THE BOTTOM LINE:
Traders looking for this market to have a steep retracement may face disappointment. Last week, the indexes fell within nominal and 'normal' technical corrections (even the Dow) and then started to rebound.
I mention the Dow 30 (INDU) as it's been the 'weak sister' of the major stock indexes but the Dow rebounded from the low (support) end of its hourly uptrend price channel. I feature INDU's extended hourly chart here; note that INDU also hit a short-term oversold extreme this past week.
In talking about 'nominal' or normal technical pullbacks that remain WITHIN uptrend patterns, the S&P indices (SPX and OEX) rebounded from their 21-day moving averages and the Nasdaq Composite (COMP) and the big cap Nas 100 (NDX) rebounded from levels a bit above support implied by a line of prior highs.
I don't want to suggest that there's NO risk of, for example, a double top (relative to the weekly highs of late-March/early-Apr) in the strong Nasdaq 100 (NDX). SPX and COMP have not pierced and exceeded their highs from then either. Nevertheless, I don't anticipate that the very strong rally we've had dating from the early-June lows is just going to neatly fold here at the 2012 highs. The correction would likely be sharper and more pronounced if this was going to occur. We'll see if this coming week brings a steeper drop in line with that the bears are sure is to follow. I'm not so sure, regardless of European muddles and messes, no Fed action and so on. Stay tuned.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) remains within its broad uptrend channel. The doubt about SPX's continued strength technically is its recent failure to take out its earlier year highs in the 1419-1422 area. On the bullish side, the pullback to date from resistance has been modest and support so far has come when it 'needed' to maintain a bullish chart, in the 1400 area. Next lower technical support then comes in around 1370, at the current intersection of SPX up trendline.
Near resistance is in the 1420 area, with next higher resistance projected around 1440.
The 13-day RSI has fallen to below its 'typical' overbought zone at 65-70 with the recent sideways to lower move, but this indicator isn't at a 'neutral' (or oversold) reading either. Recent rallies have come after the Relative Strength index has fallen to 45-50 midrange readings; this pattern is something to watch for.
My CPRATIO sentiment model has fallen also. This indicator isn't at an 'oversold' bearish extreme but is showing continued caution about the staying power of this rally, which in its way is a mild bullish plus.
Based strictly on price action, Friday's rebound from key support at 1400 is encouraging for the bulls but 1400 'needs' to hold up as support to give much more than mild encouragement; e.g., regarding another attempt to go to new yearly highs.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart found support in the same manner as the S&P 500, as OEX also bounced from its 21-day moving average. Unlike big brother SPX, OEX was already at a new yearly high. Moreover, the pullback and rebound was from the area of the prior 2012 OEX highs in the 642-646 area. Prior resistance, once exceeded, should 'become' subsequent support in a continuing advance.
I'd rate OEX as still in a maximum bullish pattern if support holds at 643-640. The chart would remain overall bullish as long as the support up trendline stayed intact and didn't get pierced. Trendline support currently comes in around 634. (Major support begins at 620 and extends to the 600 area.)
Key overhead resistance is at 652-656. Next projected resistance, at the intersection of the upper channel line, is at 665.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) Average fell briefly below its 21-day moving average but only for a day so far anyway. Key support remains at 13000, at the current intersection of INDU's up trendline. Next significant technical support then comes in at 12800.
Near resistance at 13280 has turned the Dow back from its recent rally attempt; resistance extends from 13280 to the 13340 area. Major resistance implied by the upper trend channel line comes in around 13626 currently.
Keeping the rally alive is bullish, or mostly bullish, action in CSCO, CVX, DIS, HD, KFT, KO, PFE, TRV, WMT and XOM. Further advances in these 10 plus modest rallies in another 8-10 of the Dow 30 could be enough for INDU to mount another challenge to 13300 resistance.
INDU's RSI reading has hit a 'neutral' 50 level which could also help out the bulls here.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The bullish flag traced out previously with the Nasdaq Composite (COMP has seen the upside follow through suggested by this particular bullish pattern. COMP reversed after touching the upper end of its broad uptrend channel at 3100. Resistance at the prior 2012 highs, both Closing and intraday is at 3122 to 3134. It remains to be seen if COMP can pierce this key resistance given that it hit an overbought RSI extreme.
COMP's 13-day Relative Strength Index (RSI) hasn't fallen much below the area considered overbought. This kind of pattern can lead to further weakness as protective profit taking selling sets in. I somehow don't see this rally failing just yet, whether the index hasn't retraced much of its prior advance or not. It's a fake out for the bears if there was an upside penetration ahead of 12-month highs in spite of the recent faltering rally.
Price action is the key here. If 3032-3050 holds up as support we could see COMP test and maybe exceed prior 2012 highs. If not, next support and a key one, is at 3000. A Close below 3000, unless reversed (back to the upside) the next day would suggest a possible retest of support at the up trendline currently intersecting around 2930.
Bullish trader sentiment levels, based on the daily equities call to put volume ratio on the CBOE, have fallen in recent days but I tend to go with the contrarian view that the recent advance may revive and continue a while longer.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index has failed to pierce prior yearly highs in the 2800 area. On the other hand, the recent pullback as been minor so far and NDX has stayed above near support at 2740. Key support is next seen at the 21-day moving average, currently intersecting at 2717. The S&P rebounded from this key trading average but NDX held well above it so far as it shows better relative strength. Tech stocks continue to outpace the more mainstream economy stocks of the S&P.
Near resistance is at 2785-2800. This past week's high touched my 4 per cent upper envelope line which suggests an overbought extreme. Following this upper envelope line into its intersection early in the coming week suggests possible next resistance coming in around 2836.
Near support as I already noted is at 2740, next support in the low-2700 area, with major support beginning at 2650-2625.
NDX's minor recent weakness hasn't pulled the 13-day RSI very far under the 'overbought' 70-75 extreme zone. A question becomes whether NDX drifts sideways to lower such that the RSI at least pulls back to a 'neutral' reading around 50-55; or, of course, NDX could get oversold again. I doubt that because I don't see the Index making a double top for any prolonged period with a deep correction to follow; it could happen, I don't project it based on what I'm seeing currently.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) chart pattern remains bullish, as the recent correction is to date holding support implied by its previously broken upper channel line. The prior bullish breakout to above the upper end of QQQ's uptrend channel suggests that support might now be found at this previous line of resistance. Stay tuned on that because QQQ has failed so far to Close above the line of 2012 resistance at 68.5.
I've noted near support at 67.8 but should also mention expected near technical support as extending down to 67.3. Next lower support comes in at the 21-day moving average, as has been the case recently in the S&P.
Near resistance is at 68.5-68.9. 68.8 was the intraday high of Tuesday, which touched the upper 4% envelope line relative to the 'centered' 21-day moving average. A move to the upper envelope line suggests not only that the NDX tracking stock was overbought but the PRICE at which this was the case.
Daily trading volume ran up some on weakness after the Tuesday rally failure and extended into Wednesday on a minor rebound. This slight daily volume increase was moderate and nothing like what is typically seen in cases of a sharp correction. On Balance Volume (OBV) continues mostly on an upward path, which is a mild bullish plus.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) is lagging the rest of the major indexes but remains in its bullish uptrend channel. 820-827 remains a strong zone of resistance which needs to be overcome at some point to maintain a bullish trend.
There's no bearish tip over while RUT continues to trade above its 21-day moving average. Key support is currently at 800, extending to 790. A Close below 790 that wasn't reversed (back to the upside) the following day would suggest a possible retest of a line of support at 767-764.
Near resistance continues to be seen around 820, extending to the 827-830 area.
The 13-day Relative Strength Index for the Russell continues to slide from the 'overbought' RSI reading at 65 hit on 8/17. It looks plausible to me that technical support, especially at the low end of the highlighted uptrend price channel, will hold up and the RSI not slip below a neutral midrange reading again in the low-50 area before RUT rallies again.
GOOD TRADING SUCCESS!