THE BOTTOM LINE:
The S&P has basically traded sideways in the past two weeks, the Dow for three weeks while Nasdaq slowed its rate of gain, mirroring Apple. More of a downside correction could be next. A sideways move or simply slowing upside momentum is a common phenomena in such an overbought market. I'm not suggesting that this market won't see another up leg develop as I expect it will. A next advance just looks more likely after a sideways to lower correction.
There are some ways to gauge technical resistance coming in around current levels as is highlighted on my first two charts, one of the big cap S&P 100 (OEX) and the other of the large cap Nasdaq 100 (NDX). There is usually 1-2 of the major stock indexes where chart resistance can be pointed to on the charts. It's rare to have ALL the indexes mirroring each other and tracing out identical technical pattern.
Just as a return to a prior high will often act as resistance, a prior up trendline, once penetrated, often acts as resistance once prices return to it; or, more accurately, to an extension of that line out into the future. OEX provides an example of this type pattern.
The weekly OEX chart is shown again this week in my initial comments by way of seeing that recent slowing upside momentum occurs where someone using technical analysis could anticipate it developing. What was support, in this case a support up trendline, once penetrated, 'became' subsequent resistance. The index could 1.) slowly trend upward hugging this resistance trendline, 2.) break out above this line and resume its long-term upward momentum or 3.) fall back from resistance implied by the below trendline.
Given the overbought condition suggested by the 8-week RSI, the less likely outcome currently is for a near-term breakout move above the resistance trendline. The prospect of slowing upside momentum OR a pullback will be of concern to holders of index call options.
The weekly chart for the big cap Nasdaq 100 (NDX) is shown next and the highlighted resistance or potential resistance is provided by another type of trendline, that of the upper line of NDX's uptrend (price) channel. Resistance around the recent weekly high is highlighted by my red down arrow.
The 2800 level is also significant as it represents a 50% Fibonacci retracement of the March 2000 to October 2002 bear market decline when NDX retreated from an all-time high of 4816 to a low of 795. Retracements of one-half of the prior decline are potent areas for an index or a stock to pause or experience a pullback.
Needless to say NDX is also quite 'overbought' as evident from the 13-week Relative Strength Index or RSI. There's a common pattern of a small retreat and then another rally that again takes the RSI to an overbought extreme before there's a bigger correction.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 Index (SPX) remains bullish in its pattern as long as it continues to travel upward within its uptrend price channel. Key support is at SPX's up trendline, currently intersecting at 1385. Next chart support is implied by the prior 1340 low.
Near resistance is suggested by recent highs in the 1420 area, with next resistance suggested by the current intersection of the upper trend channel boundary.
The RSI has trended sideways for some time now in the area of what is typically an 'overbought' reading. However, the weekly chart is more relevant here and SPX reflects the same overbought extreme as seen with the OEX weekly chart in my initial ('bottom line') comments above.
All in all the odds of a deeper correction is on the high side but no key support has been pierced and SPX has been in very strong uptrend, especially so as the bank stocks continue to make some upside progress. The S&P Bank stock index (BIX) has recently touched a key resistance at 162; an index to also keep an eye on. The most bearish SPX development would be a close below its prior downswing lows (at 1340). Bullish sentiment has moderated significantly as prices have moved sideways in the past two weeks, which has pulled my indicator back into a neutral range.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart remains bullish. As with big brother SPX, OEX maintains a bullish pattern as long as the index keeps tracking higher within its broad uptrend channel. I was looking for a 'drift' lower and we have seen that after the strong showing at the beginning of this past week. Still, there's no technical 'damage' in that.
If there was a decisive downside penetration of the OEX's up trendline, currently intersecting in the 632 area, along with the 21-day moving average, it would be an alert for possible further selling pressures to come. Next lower OEX support is at 620, with even more key support in the 610 area at the prior downswing low.
Near resistance is in the 645 area, with next technical resistance suggested at the upper trend channel boundary just over 660.
I wrote last week that I didn't see "OEX taking off again in another up leg above 640..." and that was the case although the index got briefly above 640. Overbought extremes registering in indicators like the Relative Strength Index tend to work against big new advances at some point, but this has been a strong market nevertheless as seen by the lack of any steep pullbacks in many weeks; not since the early-Dec low in fact.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) looks to be struggling to hold its up trendline but it has so far, so I have to rate this pattern as still bullish.
I indicated last week that strong uptrends in the Dow were seen with AXP, BAC, DIS, HD, IBM, INTC, KFT, KO, MSFT, and PFE. However of those 10, Disney (DIS) could be topping out again in the 44.3 area and KFT is pulling back. But I'd also note BAC as improving nicely, JPM as being quite strong (but also nearing prior tops in the 46.7-47.5 area), and KO as on fire. Bottom line, we still have 10 or so very strong movers in INDU.
There are 14 Dow stocks that are trading at or under prior highs or are just chopping around and not doing much; only HPQ continues to be very weak. This line up explains the fact that INDU is only just managing to hold to its prior rate of upside momentum; i.e., it's up trendline.
Stay tuned on the Dow having another up leg or not as would be seen if the Average makes another run to the middle to upper reaches of its broad uptrend channel. Near resistance comes in around 13266; I've noted 13520, at the upper (3%) envelope line as potential resistance which is more like an 'extreme' in terms of the percentage distance above the 21-day average.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart remains bullish although COMP has been experiencing resistance/increased selling pressure above 3100-3110; although the index got to 3134 at its recent intraday peak. COMP remains within the middle of its broad uptrend channel. Near resistance is at 3130-3134 currently, and then comes in around 32-3218.
Near support is suggested at the current intersection of COMP's uptrend channel at 3010, extending to 3000. Just as the 3000 level was an important milestone high, once it was decisively pierced; it should now be viewed as a key support. 2900 should offer fairly major support if 3000 gives way substantially.
COMP continues to hold up in the upper reaches of the RSI on a 13-day basis, not uncommon in a very strong uptrend such as we've had. On a long-term chart basis, it's not so common that we see a similar very prolonged period where the Relative Strength Index hangs up at the upper end of its scale on a 13-week basis.
Bullish/bearish sentiment is 'neutral' at this point. I don't think we've seen the end of the recent choppy period and anticipate a possible test of support around the 21-day moving average, perhaps to include COMP's up trendline.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index continues to be in a dominant and steep uptrend. Its recent choppier trend owes much to the fact that Apple Computer (AAPL) has reached what I've projected for awhile as a key resistance in the 600 to 650 price zone.
NDX/tech bellwether AAPL experienced a downside reversal this past week as it ran up to a decisive new high for the current advance but ended the week barely over its prior weekly close. I noted last week that at this juncture I'd rather be holding the NDX tracking stock (QQQ) than NDX calls as a more conservative unleveraged play; assuming you want to be participating for remaining upside potential.
The risk of a correction grows but I can't say that there's a bearish chart pattern that's developed although Apple looks to maybe finally have hit at least an interim top. It's more the overbought nature of the tech-heavy Nas 100, which is even more evident if you go back to NDX weekly chart in my initial comments above. The Index is also at potential tough resistance implied by NDX (at 2800) having retraced a Fibonacci 50% of the major NDX decline of March 2000 to October 2002.
I've highlighted support at NDX's up trendline, currently intersecting around 2700, with support extending to 2650. Near resistance is at 2800, then in the 2850 area, at the upper end of NDX's uptrend channel.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) chart remains bullish with the caveat that the stock is nearing potential resistance at the upper end of its well-defined uptrend channel. Stay tuned on that! Near resistance is suggested at recent highs in the 68.5 area, with resistance extending to 69.2 at the upper trend channel boundary.
Support is suggested in the 66.3 area, at the lower trend channel boundary, with fairly major support seen in the 64 area, extending to the prior low at 63.2.
Daily trading volume as been tapering off and the On Balance Volume (OBV) line is pointed lower. Nothing another rally wouldn't correct but I'm cautious about the potential for a correction in the near-term. As a longer-term hold, my target based on a weekly chart (not shown) analysis isn't currently higher than to 69.5-70.0
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) remains within its broad uptrend channel which maintains a bullish chart. Prior to this past week RUT was stuck in 'rut' and struggled to pierce its 833 line of resistance. The Index managed to run to 850 but closed back under 833 again. At least resistance expanded upward, so we're now looking at an 833-850 resistance zone; 850 is the key near resistance, with longer range resistance suggested at 890-900.
Near support is at RUT's up trendline, currently intersecting at 817. Key support is suggested in the 785 area, at RUT's prior (down) swing low.
I don't have an opinion on RUT per se; it won't likely do as well as the Nasdaq key indices on another rally and could perform worst on another decline. The small to mid-cap index isn't in as much favor as the bigger tech and mainstream S&P stocks. It would likely take more buying by individual investors to propel RUT much higher. Big fund managers are sticking more to S&P and Nasdaq stocks. Moreover, RUT is near its major prior double top (June '07 & May of 2011) in the 855 area.
GOOD TRADING SUCCESS!