THE BOTTOM LINE:
Another sideways move that mostly holds gains made on the last upswing raises doubt whether there's much of pullback now, versus after further gains. 700 in the S&P 100 (OEX) and 3000 in the Nasdaq 100 (NDX) remain possible upside objectives before there's much of a significant correction.
The alternative scenario is that prices retrace some but not much of their recent gains; e.g., the S&P 500 pulls back to the 420-415 area only and then rebounds.
I don't often comment on them, but the monthly charts look quite bullish in the S&P and the Dow. The charts of the Nasdaq Composite (COMP) and NDX don't show quite the same upside acceleration but prior monthly highs have been exceeded.
Of course the monthly chart isn't completed until the end of the coming week. Gains for the month can still be pared but this longest-term chart looks quite bullish at this juncture. Such long-term charts aren't usually directly relevant to options traders, but at certain key junctures they should be considered.
One such 'key' juncture is a situation like the current one where the long-term or primary trend is exerting a dominant influence. Since current levels are not all that far from major potential resistances (e.g., 1550 in SPX, 700 in OEX and 3000 in NDX), charts as long-term as monthly ones help bring home the kind of powerful bull move we've been in.
I may not want to continue to hold much in the way of bullish positions due to the risk of a shakeout given high extremes in the overbought/oversold type indicators on the daily charts. However, when I then look at the solid uptrend in the monthly SPX chart it suggests buying minor dips (if anything) rather than get into a significant bearish play. Note: The 9/28 date at top is the END of the (monthly) period being measured with this date being off in the future yet.
SPX is not yet at the kind of 5-month RSI (see above) high extreme that can precede a sizable downside reversal.
Bullish sentiment has fallen from the high (bullish outlook) extremes that often precede downside reversals. This fact suggests the chart interpretation suggesting a high-level consolidation, before yet another rally, can win the day. My CPRATIO indicator is seen with the SPX and COMP charts below.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The SPX chart pattern is again showing a sideways consolidation in the area of the highs hit on the last run up; i.e., in the 1460 area. Based on this pattern, the odds look better than 50/50 for yet another rally. Or rally 'attempt', given the 'overbought' extreme seen with the 13-day Relative Strength Index (RSI). Such (technical) indicator extremes suggest, at a minimum, that SPX is at high-risk for some retracement of the prior run up.
If the Index starts closing much under 1460, this suggests a test of 1440 support; lower technical support implied by the up trendline is in the 1410 area.
Immediate overhead resistance is in the 1466 area, with next resistance suggested in the 1485 area, at the current intersection of the upper trend channel boundary. Next resistance is 1500. Major resistance begins around 1550.
INDICATORS: The 13-day Relative Strength Index (RSI) seen above at 70 is still quite high but this alone isn't definite or necessarily predictive of any significant pullback.
My bullish/bearish sentiment indicator has fallen in the past week, suggesting that my call to put ratio is again reflecting a cautious bullish outlook. Overbought extremes in this indicator tend to precede significant corrective pullbacks, but we're not seeing this situation currently with my CPRATIO indicator.
S&P 100 (OEX) INDEX; DAILY CHART c
The OEX chart remains bullish. Although there's been a week that has seen a sideways move only, the consolidation here has been mostly above the price level achieved on the last advance. This is a bullish pattern usually and suggests that after such a consolidating type (sideways) move, another advance will follow.
I was anticipating last week that technical resistance could be found in the 676-680 area. Minor revision is that near-term resistance is at 675, extending to the upper trendline currently intersecting in the 682 area. 700 is what I see as fairly major resistance in OEX.
Near support is in the 670 area. A Close below 670 suggests potential for a pull back to 660; support then extends to around 653 at the current intersection of OEX's up trendline.
OEX is still at the same RSI extreme suggesting an 'overbought' advance. Caution is suggested in terms of taking on any new positions but in the current market such an RSI extreme doesn't mean more than a yellow caution light as long as the chart pattern stays bullish.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) remains bullish in its pattern, even though the trend has been sideways in the past week. This just pulls down bullish sentiment to a more 'moderate' level and tends to be part of the dynamic that keeps the rally going.
Near INDU resistance is apparent in the 13658 area. Next resistance looks to come in at the upper trend channel boundary currently intersecting in the 13800 area.
I wrote last week that the "odds of a INDU correction by a sideways to lower move has increased...". Sideways is what we got in a consolidation that helps 'throw off' the near-term overbought situation and the Dow looks capable of another rally. If they can't take em down, they'll try to take them up.
The overbought extreme suggested by the 13-day RSI at 70, is a cautionary concern but the price pattern trumps all and it remains bullish. However, if INDU starts falling below near support suggested at 13530, we could be seeing the start of a 200 point or so correction, such as with a pullback to around 13300.
Support implied by the Dow's up trendline comes in at 13200.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart continues to trace out a bullish pattern. Yes, the recent stall has put many traders on the sidelines and buying fewer calls, but this has also been the pattern that we've seen for weeks now; i.e., there's a strong 1-2 day run up or spike higher, followed by a sideways move, followed by another rally.
It's also true that COMP appears to be hitting resistance at the upper boundary of its uptrend price channel. Note the recent COMP high that stopped at this resistance trendline. Near resistance is apparent at 3200 and extends only a bit higher currently, to around 3216. In terms of MAJOR resistance, I don't see it coming in unless COMP got to the 3400 area.
I wrote last week that "I'm thinking correction ahead if prices stall in the 3200 area...". COMP did reverse slightly lower after getting quite near 3200 (to 3197). 3150 looks like near support, with pivotal support at 3100, extending to 3050.
INDICATORS: The 13-day Relative Strength Index (RSI) is still registering at an overbought extreme, same as last week, so the risk of a correction is considered above-average. Still, this market doesn't show any signs of a price reversal and the chart pattern trumps any indicator.
My bullish/bearish sentiment indicator has moderated, which bodes well for some further gains.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index is bullish in its pattern but like the Composite Index is facing slowing upside momentum at the upper (resistance) end of its broad uptrend channel. Resistance implied by this upper channel line currently intersects around 2887-2890.
Next resistance looks like in could come in at 2900-2930. Major resistance as suggested by my work with the weekly NDX chart (not shown) is at 3000.
If NDX starts falling below near support in the 2850 area, next support comes in around 2800; support then extends to 2750.
A key Nasdaq bellwether stock, Apple Computer (AAPL) looks like it could break out above $700 in the coming week; if so, NDX should rally further as well. Where did I find myself at 6 am Friday morning but waiting in line for the iPhone5! A very nice looking phone by the way; lighter, bigger screen and accessing 4G now on the AT&T network.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock's (QQQ) chart also remains bullish, but as with my NDX chart commentary, we also see slowing upside momentum now that QQQ is back at the upper end of its broad multimonth uptrend channel. Near resistance is at the line of recent highs in the 70.4 area; resistance implied by the upper trendline forming the channel comes in at 71.0 currently. I didn't highlight it on the chart but assuming an upside chart breakout above 71, further resistance is suggested at 72.
Very near support is at 70 even with next and pivotal, support at 69.0; next lower support comes in around 67.4-66.7.
Daily trading volume picked up on Thursday's rally then fell off significantly on Friday's pullback. Daily trading volume is here 'confirming' price action; unusual, since the Q's volume pattern tends to go up strongly mostly on declines. This pattern is different than company stocks in uptrends that see strong volume on up days/weeks and volume contraction on pullbacks.
Repeating from last week, NDX and QQQ remain vulnerable to a correction ahead, 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) is mixed in its pattern. RUT is holding more or less around 860, so hasn't given back much of the ground it realized in its last upswing. Its chart would be less 'mixed' if the Index was consistently holding above 860.
Immediate overhead resistance is at 860, extending to 865-868, with next key resistance at the upper trend channel boundary intersecting currently around 880.
Near support is 840, extending to around 835. Next key support comes in at 820, extending to trendline support at 812.
GOOD TRADING SUCCESS!