting around 2900. This is a powerful move so I'm thinking 3000 even in terms of upside possibilities.
A key technical support is suggested by the current intersection of NDX's well-defined up trendline, highlighted at 2535 with further support at 2500. If 2500 gave way, next support is another 50 pts down, to the 2450 area.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock of course mirrors the strength of the underlying index. I was most struck with how the VOLUME pattern of QQQ shifted this past week. There was the predictable sharp jump in daily trading volume at midweek when the Q's fell sharply intraday after making a strong new high. This is the pattern we've seen with the stock in this market cycle. UNLIKE a 'regular' (i.e., company) stock, QQQ volume rarely expands on a rally.
So, the jump in trading volume on Thursday and Friday's rebound was striking to me. Weak hands sold Wednesday and then came back in the next day(s) to join the other buyers. I take jumps to well above average trading volume on strong up days in QQQ to suggest that bullish 'sentiment', at least on tech, is broadening out.
Support is suggested at 62.4, at the intersection of QQQ's up trendline; and just a hair's breath off from my chart construction seen below which didn't account for the President's Day Exchange holiday when I calculated a trendline intersection on the normal first day of the trading week. Support in the 62.4 area extends to 62 even; next key support is 61.0
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) is bullish in its pattern but is lagging the other major indexes in the sense that it has failed to extend its gains after a belated rebound from its up trendline.
I didn't highlight near resistance on the chart, at 832. I have noted the fairly major resistance expected around 860, at the top end of the current uptrend price channel.
I don't have a strong opinion about RUT climbing again toward the upper end of the highlighted channel. If the index breaks 823-820 and especially if it falls toward 800, there's potential for more of a retracement of the last rally, such as back to 770, possible to 750.
GOOD TRADING SUCCESS!