Something I hear most often is that this continued advance is on very LOW VOLUME. In technical analysis terms the lack of much volume confirmation
is worth noting but doesn't necessarily make the rally about to fail or 'suspect'. What we do see frequently in terms of 'confirming' type events is that the rally keeps going until bullish sentiment
hits an extreme in my CPRATIO indicator; this indicator is shown always both with the SPX and COMP daily charts further on.
As has been my practice in recent weeks, my first chart is the longer-term hourly index chart that best demonstrates technical aspects of the overall market, especially one showing whether any major index is overbought or oversold on a 21-hour basis. In the case of the S&P 500 (SPX) chart, SPX remains within its broad uptrend channel and has not yet quite reached an overbought extreme in the 21-hour RSI.
The upper and lower channel (trend) lines suggest potential resistance coming in around 1440 and support around 1370 currently in SPX. This isn't a prediction for a rise to or pullback to either level. These highlights do give an idea of extremes that might be hit if SPX continues to maintain its same trajectory or rate of upside momentum. As to SPX being 'overbought' on an hourly chart basis, it is only NEAR such an extreme. The recent sideways trend 'threw off' or mitigated what could have been just such an overbought extreme.
The S&P and Nasdaq indices are registering a definite overbought extreme on a 2/2+ week basis as will be seen with the 13-day RSI on those charts further on.
What we have NOT seen as an EXTREME is bullish trader sentiment on even a single-day basis at least as I measure it on a daily basis. My sentiment indicator, CPRATIO, is shown per usual with the S&P 500 and Nas Composite charts. Regarding any sentiment 'extremes' (i.e., extreme bullishness or extreme bearishness), we're far from such a reading on my particular indicator, which is seen with the SPX and COMP charts. There is a tendency for the market to keep going without much of a correction UNTIL 1-5 days after there is such an extreme; i.e., when CPRATIO reaches the 1.9 to 2.1 zone or above on 1-day basis and/or sometimes on a 5-day moving average basis.
One more special-feature chart here. The red hot big cap Nasdaq 100 (NDX) index has broken out above the top (nominal resistance) end of what I had been showing as its broad daily chart uptrend channel. NDX is however still well within its WEEKLY chart uptrend channel as seen next. While this recent move may be a low-volume short squeeze, it doesn't mean they won't/can't keep this rally going. NDX should hit major technical resistance if it reaches the pivotal 3000 level.
Last but not least, can we put to bed the simplistic slogan to "sell in May and go Away"? Yeah, and miss a 10% gain! As one famous market pundit used to say about the stock market: "If it's obvious, it's obviously wrong!" It's a way of saying that the market doesn't act the same way all the time.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart remains not only bullish but the advance accelerated this past week. It now appears that SPX can advance to beyond the 1420-1427 price zone that I had been forecasting as a 'maximum' upside for awhile. I'm expanding my upside resistance zone to 1435-1440; 1335 is the current intersection of SPX's upper trend channel boundary.
Near support begins in the 1400 area, extending to 1385 at SPX's 21-day moving average. Major support begins around 1360.
In terms of the 13-day Relative Strength Index or RSI, the S&P is
now at an overbought extreme. This indicator has gotten to somewhat higher levels than seen currently before the Index has had a substantial correction. Just a bit of a sideways move also will cause the RSI to back off from its current high levels which tends to moderate the extreme RSI.
Judging by the hourly SPX chart pattern and the 21-hour Relative Strength Index, which I show above in my initial 'bottom line' comments, the Index can move still higher before I'd say that we're in the highest-risk area of a correction.
An interesting fact is that when the S&P has shown the kind of rally strength seen in recent months, quarterly GDP has done better than the consensus of economist's forecasts. Since Charles Dow's time, how the major market indexes do has been known to be a superior forecaster of how well the economy does.
My bullish sentiment indicator jumped on Friday but the level of 'belief' in this rally is still not at a high extreme. Which, perversely suggests that this rally probably has more to go, although is certainly vulnerable to a short-term correction.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart continues bullish and upside momentum took a spurt on Thursday, on the back of bellwether Cisco's better than expected earnings. Technically, the last spurt to the upside was 'predicted' by the prior formation of a bullish flag pattern.
In terms of the top end of OEX's broad uptrend channel, I've noted key resistance as starting in the 660 area and extending to 665 over the coming week. In terms of the OEX weekly chart (not shown), I'd peg major resistance at 685 currently.
Near support looks like 642, extending to the 637 area. Major support begins around 630.
As with the S&P 500, OEX is in what I would call a 'fully' overbought zone. I generally put overbought/oversold in italics or in quotes because this concept (of 'overbought' or 'oversold') is always a relative term. An index or a stock that's considered at such extremes can always get to GREATER extremes before there's even a minor reversal. A very high or very low RSI does suggest that the risk of a trend reversal is GROWING no doubt. Do you get into a counter-trend options strategy just based on such extremes? I don't, but I do pay attention to the growing risk of a correction or trend reversal.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) Average, which is lagging the broader S&P indexes, is only now approaching its prior highs in the 13280-13338 area. I noted last week that I didn't see enough Dow stocks in strong uptrends to propel the Average to new 12-month highs. I would shift CSCO to one of the 30 that went beyond hiving only mild to moderate upside potential. HD did better than the chart would have suggested also as it went to a decisive new high above a prior cluster of highs. MMM also came on strong this past week, accelerating its advance.
All in all, CSCO, HD and MMM join CVX, DIS, KFT, MRK, PFE, T and WMT in fairly strong uptrends; although, WMT looked 'toppy' given its latest weekly performance. Based on my bottoms up approach to analyzing the 30 individual charts, the Dow looks like it is capable of continuing to work higher but the Dow Index calls would be the first ones I'd abandon when the market gets into a lull or downdraft again. As I noted last week "I'm lukewarm bullish on INDU."
INDU has resistance in the 13280-13340 area, then around 13400 although I didn't highlight this level with my usual red down arrow. Next resistance then looks like 13550, at the high end of INDU's uptrend channel.
As the Dow has lagged the S&P and Nasdaq it's also not at the kind of 'overbought' RSI extremes as seen with these other key indexes.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
I noted last week the bullish flag that was traced out with the Nasdaq Composite (COMP), that suggested further upside potential to the 3070-3090 area As suggested by this bullish chart pattern, COMP got into the anticipated price zone, closing at 3076. Immediate overhead resistance lies at 3085 and extends to the 3100 area.
A next zone of resistance implied by prior 12-month highs is at 3122-3134. If COMP does move above 3100 near-term it will break out above the high end of the uptrend channel I've been working with. 3100, if reached in the coming week, definitely might slow down or 'arrest' COMP's advance, at least short-term.
In terms of support, prior resistance at 3000 is the level to watch as once exceeded prior resistance tends to 'become' subsequent support. This is my sort of mantra of support becoming resistance and vice versa. This principle does tend to work a lot. Next lower support is most likely at the 21-day moving average. If the average gives way at least for more than a day, 2900 would be next support, extending to 2850.
Like the S&P, COMP is at an overbought extreme but can get even more extreme before a correction sets in. Corrections eventually follow from such extremes but this indicator says little about HOW SOON. As noted with the S&P 500, bullish sentiment may build up more than has been seen to date. In a market like this, I'd be surprised to see any sizable pullback BEFORE traders get MORE bullish than is evident currently.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index broke out above what I was seeing as key resistance at 2750. This, because the index pierced the upper end of the broad daily chart uptrend channel I was working with. As I sometimes say, trendlines are potent but expectations based on patterns and principles that normally 'work' don't work ALL the time. In my second chart above, which is of the NDX weekly (part of my initial 'bottom line' comments), we see a different picture with NDX's uptrend channel. There are channels that can be traced out on daily and weekly charts that sometimes, if not often, differ.
In terms of the upper end of the weekly chart uptrend channel, NDX resistance might not come into play before 3000. Those even big round numbers are important as was the case when the Composite ran up above 3000 recently; this event foreshadowed a sharp further COMP advance.
There is potential further resistance at prior NDX 12-month highs at 2785-2795. Above 2800 I can estimate resistance as coming in around 2850 but with not with more proven methods I usually can work with. Better perhaps to focus on NDX bellwether Apple Computer which has potential chart/technical resistance around 675-677; AAPL closed Friday at 648.
Near support looks like 2750, next support at 2700, then at 2670. Major support begins around 2600.
As with the other major indexes, (except INDU), NDX is at an 'overbought' extreme. That knowledge AND subway fare will get you on the Lexington Ave Express going to Wall Street. We know there's higher risk than usual of a shakeout; we don't know just WHEN this will occur. Market tops are tricky to 'time' based on the way prices 'hang' for some time and get more and more extended in terms of overbought/oversold indicators like the RSI.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) chart pattern is bullish iof course like the underlying NDX. Almost contrary to how volume typically works with price action in QQQ, there was a minor volume expansion on the rally into Thursday which is a rare volume confirmation; I suspect short-covering volume however. On Balance Volume (OBV) continued to rise as expected.
Near resistance looks like 68.5, at the prior 12-month intraday high, then at 69 and finally at 70.
Near support is now up to 67.5, then down at 66.4, extending to 64 even.
RUSSELL 2000 (RUT); DAILY CHART:
the Russell 2000 (RUT) is bullish and still lagging the rest of the market significantly. 820 is still key near resistance, then at 830. Above 830, technical resistance based on the upper channel line on my daily chart intersects around 855. Between 830 and 855, resistance based on prior weekly highs (not seen on this daily chart) is at 843-848.
Near support is at 810, then comes in at 800-795, extending to around 786. Major support begins in the 770 area.
GOOD TRADING SUCCESS!