THE BOTTOM LINE:
The Dow has slipped below its dominant up trendline, with the S&P looking likely to follow. Nasdaq could hold up better as long as there's such continued strength in Apple (AAPL).
I wrote last week about charting techniques that suggest technical resistance in the area of recent highs in both the big cap S&P 100 (OEX) and the Nasdaq 100 Index (NDX). This area of resistance is highlighted again in two weekly charts; i.e., OEX and the Nasdaq 100 (NDX).
Just as a stock or stock index return to a prior high will often encounter selling pressure (i.e., 'resistance') a prior up trendline, once penetrated, often acts as later resistance. Selling pressures are common when prices return to a key prior broken up trendline, with OEX as a recent example.
The COMBINATION of this occurrence (a return to the prior trendline) along with the extreme seen in the Relative Strength Index or RSI is potent as a pattern pointing to at least a SLOWING of upside momentum.
The weekly chart seen below of the big cap Nasdaq 100 (NDX) is updated to this past week and the red down arrow now shows 2 weeks with highs AT what I take (until 'proven' otherwise) as a strong resistance trendline. In my next chart, resistance is seen to lie at the top end of a broad uptrend price channel; highs of the past two weeks turned lower from this line.
Trendlines tend to 'work' great in terms of predicting coming market moves much of the time (e.g., prices rebounded from a support up trendline, time to buy); however, there's also the occasional instances of a move that jumps the uptrend channel and prices break out above the top end of a former price channel.
The 2800 level is also proving significant since 2800 represents a 50% Fibonacci retracement of the March 2000 to October 2002 bear market decline; from 4816 at the peak to a low of 795! A retracement of one-half of a major prior decline is a potent area for an index or stock to pause in its advance if not start a significant correction.
In terms of NDX's 13-week RSI it continues in the high or 'overbought' zone. In a very strong uptrend, there's a common pattern of a small pullback that pulls down high/overbought RSI readings, only to be followed by another rally that again takes this indicator to an overbought extreme before a more SIZABLE correction occurs.
What the two weekly charts suggest is that the big cap S&P and Nasdaq indexes are in an area of some technical resistance. A substantial pullback or correction can easily happen. On the other hand, with Q1 earnings ahead, recent disappointing job numbers may take a back seat and stock prices stay buoyant awhile longer as traders await earnings. A May peak often is what starts a weaker summer period.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 Index (SPX) remains within its uptrend channel through this past week, but if the Dow is 'leading' here, SPX will also dip below the highlighted up trendline. Dropping to a less steep advance is part of the ebb and flow of most rising trends. An intermediate uptrend is considered in reversal only if prices pierce the prior Closing downswing low.
Just based on the charts, SPX could stage a rally in the area of recent lows, an area of potential support suggested by its up trendline. If instead, we see a Close below this trendline, the likelihood of more sustained weakness grows substantially on a second day close below the trendline.
I've highlighted resistance at 1420; then around 1460.
Support could be found at the trendline (around 1395) but more likely is support around 1375; then at 1340. A couple of closes below 1340 suggests an intermediate downside reversal.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart remains bullish but further weakness will carry OEX to below its up trendline of recent months, indicating the slowing of its advance. Given the jobs numbers it seems likely we'll see at least an early day decline below OEX's up trendline. The key will the Close and then the next day's Close.
Near resistance is in the 645 area, with major resistance around 665-667.
Near support can be assumed at the up trendline at 635 but I'm not counting on support there like more likely buying interest in the 620 area, with support extending to 610.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) which was struggling to hold its up trendline, slipped below it indicating slowing upside momentum. The key line of technical support remains 13000. With earnings watch season ahead with the typical bearish AND bullish surprises, a concerted move to take INDU below 13000 seems less likely.
A Close in the Dow below 13000 would be bearish if more than a 1-2 day affair. Next lower INDU support then looks like 12800, extending to 12735 at the prior intraday low
Dow stocks in still strong rally trends have fallen to 8 (AXP, HD, IBM, INTC, KFT, KO, MCD and PFE), with none of this group stalled at prior tops and the like. The big bull movers are down from the week before when I counted 10-11 Dow stocks as in solid uptrends.
If INDU 'bases' in the 13000 area, there's potential back up to resistance around 13260-13300. I haven't noted a higher resistance but 13600 would be a rally possibly too far.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) remains within its bullish uptrend channel but not by much. Resistance/selling pressure continued this past week on rallies above 3100, especially to around 3130. I assume major resistance begins closer to 3250-3300.
I don't anticipate COMP's up trendline containing the next sell off, so support in the 3050 area doesn't look so solid; but it's the bears to prove by dragging COMP lower. Next support 3000, not so important technically but psychologically. 2900 is the must hold level for the bulls. Below 2900 we have to recognize a downside momentum shift.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index continues within its bullish uptrend channel. Its recent minor dip was from the high end of the channel the index has been in to the low end. If 2740 trendline support gives way, 2700 is next support. 2575 is the key lower support; if NDX pierces this prior low, technically the intermediate trend flips to down.
NDX/tech bellwether AAPL which had a minor downside reversal the prior week ran up to new highs in a very strong week just ended for the stock. Hard to imagine NDX having much of a set back as long as Apple is still surging. I show resistance for AAPL in the $650 area.
Near resistance in the Nas 100 remains 2790-2800. A next leg up above 2800 should encounter technical resistance at the upper trendline, which currently intersects around 2870.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) chart remains bullish as long as QQQ holds the low end of its uptrend channel, suggesting potential trendline support at 66.9. Below the current up trendline, next support looks like 65. I'm not expecting it but a move below 63.2 takes out the prior low and flips the intermediate trend to down; assuming no rebound within a day.
Resistance above 68 has stymied the bulls. I've highlighted resistance at 68.3, then up in the 70 area at the top end of the long-standing uptrend channel for QQQ.
Daily trading volume continues to taper off. The On Balance Volume (OBV) line pointed lower last week as I wrote then, and some weakness developed this past holiday-shortened week. I can envision a decline to 65 easier than see a decisive upside penetration of 68.3 resistance and a move toward 70.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart has turned bearish in terms of its faltering upside momentum; seen on the chart of course as RUT falling below its up trendline. Generally, the Index appears to have built and is building a significant top by its extended sideways move.
Near resistance is 840-845, then 880, extending to 900.
Support is at 800 and then RUT doesn't have far to go to its last downswing low at 785. Below 785, significant technical support begins in the 740 area.
GOOD TRADING SUCCESS!