THE BOTTOM LINE:
This past week's run up didn't owe as much to tech stocks, although IBM and AAPL had substantial gains. Rather, we saw an S&P led rally given the strength in the banks and some others with sizable financial arms; e.g., BAC, JPM, AXP and GE in terms of Dow stocks. The S&P Bank sector Index (BIX) was up a whooping 7% for the week.
All the major indexes got back into their prior uptrend channels by making it above some big key numbers; namely, 1400 in SPX, 13000-13050 in the Dow and 3000 in COMP.
As I pointed out last week, the Nasdaq Composite Index (COMP) and the Russell 2000 (RUT) had recent (3/6) correction lows AT their bullish up trendline which suggested a possible low for all. Bullish price action in those 2 indexes weren't quite enough to keep me near-term bullish as I thought their might be another pullback toward or to early-March lows. I was interpreting this based on the common pattern of a second downswing in many 'normal' bull market corrections. WRONG! And, as we know, this Market is not exactly normal. Instead, the market shot up this past week in another strong bull advance.
A key technical 'element' in how I analyze the market was missing coming into last week; namely, trader sentiment wasn't all that bullish. It got to more of an 'overbought' bullish 'extreme' by the end of the week and my call to put ratio indicator may rise some more. However, given the overbought conditions of all the major indexes, I'm not going to chase any rallies in terms of buying into them. There could be an early-week correction, not down by a lot, then another rebound into the end of the week. Typically, there are 2-3 weeks of high bullish expectations (high bullish 'sentiment') before the market will have a deeper correction; like the one I was anticipating could develop when I wrote last weekend.
Last week I couldn't measure any clear cut chart resistance but after this latest advance, calculations I've done suggest near-term resistance around 1430 in SPX, 642 in OEX, 13300 in INDU, 3080 in the Composite, and 2765 in NDX (I should mention potential resistance in AAPL around 640-642) and; well, RUT is stalled yet again at a key line of prior highs at 833. IF the Russell 2000 is again an early-warning bellwether index for the rest of the market, its price action will be something to keep an eye on.
Bottom line, the trend is up strongly and don't bet against it but if you're not positioned on the bullish side already, let the other players fight it out for remaining gains. This rally is getting 'old' in the scheme of things. In a strong first Quarter, there's usually a correction by mid-March to early-April, ahead of another rally into mid to late-May typically.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
Contrary to my expectations a week ago that the S&P 500 (SPX) might have started an intermediate correction (e.g., 2-3 weeks), the market took off again rising (as it often does) concurrent with still-low to moderate bullish expectations among traders. The investment 'public' haven't made net increases in equities relative to fixed-income; at least beyond 401k type investments. Everyone is so leery of a deepening European recession and skyrocketing gas prices that stocks have seemed quite risky to most. But as they say, the market climbs a 'wall of worry'.
Instead of any further weakness, near resistance at 1375 got taken out on the way to SPX's climb to above 1400. The last weekly close above 1400 was the end of May, 2008 and that was just a slight rebound on the Index's way DOWN from the 1550 area.
In terms of the relatively narrow but steep uptrend channel that SPX has been in since late-December as highlighted on my SPX chart, potential resistance comes in at 1430, extending to 1450. One projection of possible resistance coming via short-term (1430) and long-term charts (1450).
Near, and key, support for SPX is at 1400, then around 1370. I can't say that two days below the 21-day moving average suggests deeper weakness to come but another sinking spell below this key trading average wouldn't get me buying calls.
It's your party at this point for those riding this trend higher. I'd like to buy a good sized dip if scares come up. Wait until someone noteworthy questions earnings growth projections for Apple in terms of justifying its current P/E!
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is bullish and the Index has again climbed into the track it was on before this recent dip in terms of its uptrend channel. I don't know what further bullish news can keep pushing OEX higher at the same steep rate of price expansion. This last dip is visual evidence that at some point stocks mostly only rise so long at as fast a pace as the big-cap S&P 100 has been in since the November bottom.
If this recent rally again has 'legs', prices will next rise toward the middle to upper end of OEX's uptrend channel with the upper 'resistance' end of the channel intersecting around 656.
Support is evident in the 620 area, although trendline support is above this, at 635-636 currently. I also have noted very near resistance at 642. An easy move above 640-642 suggest potential for a further next spurt higher.
OEX, like the other major indexes, is overbought on an hourly, daily and weekly chart basis.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) chart continues to be in a strongly bullish pattern, especially with this last sharp rebound above 13000. My up trendline has been re-drawn for the Average to connect the last two daily lows to the November low.
Trendline support is seen at 12930; next support at the prior 12735 intraday low.
**UPDATE: A later look (3/18) at the Dow daily chart suggests a different interpretation than my initial one which went out as part of the 3/17 Option Investor e-mail.
I initially wrote: "One measurement of potential resistance suggests that the Dow is in that area already, around 13300; however, there's room to roam given INDU moving above 13300."
A revised daily chart is inserted than the one originally seen in the 3/17/12 OI market letter. I've come to a different interpretation for the chart. A rising wedge pattern is still seen, but more clearly traced out with better 'definition' to the upper trendline.
With the below re-drawn chart, the pattern now suggests that INDU has broken out ABOVE the upper resistance trendline, 'negating' the rising bearish wedge pattern. Given the concept of resistance once penetrated 'becoming' support on subsequent pullbacks, this chart pegs INDU support for the 13140 area, which would represent a pullback to the prior resistance trendline.
My key number in terms of potential resistance based on weekly chart (not shown here)analysis comes at 13500-13540.
In terms of the worrisome to Dow Theorists fact that the Dow Transports (TRAN) have NOT followed the Industrials (INDU) to a similar new closing weekly high above 5563; TRAN closed this past week at 5351, so it still has a ways to go if its to 'confirm' the continuation of the bull market. However, TRAN also had a strong gain this past week.
JPM, BAC plus GE and AXP led the Dow higher; helped by continued or renewed strength in HD, IBM, INTC, and MSFT. Now there's 8 stocks to watch for clues to the next move!
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart stayed bullish in the broadest
Technical sense in that its last pullback low rebounded from right where the bulls would want it to, at the intersection of its well-defined up trendline.
I see some possible resistance coming in next in the 3080 area, but then not until 3150 above that. 3000 will be considered 'the' support to watch, but more important technically is where the up trendline suggests support and that current intersection is at 2950; support then should extend to 2900. A close under 2900 would be a minor game changer and bearish chart wise.
The current advance is getting 'old' in terms of length of time without more than a shallow pullback. Moreover, the RSI is not confirming this latest move to a new high, while still up in its 'typical' overbought zone. That knowledge in this kind of market doesn't suggest making a bearish play (respect the trend!) but does suggest bulls be careful to protect profits due to the increased probability that enough of a correction will develop to at least push the RSI back to its 'midrange' 50-55 area.
NASDAQ 100 (NDX); DAILY CHART:
As I wrote last week regarding the Nasdaq 100 (NDX), the Index piercing its line of prior highs at 2645-2650 was key to a next move to 2700-2730. A somewhat unusual week as we're not used to seeing the S&P soaring and the big-cap Nasdaq 100 well, just 'following' along. Still, a strong weekly gain again for NDX and its key bellwether, Apple Computer(AAPL).
As suggested by the upper end of the uptrend channel that NDX has been in for many weeks, a potential key technical resistance for NDX comes in around 2765 at the intersection of the upper trend channel; with AAPL, pivotal technical resistance looks like 640-642 currently. If in NDX calls, you're probably keeping a close eye on AAPL and you should.
I didn't highlight very near support at the up trendline, what with the Index being back in its uptrend channel. Near support at the regained up trendline (unnoted below) is at 2680. Technical support is next assumed for the 2650 area, extending to 2630. A close or two below 2600 suggests further downside potential to the low-2500 area.
I noted on the NDX daily chart here that a move to 2800 would be a technical milestone of a 50% retracement of the monster decline in NDX from its March 2000 top to the bear market low of October 2002. A recovery of half of the prior decline could mark a pause in the multimonth advance.
The Nasdaq 100 tracking stock (QQQ) has of course also climbed back into its steep uptrend channel, which keeps the chart in the same bullish rate of ascent as in prior weeks. Still, the recent sell off suggests that this rally is getting stocks to levels that are considered fairly priced and the advance is going to level off at some point. Especially so, in a contrary opinion sense, if bullishness keeps rising the way it did this past week.
Key resistance is at 68-68.1, at the upper trend channel boundary. Intersection of QQQ prices with this upper trendline would suggest that 1.) further price gains will follow that upper trendline higher or 2.) will mark a juncture where QQQ levels off and trends sideways to lower after that.
Near support is a 66.0; with next support in the area of the 21-day moving average, currently at 64.6. 63-63.2 or the area where support developed at the early-March low is a key lower support.
Volume has been decent on the most recent run up. It almost makes me suspicious since the QQQ tracking stock doesn't always follow the bullish volume tendency for regular (company) stocks of volume going UP as prices rise. Seems that this may be another sign of increasing bullish sentiment.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) reversed and rallied from its up trendline, which was bullish action. More bearish is seen by RUT continuing to top out at its now well-defined line of resistance at 833; a real stopper for the past few weeks.
Assuming a decisive upside penetration of the 833 line of resistance, there's potential again for RUT to again reach the upper end of its uptrend channel, where resistance could come into play around 877. I see more potential for another drift toward support than an upside breakout type move.
Key near support is at 800, at the current intersection of the aforementioned up trendline. Next technical support looks like 750.
RUT has the most pronounced bearish price/RSI 'divergence' of any of the major indexes. The first time that RUT was hitting those 833 highs, the RSI was much higher than this most recent instance; suggesting, DECLINING relative strength. Stay tuned on how this plays out ahead! RUT would be my least favorite index calls to be holding here.
GOOD TRADING SUCCESS!