THE BOTTOM LINE:
There were breakouts above some key prior tops (not yet 12-month highs) in the S&P and Nasdaq and the overall but gradual advance continues. The S&P is now up 9% from its early-June bottom and for the year. As a colorful former Merrill Lynch colleague would say: "Hey, 9%, better than a kick in the head!"
There's no particular chart other than the usual daily charts I feature below that is especially striking or telling. Clear cut moves above prior highs are especially apparent in the S&P 500 (SPX), the big-cap S&P 100 (OEX) and the Nasdaq 100 (NDX). The other major indexes are following along with the small to mid-cap Russell 2000 (RUT) just barely maintaining its up trendline. The Nasdaq Composite (COMP) finally poked its head above its March-May-July down trendline, but hasn't yet also cleared a line of prior highs in the 2976 area.
While none of the major indexes had fallen under prior downswing lows, the upside had been lacking in that prior swing highs from early-May hadn't been pierced. OEX finally managed to move to a new closing high above its peak Close of May 1st. Hard to predict if this is a harbinger of the Market making decisive new 12-month highs. When Europe groans again we should better see how much further the current advance will get.
I remain bullish but consider playing the further upside in August to have increasing risk given an approach to overbought readings on an intermediate-term basis. Currently, the market is nearing another short-term overbought condition but isn't there yet. There isn't sufficient bullishness to propel this market to any major extremes yet.
As I've been showing for some weeks now, short-term 21-HOUR indicator extremes have been coinciding with upside or downside price reversals. Buying pullbacks to hourly oversold RSI readings have been profitable but so have several high RSI extremes marked points for profitable short-term bearish plays. The LAST instance of a 21-hour high reading in the 70 area led to less of a pullback than in prior instances of such overbought extremes; e.g., 27 points in SPX from peak to trough.
Of course, maintaining bullish positions from the early-June lows have kept traders on the side of the intermediate uptrend. It's just been slow going and required some longer-term strategies.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
I wrote last week that the S&P 500 "could see a possibly touch to 1400 but a short-term retreat looks 'due'." The retreat came first, a decline to the 1355 area and a touch to the higher and prior up trendline I was working with; the rally toward 1400 came later. Price action was bullish with the move to a new high for the current move.
I don't anticipate a move higher than to the 1420 area in the coming week (or two). It's unlikely SPX will fall below 1360 but the uptrend looks intact even if there's another decline to the low-1340 area again, assuming support develops there.
Near support comes in at 1380, near resistance in the 1400 area, extending to 1420. Yet to come is a challenge to the early-May Closing high around 1406 and an intraday high at 1415. There's potential for SPX to challenge these prior highs or a bit above; e.g., to the 1419 Closing high of early-April.
A Close below 1360 turns the near-term chart picture bearish. Bullish sentiment picked up on Friday with an increase in equities call volume. Another shot higher such as with closes in the 1400-1420 area would result finally in a likely 'overbought' Relative Strength Index (RSI) extreme. Such a move doesn't mean a short 'signal' but there is the danger of a double top that could dominate near-term. I don't like situations where the Market is so captive to events outside the U.S. It's hard enough to figure what the US Fed will do. With the ECB, furgetabotit!
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart was bullish coming into this past week and more so by Friday. I didn't think (last week) that OEX would pierce prior Closing highs at 638 or 645. I could see the danger of another pullback, in this case to support implied by the 21-day moving average. And of course OEX did then go on to close above its May 1 638 Closing high. If any index was going to surmount May highs, it would likely be the big cap S&P 100.
Money managers go with the mainstream biggest stocks when there's such uncertainty as we've had as to how much U.S. growth we'd see. Better than expected employment figures surprised the Market. As much as I DON'T lie awake thinking about such things, I thought better job numbers could come again but I'm a believer in probabilities. Spring growth, summer slowdown, time for a change.
Potential resistance looks like 643, extending to 645-646 or perhaps to 650. I assess major resistance as beginning around 680. I wouldn't take this as an objective just yet. The overall uptrend since the June low in the 580 area is impressive, even with whippy 2-sided price swings. On the other hand, an approach to a high for the year to date, especially accompanied by an overbought RSI, carries high risk for corrective action.
After any new highs or even from the area of Friday's closing level at 640, OEX could be vulnerable to a pullback to the 626-620 support area. Next key lower support has to be assumed as at the prior intraday lows at 616 to 609.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) Average is bullish in its pattern but there's also a cluster of prior highs in the 13100 area that INDU needs to overcome to suggest a next up leg. Next resistance above the very near-term 13100 level looks like 13200, extending to 13280-13300.
I wrote last time that a "bullish chart is well maintained if there is a pullback to around 12950, with subsequent lows mostly above it." Pretty much this was the price action with an intraday low at 12800, followed by a Close at 12878 but a next day close well above that near 13100.
I've highlighted near support at 12800, then at the current intersection of the up trendline at 12725. 12600 is next support.
It's still mostly the same Dow stocks driving the Average higher; especially the following 11: CVX, DIS, GE, HD, KFT, KO, MRK, PFE, T, VZ, and WMT. As long as most other Dow stocks are marking time and not falling forever like HPQ, a strong 10-11 of the INDU will drive the Average higher. More solidly bullish would be 15 very strong Dow stocks and 5 drifting higher. Still, the 11 mentioned could take INDU to the 13300 region. Stay tuned on that!
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
Last week I wrote about the Nasdaq Composite (COMP) being at a 'crossroads' in terms of its chart. I was seeing what would likely be tough resistance at COMP's well-defined down trendline. In a bullish plus COMP rallied above this down trendline but a stronger 'breakout' move would come next if the Index pierces the line of prior highs in the 2976 area; resistance also extends to the prior intraday high at 2988 and then most definitely at the important 3000 level.
A Close above 3000 that was mostly maintained in subsequent days would be a strong bullish development and suggest another up leg that could carry to the 3060 to 3085 price zone, perhaps to a challenge of 3100.
They used to talk about the 'dogs of the Dow' when there were a few that were seriously lagging the rest of the Dow Average. We could coin a new term and say that there are too many 'dogs of the Composite' these days. The big cap NDX is definitely where the action is these days.
Near support is suggested at 2950, then at 2880, extending to 2850. A Close below 2850, certainly one not reversed quickly the subsequent day(s) would turn the chart bearish.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index remains bullish and has gone into a bullish 'overdrive' so to speak with its decisive upside penetration of its line of prior highs in the 2660 area. Look for 2660 to form an initial support if this recent breakout move in NDX is a valid one. Next resistance for NDX looks like 2700, extending to 2725 or a bit higher such to the 2750 area.
Nasdaq bellwether Apple Computer (AAPL) has been struggling to break out above recent congestion and has resistance at 627-630. A weekly AAPL close above 630 would likely mean that NDX was in a next up leg.
I wrote last week that the "key to a new up leg is the ability for NDX to pierce its line of prior highs at 2660." I'd still say the same about next key resistance then coming in around 2700. The 2700 area is currently at my upper 3 percent envelope line; i.e., a line that 'floats' 3% above a centered 21-day moving average. A move to or much above this upper envelope line suggests that an index is extended well above its mean, which I represent as the 21-day average in the major indexes. This is especially so in a market like this that's been having numerous wide-swinging moves both up and down.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) broke out above a line of resistance at 65.2, action which tends to 'confirm' the dominant uptrend. Very near support is suggested at this same level, 65.2, as resistance once penetrated is presumed to 'become' subsequent support. Next lower support comes in at 64, with trendline support suggested at 63.2 currently.
I estimate overhead resistance at 66.2, extending to 67 at the upper channel boundary. Volume remains on the low side but volume on QQQ advances doesn't tend to expand as is the typical case with an individual company stock that is rallying.
I see upside as somewhat limited near-term, perhaps to 67 or a bit higher such as to a challenge of the 67.2 May Closing high.
RUSSELL 2000 (RUT); DAILY CHART:
It's again the this week that the Russell 2000 (RUT) barely remains within its broad uptrend channel. This is the picture even with the strong rally with the other major indexes. RUT still appears to be finding resistance at its 21-day moving average. Immediate resistance is therefore suggested at 790, then at 800. RUT would do very well to rally to the 810 area, where I've highlighted resistance on my RUT daily chart below. Major resistance begins around 820.
There was one dip to below the uptrend price channel I've constructed on Thursday. Because the Index regained its up trendline so quickly, this trendline still marks key near support at 775 with next lower support coming around 767, extending to 760.
I noted last week that if technical support at 775-770 gave way, 750 would become a possible lower target. I'd say that's still true if RUT dipped under 775 for more than a day, but 760 would become my 'maximum' current downside objective at least near-term.
GOOD TRADING SUCCESS!