THE BOTTOM LINE:
While the recent breakout above congestion looked like continued bullish technical/chart action, a line of resistance at 13300 in the Dow, 1433-1438 in SPX, 3030 in the Composite and 2700 in the Nas 100 deflected the recent advance.
There are also pivotal chart supports to watch ahead: at Dow 13000, 1390 in SPX, COMP 2930-2950 and 2605-2600 in NDX. Closes below these levels, at least for more than a day, would suggest the Market is vulnerable to further selling/downside pressures.
It seemed for a while that fiscal 'cliff' or not, the Market was forecasting saving action by political agreement. As time goes on and possible action seems stalled, so also is upside momentum. It's rare that the Market reacts forcefully to political tides but this time political gridlock creates the threat of recession which threatens future earnings. And what drives stocks is earnings, earnings, earnings. It's rare that political wrangling produces a threat to the economy falling off a CLIFF. There's that WORD again!
Watch the key supports mentioned for clues to how the Market reads the chance that our economy stalls and goes downhill from there.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart action looks bullish as long as the Index can stay above its down trendline that it pierced recently, as seen on my chart highlights.
Key support is in the 1400-1405 area and I'm bullish until this area is pierced on the downside. A 1-day Close below 1400 wouldn't wreck bullish possibilities but a more than a day below this area would suggest upside momentum was waning.
If there was a retreat to 1380 but this support held up, SPX would look like it was marking time until there was a breakthrough (or not) of the political impasse. If SPX settled into a 1380-1430 trading range the chart reflects an 'indecision' pattern. The long-term trend remains up but an economy thrown into recession could derail any long-term bullish technical outlook.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart remains bullish above 640, but neutral to resuming a bearish outlook on a retreat to below 635-632.
Near resistance is at 655, which was a recent high and where a recover rally also reversed lower in early-November.
Not surprisingly, the chart picture is now reflecting the indecision and uncertainty coming out of Washington. I'm using the 640 level as the key near support and 650-655 as key near resistance. I'm most inclined to be out of any major bet on near-term direction.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) Average hit resistance again in the 13300-13330 area and has retreated. INDU remains in a bullish recovery mode but is at risk of slowing momentum which would be signaled technically if the Dow pierces its up trendline of recent weeks and its 50-day moving average as seen on the chart.
Next lower support and pivotal in terms of maintaining upside momentum is at 13000. If 13000 gave way next support is at 12800. If there was a retreat to this area but not lower, INDU would be best described as in a broad sideways trading range.
Near resistance is at 13300-13330, extending to 13400. Major resistance begins at 13600.
A decline to 13000 arrests the recent upside momentum but does maintain an overall bullish chart. Trading below 13000 suggests a sideways trend at best.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart has fallen to support implied by its 21-day moving average. COMP maintains bullish potential by holding above this key trading average or by finding support at 2956-2950. The next best bullish case for COMP is for support/buying interest to come in at or above 2925-2926; if this area is penetrated next support looks like 2860. If COMP retraced this much of its prior gain the Index would look like it was at best in a broad sideways trading range.
Pivotal COMP resistance is at 3030, at its recent and earlier (early-November) intraday highs. Resistance then extends to 3050. Fairly major resistance begins at 3100.
COMP's 13-day Relative Strength Index (RSI) has fallen back to a 'neutral' reading below 50. With Friday's weakness, trader sentiment has fallen to a somewhat more bearish outlook for stocks. Not surprising with Nasdaq bellwether Apple Computer (AAPL) under selling pressure and falling to a new recent Closing low below prior technical support in the 520 area; AAPL Friday close was 509.8.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index was in a bullish upside recovery mode but has reversed lower from is now a well-defined line of resistance at 2700. A key to the ability for NDX to break out again to the upside is its ability (or not) to Close above 2700 and to rally from there. Next resistance comes in at 2750.
Near support is assumed to lie under current levels in the (upside) chart 2612-2605 'gap' area, extending to the previously penetrated down trendline at 2582; next technical support is at 2540.
I rate NDX as best keeping further upside potential alive by holding at or above 2600.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) has a mixed pattern. On one hand QQQ has had a substantial rebound from an oversold condition at its mid-November low at 61.3, piercing its down trendline in the process. However, the Q's then formed a minor double top at 66.3 and retreated to under support implied by the 50 and 21-day moving averages. Next support is at 64.0, extending to 63.6.
A Close below 64 that wasn't reversed the next day would suggest that momentum was again declining. Next lower chart support is suggested at 62.5, the bottom end of an earlier price gap.
Near and pivotal, resistance is at 66.3, with fairly major resistance then beginning in the 68 area.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart remains bullish in its pattern. Upside momentum has slowed, along with the rest of the major indexes, but RUT hasn't retraced much to date of its advance from the Index's double bottom low in the 765 area.
RUT could pull back to the 713-715 (upside) gap area but hold at this implied support. Next support is at 800-798. A Close below this area for more than a day would suggest that momentum had again tipped to the downside.
Resistance is highlighted at the 837 recent intraday high and extends to 842. Major resistance begins around 850 on up to the all-time weekly RUT high at 868.
GOOD TRADING SUCCESS!