THE BOTTOM LINE:
The major Stock Indexes have reached short to intermediate-term targets at or near the top of their uptrend price channels. The charts plus overbought RSI extremes suggest potential for a pause or pullback.
Last week I was anticipating the S&P 500 (SPX) could hit the top end of its uptrend channel around 1460. SPX got to 1474 and closed at 1465. The recent up leg appears to have taken the various indices to at least minor technical resistances implied by the upper channel lines seen with the various daily charts below. The probability of another significant up leg is lower than the odds of partial retracement of the last run up.
A correction ahead could be a sideways consolidation type move, pullback or drift lower that will 'throw off' the recent overbought condition. Guard profits won on the strong rally of recent weeks.
Bullish sentiment has grown strongly in the past week and this reading also suggests significant risk of a pause or pullback.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The SPX chart pattern showing last week was of a bullish high level consolidation (a bull flag) just under 1440, suggesting a pause-only before a move higher. This outcome was realized on Thursday and Friday.
The end of the week brought some profit taking selling and this may continue now that SPX has hit an area of technical resistance at the upper end of the uptrend channel highlighted below. Key near resistance is suggested at 1468-1480. Should the Index push above 1475, next SPX resistance is in the 1500 area.
Near support is 1440, extending to 1430 with major support at 1400 currently.
The odds of a correction has grown now that SPX is again at the top end of its multiweek uptrend channel. Note the history of pullbacks after moves to the top of the channel. The same pattern doesn't have to repeat of course but don't bet much in the way of existing profits against this familiar (pullback) pattern.
INDICATORS: The 13-day Relative Strength Index (RSI) seen above at 75 is as high as we'll typically see without a pause or pullback.
My bullish/bearish sentiment indicator has climbed sharply with the most recent rally and any further climb in the CPRATIO line puts the risk of a future shakeout as fairly high.
S&P 100 (OEX) INDEX; DAILY CHART
The OEX chart saw bullish follow through action as was suggested by the sharp prior run up, the shallow correction and short pause (a bull flag) before there was a second up leg that carried to the 676 area and the top end of OEX's broad uptrend channel.
I anticipate near technical resistance now for the 676-680 area. Above 680 however, I don't project any significant resistance until the key 700 level.
I odds of a pullback have grown but a sideways move can be a result rather than much of a decline. Near support is seen in the 660 area, extending to trendline support around 650.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) remains bullish in its pattern as a strong up leg propelled INDU well above prior highs in the 13300 area. I had suggested last week next resistance coming in around 13600. There was some profit taking selling on the first move above this level and I've highlighted 13600 again but now as immediate/near resistance, with 13750 possibly keeping a lid on a further rally.
Support is suggested at 13300, extending then to the up trendline currently intersecting around 13160.
The odds of a INDU correction by a sideways to lower move has increased now that the Average has joined the S&P at an 'overbought' extreme in terms of the 13-day RSI. Looking at such indicators isn't the whole story however.
Looking at the 30 individual charts, 11 are in strong uptrends (CVX, DIS, GE, HD, IBM, KO, PFE, PG, TRV, WMT, XOM) and another 8 are in bottoming patterns or recovery retracements (AA, BAC, CAT, CSCO, DD, JPM, MCD, UTX). With approximately 2/3rds of the 30 capable of some further upside, there's room for the Dow to move still higher based on the currently weekly chart trends.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
Last week I had my upper channel line constructed on the Nasdaq Composite (COMP) chart such that I was anticipating resistance around 3145. Redrawing the upper end of what looks like the most appropriate uptrend channel THIS week, brings the intersection of this line, and potential technical resistance, at 3200. next resistance then could come in at 3250.
I'm thinking correction ahead if prices stall in the 3200 area or start falling back under 3150 or next lower support around 3100.
The upper channel line in a broad uptrend channel is not considered a major resistance but a very common pattern is for a pullback developing after prices hit the top/resistance line.
Near support now is bumped up to the 3100 area, with support extending to the 3050 area.
INDICATORS: The 13-day Relative Strength Index (RSI) seen above at 73 is as high as we'll typically see without a pause or pullback in COMP.
My bullish/bearish sentiment indicator has climbed sharply with the most recent rally and any further climb in the CPRATIO line puts the risk of a future pullback as fairly high in terms of contrary opinion dynamics.
NASDAQ 100 (NDX); DAILY CHART:
A slight redraw of NDX's broad uptrend channel suggests that the Nasdaq 100 may be hitting technical resistance around 2875 rather than the 2840 I suggested last week; next resistance above 2875 extends to 2900.
3000, a level not highlighted on my NDX chart here is seen as a major longer-term resistance. I think NDX can reach 3000 at some point but a question is how that unfolds such as if there's a pullback first to the 2800-2750 support area before a next up leg develops.
Near support is at 2800, extending to 2750. A Close below 2750, not reversed (back to the upside) the next day, would suggest key trendline support at 2700 gets tested.
Bellwether NDX stock, Apple Computer (AAPL) had gotten close to 700 on its latest weekly Close and offers a related chart to watch relative to the Nas 100. A couple of daily Closes above 700 in AAPL would suggest that NDX could break out above the top end of ITS uptrend channel.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock's (QQQ) chart also remains quite bullish but the most recent up leg has finally put the Q's at the upper (resistance) end of its broad uptrend channel suggesting a vulnerability to a corrective pullback. Potential resistance comes in at 70.6 according to my highlighted red down arrow below. Next resistance may next be found around 71.4.
Near support is suggested at 68.4-68.0, with support extending to 67.4-67.5.
Daily trading volume picked up from Wednesday on this past week and the On Balance Volume (OBV) line also turned up in the week's second half, which was bullish for volume.
As with all the indexes, NDX and QQQ are vulnerable to a correction here, ranging from a sideways move to more of an actual retracement of the last run up.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart got into second gear after consolidating around 840 in bull flag pattern that suggested or 'predicted' another up leg to follow. Now, RUT is nearing the upper end of its broad uptrend channel and suggesting potential technical resistance around 873; above 873-875, 900 looms as a potential major resistance.
Near support is in the 840 area, with next key chart support coming in at 820-825.
The Russell small to mid-cap stock group hasn't shown major strength relative to the S&P and Nasdaq but it has had a nice move within its 'predictable' broad uptrend price channel. RUT has been mostly a follower relative to the strongest market sectors. If RUT appears to top out at 868-880, risk to reward in playing the Index for its downside potential looks favorable.
RUT is also the most 'overbought' index in terms of its 13-day Relative Strength Index/RSI.
GOOD TRADING SUCCESS!