THE BOTTOM LINE:
The Market hasn't hit new 12-month highs in any of the major stock indexes but all have gone to new highs for the advance dating from June lows. However, with SPX, OEX and the Composite hitting overbought readings on a 2-week basis the odds of a further big up leg isn't high.
In terms of Dow theory, something I haven't visited in awhile, the Dow Industrials (INDU) only needs a weekly close above 13232 (from Friday's 13207) to 'confirm' INDU's major uptrend. However, the key confirmation looked for with the TWO Dow Averages in tandem is if/when the Dow Transportation Average (TRAN) also pierces its prior weekly closing high which is far away. TRAN closed this past week at 5063 versus its prior weekly Closing high at 5548. The Transports would have to gain 9.6% to achieve a confirmation of the overall Market uptrend and the gain year-to-date in the S&P isn't yet much over 9%.
There's been a nice run up from the bottom as finally reflected in a bit more of an uptick in my bullish trader sentiment indicator into Tuesday. As can be seen with the S&P 500 (SPX) and Nasdaq Composite (COMP) charts, my CPRATIO line isn't yet at any kind of 'overbought' extreme. This is in fact part of the technical dynamic in the Market climbing a 'wall of worry'. In a contrary opinion sense it's a bullish plus. This dynamic isn't likely enough to cause the Market to go to new 12-month highs. It should take further news related to economic growth to do that.
Bottom line, anything further you gain on the upside in index calls or other bullish strategies is a 'gift' looking out 1-2 weeks. I don't bet on gifts so much. Meanwhile the odds of a downside correction or at least a sideways trend, looks better than 50/50. This is not to say that the charts are not currently bullish. However, normal probabilities for a further sustained advance versus a pullback, isn't stacked in the bulls favor.
A couple of our Subscribers asked me to continue to include each week the kind of longer-term hourly chart that I'm able to keep on my (TradeStation) charting application. The key thing with the 21-hour RSI on the hourly index charts has for many weeks now has been to look for a short-term trend reversal when and after overbought OR oversold extremes are seen.
Eventually such a simplistic reversal pattern stops 'working' which looked to be true on the S&P 100 (OEX) hourly chart seen below. While we haven't seen a downside reversal in the OEX after it hit its last RSI extreme, we have seen a potentially bearish price/RSI 'non-confirmation' as the 21-hour RSI so far as failed to ALSO go to a new closing high along with prices. The failure for RSI to confirm OEX's new high isn't an automatic 'sell signal and to say that would be too much. However, this kind of price/RSI divergent pattern is seen a lot at at least interim tops, suggesting not overstaying in bullish strategies.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart is bullish in its pattern. While this is true, don't find it likely that SPX will see a move higher than to the 1420-1427 area in the coming 1-2 weeks, which is my mostly unchanged view from when I last wrote a week ago. My view here is largely based on the overbought condition reached by the 13-day RSI and the fact that this past week SPX mostly trended sideways (reflecting the overbought condition) although the Index did manage to hold above 1400.
Near resistance is seen at 1405, the closing SPX high from early-May, with resistance then extending to 1415, the intraday high from that period. Next resistance, also based on a prior earlier Close is highlighted at 1419, extending to the 1422 intraday high and perhaps to the top end of the price channel, which intersects at 1427 currently.
Near support comes in around 1386, extending to the area of the 21-day moving average at 1374. Major support is assumed to lie in the 1353 area, at the lower end SPX's uptrend price channel. A Close below the up trendline turns the chart picture bearish. While we could see a move up the UPPER end of the price channel which intersects in the 1427 area before seeing show-stopper resistance, I'd be surprised if SPX continues that strong.
Bullish sentiment picked into Tuesday, but hasn't increased even though the big cap OEX and NDX indices had good moves. This lack of strong bullish conviction is a mild bullish plus in a contrary opinion sense. The market continues to do better than many if not most pundits expect.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart continues bullish although I'd also note the definite slowing of upside momentum in the same sideways trend as evident with the broader S&P 500.
Once OEX hit the highs of late-March/early-April, the overbought condition suggested by the 13-day Relative Strength Index came into play also in my estimation. If RSI was a neutral 50 instead of an overbought 70, the odds would be better of a move to a decisive upside move to new highs for the year. Still of course a breakout move can happen, especially since OEX managed to Close at a new high relative to its 4-5 day sideways trend. If there is a decisive upside penetration of 646, next technical resistance is suggested in the 656 area, at the top end of OEX's broad uptrend price channel.
In terms of technical support, I've highlighted the 21-day moving average as expected support around 632. Trendline support should come into play around 625. Major support is seen in the 610-615 area.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) Average did of course move to new high last week relative to the uptrend dating from its early-June low. However, this past week has seen INDU mostly churning around in a relative narrow 100 point range, from 13200 to 13100.
I highlighted a key resistance last week as 13200. Creating a bullish week-ending finale, the Dow closed just over 13200. Next key resistance comes in in the 13280 to 13338 price zone. I'm expecting major INDU resistance to come in at the intersection of the Dow's broad uptrend channel at 13475.
I mention above in my 'bottom line' commentary that a weekly Close in the week ahead above 13232 would be a move to a new Closing high on a weekly chart basis, which in turn would 'confirm' the Industrials in a primary uptrend. In turn, a Dow Theory confirmation of this new weekly high in the Industrials by the Dow Transports (TRAN) also climbing to a new high is a long ways off. TRAN would have to climb another 10% to achieve Dow Theory confirmation of the primary or major uptrend.
Near support is up to 12950 judging by the current level of the 21-day moving average. Next key technical support is found in the 12800 area, at the current intersection of INDU's up trendline.
I don't know that there are enough Dow stocks in gear that can propel the Average to decisive new 12-month highs. INDU stocks with mild to moderate upside potential I'd list AA, CAT, CSCO, HD, IBM, JNJ, MCD, MMM, UTX, VZ and XOM. Some of these 11 stocks are in recovery mode or look capable of moving modestly higher in retracements of prior downswings. Still holding mostly strong uptrends are: CVX, DIS, possibly GE, KFT, MRK, PFE, T and WMT. If the aforementioned 7-8 stocks in still-strong uptrends were joined by another 6-7, I'd better see substantial further upside potential in the Dow. Absent that, I'm lukewarm bullish on INDU.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) looks to be in a bullish consolidation above the important 3000 level. Moreover, the pattern looks to be a bullish flag that suggests further upside potential to the 3070-3090 area assuming that Monday-Tuesday sees sustained gains above 3020 or the top end of the recent sideways consolidation formation.
COMP support is up to 2950, with next key support around 2900, at the current intersection of the up trendline.
Working somewhat against a rosy bullish upside scenario is the fact that the Composite hit a recent overbought extreme in the 13-day RSI. The reason I say that this indicator extreme works 'somewhat' against bullish expectations suggested by price action or the chart pattern, is that price action is number one in terms of technical forecasting.
Let me just wrap up COMP by saying that a sustained dip back under 3000 would be the chart action that would suggest that the recent rally had run its course for now. The chart looks bullish otherwise.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index is in a bullish consolidation above 2700 which I had highlighted last week as a key resistance. Very near resistance is at the line of this past week's daily highs is at 2723-2327. Next key chart resistance is in the 2740 area, extending to 2750-2755. Major resistance begins at 2785, the prior high Close in early-April.
One question with NDX becomes whether buying interest is sufficiently strong to propel NDX much higher, especially to above 2750, at the upper resistance line of NDX's broad uptrend channel; especially so given the 'overbought' condition suggested by the 13-day RSI. This is a time that those in bullish positions should be wary of overstaying in calls or in other bullish strategies.
The thing with high RSI extremes is that the risk grows of a correction not that a correction 'has' to happen. A correction 'alert' would sound early in coming week if NDX started falling below 2700, especially on a Closing basis. If so, next support comes in at 2650, with next technical support coming in in the low-2600 area, extending to the dominant up trendline, currently intersecting around 2585.
Nasdaq bellwether Apple Computer (AAPL) has resistance in the coming week at 627-630. A weekly close above this area should be a boost to the big cap Nas 100/NDX. As I wrote last time, a weekly AAPL close above 630 should lend support to NDX. Still, I see the 2740-2750 price zone as being likely tough resistance in NDX in the coming week.
I also wrote last week about the fact that a move above the upper 3% envelope line provides another suggestion of not only that the Index is overbought but gives an idea of the price area where this is happening. The RSI doesn't do this; it rather just suggests that the index or stock is 'overbought' without pointing to a specific price area where this is occurring.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) chart pattern is bullish although this past week's intraday is already touching technical resistance implied by QQQ's upper trend channel boundary. This upper channel line also intersects in the area of the prior Closing daily high from late-March/early-April at 67.25. Resistance then extends to the prior intraday high at 67.6.
Near support is seen at 65.0, with next key support at the Q's up trendline at 63.5.
The very low recent daily volume numbers don't suggest much new buying coming in. The next big volume jump should occur if QQQ starts breakdown below 66 and especially if the NDX tracking stock falls to or below 65/64.6. On Balance Volume or OBV is trending higher, which is the key volume indicator, at least when QQQ is trending higher.
RUSSELL 2000 (RUT); DAILY CHART:
Upside price movement in the Russell 2000 (RUT) this past week while bullish, especially given the move above the key 21-day moving average (note that the daily low at the beginning of the week found support precisely AT the Average), reflects RUT being pulled higher especially by the Nasdaq. RUT's consolidation above 800 suggests that the Index could challenge next resistance in the 810 area. Next important resistance then is seen at 820, extending to 830.
Near support in the Russell 2000 Index is at 790, then at 780. RUT remains within the broad uptrend channel highlighted on the daily chart but I don't envision a move to the upper end of that channel anytime soon. The Index seems most likely to follow the Nasdaq and the rest of the Market gradually higher if the overall uptrend continues of course. If not, RUT may dip below 790 and reach the 780-770 zone again.
I take RUT action to reflect individual investor enthusiasm for stocks and right now it looks lukewarm. You've probably heard of the billions and billions that have flowed out of stocks in the past year with that money largely finding a home in bond funds. Times of doubt and uncertainly find the buy Treasuries theme resurrected, alive and well.
GOOD TRADING SUCCESS!