THE BOTTOM LINE:
The Dow Transports (TRAN) went to a new weekly Closing high, topping its July 2011 weekly closing peak and finally 'confirming' the Dow 30 Industrials (INDU) in its new highs since that period. Such action between the two key Dow Averages, here where BOTH Averages have now gotten to new highs, is thought to confirm the primary up trend in terms of Dow Theory.
The recent consolidation near prior week's highs is bullish chart-wise. The S&P 500 (SPX) is showing continued upside momentum and is nearing its prior top, as is the Dow. The Nasdaq Composite (COMP) is within striking distance of its prior highs but the big cap Nas 100 (NDX) is lagging these gains, suggesting that the biggest tech stocks may be seen as fairly valued.
The Russell 2000 (RUT) continues to have the steepest uptrend, dating from its mid-November low. The small to mid-cap RUT sector tends to have a seasonal bump in January and overall in Q1.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P chart is bullish; the Index didn't retrace much of the prior week's spurt higher into its brief sinking spell on Tuesday, which is a bullish sign of more upside to come. After the Index traced out a bull flag pattern, 'true' to a move out of and after a bull flag, saw another spurt higher.
I'm tracking one expected 'pathway' for the S&P to work still higher, by highlighting SPX's current uptrend channel. Suggested resistance implied by the upper channel line comes in at 1485, extending to 1500.
Near support looks to come in around 1450; next support is in the 1420 area, extending to 1400.
I pay attention to times when SPX nears an overbought RSI extreme such as seen above. As this indicator climbs again it suggests increasing risk of a shake out such as stemming from unrealistic bullishness on stocks.
If buyers retreat to the sidelines when stocks get pricey it doesn't take much selling to drive prices down again. And why they say that "bull markets die of their own 'weight'"! On that theme I have to note that no high level of SUSTAINED bullishness has been suggested by my trader sentiment model (CPRATIO).
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is bullish but some near-term technical resistance is implied by the Index's approach to the upper end of the uptrend channel I've highlighted below. If the current upside momentum continues at its recent pace, OEX is poised to start closing above prior highs in the 675 area.
Near support is at 660, then at 650; such a dip would carry the Index back closer to the middle of its bullish uptrend channel. Near resistance begins around 670 to 673, extending to 677-680.
If long don't be wrong during the next correction as the best part of the current move is likely to be behind us. There's still the possibility for a large double top to form which would in turn imply that there's a sizable 'supply' overhang. A good time to exit bullish positions before that happens. If there's a decisive move to new highs and the 13-day RSI hits its typical overbought zone, consider exiting calls as I assume a reaction follows a move to new highs.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
I see the Dow 30 (INDU) as in gear for a move to test a next technical resistance as suggested at the upper end of the price channel that the Average has traced out in recent weeks and suggests key near resistance at 13600-13650.
Near support comes in at 13300, extending to 13200. By the end of the coming week fairly major support is suggested at the lower channel boundary intersecting at 13100 by week's end.
A pullback to the middle of the current uptrend channel is something I think we can anticipate or should not be surprising.
Aside from more minor pullbacks along the way, I continue to think that over time the Dow can get to the 14000 area.
Based on what I see with the 30 individual Dow stocks, enough of the 2012 laggards (the 'dogs of the Dow') that have been out of favor are seeing some buying interest. Just relatively small gains among those that have been correcting or lagging PLUS continued strength in stocks like AXP, CSCO, CVX, DIS, HD, JNJ, KFT, PFE and TRV could be enough to pull INDU to the 14000 area again, which was last seen at the October 2007 top.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite saw a jump through prior technical resistance in the 3050 area, maintaining a strong bullish chart. COMP is of course also nearing its fall peak and a major technical milestone or test ahead.
A decisive upside penetration of the prior highs is bullish but after a spurt above prior highs, sometimes driven mostly by short-covering, there's often profit-taking selling and if looking to take profits consider it on a move to new highs above 3200 and sell on the upswing. If the Index stalls at CURRENT recent highs, the long-term weekly chart (not shown) starts to look like a big Head and Shoulder's top formation.
Besides looking at prior highs if there are ones, another means of indentifying potential technical resistance in a strong uptrend is to see where an upper channel line (if one exists) comes in. Next technical resistance suggested by the upper end of COMP's current uptrend channel is suggested at 3150-3175.
It appears unlikely to me that having come this close to testing the last big top that formed near 3200, that COMP won't hit this level again. Exceeding the prior high looks possible, but we have both a possible technical (the prior top) resistance and a big fundamental unknown with the next round coming up in the ongoing fiscal fight in Congress.
Near support/buying interest should be found in the 3075 to 3050 zone, extending to trendline support at the end of the coming week at 3025.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) index remains in a bullish pattern and could be headed next to the upper end of the below-highlighted upper channel line which also implies potential resistance at 2800-2815. As well of course, there are obvious milestone highs in the 2875 area that marked the September top.
I don't anticipate NDX climbing above pivotal resistance in the 2850 area, such as where 2850 'becomes' a new level of support in a new up leg, without some stumbles before moving well above the September top. As NDX gets toward prior highs, there's potential for increased selling pressures; maybe only enough to carry the market sideways but not much lower. A sideways to only slightly lower move after a strong move higher also fairly quickly 'throws off' an overbought condition. I've mostly regretted not being out of winning positions after the 13-day RSI reaches its 'typical' upper extreme around 70 and the risk of a reversal grows. Tops will tend to see 'overbought' RSI readings for longer periods than will oversold conditions persist.
Near support begins in the 2700 area, extending to the low end of the prior upside gap at 2665. Technical support implied by the low end of NDX's current uptrend channel comes in around 2650.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) looks like it could be headed to a test of potential resistance in the 68 area, extending toward 69 by the end of the coming week. Ultimately the prior top made in the 70-70.5 area seems more likely to get retested than not in my opinion. Whether there's a big move above 70 coming anytime in coming weeks. I can foresee some backing and filling as we approach the deadline to raise our (US) debt ceiling.
Near support is at 66-66.3, extending to the 65 area and the low end the Q's uptrend channel.
Daily trading volume fell off recently as QQQ has gone sideways to higher which I see as a slightly bullish volume/price pattern.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) Index remains in a strong bullish pattern, especially highlighted by RUT's fairly steep uptrend channel.
Potential 'resistance' implied by the upper end of the aforementioned bullish uptrend channel comes in at 894-900. The probability of a correction grows significantly the longer we see RSI readings in its 'overbought' zone. This doesn't mean that RUT can't get to 900.
Near support looks like 860, extending to 852. Next support then looks like it will be found between 830 and 820. Repeating a note from last week: 820 is 'must-hold' support for the bulls if RUT is to maintain a bullish chart.
GOOD TRADING SUCCESS!