THE BOTTOM LINE:
Sometimes the S&P and Nasdaq go separate ways for a time. Past cycles suggest that the lagging market more often holds the other one back rather than the strong segment necessarily pulling the other up.
That said, the S&P and Dow look like they could go a bit higher but are nearing an overbought condition and are due for a correction. This is borne out by the approach of the S&P 500 (SPX) to potential resistance at the high end of its uptrend channel which also would hit an important psychological milestone at 1500. A pause if not a pullback is a risk ahead, even with the reprieve of a debt ceiling impasse inducing market chaos at least for the next 3 months apparently.
As to the Nasdaq, I don't see the Many holding up the Few here, meaning the multitude of smaller Nasdaq companies, reflected in COMP, offsetting the lag in some key big cap tech stocks such as Intel (INTC) and especially Nas 100 (NDX) bellwether Apple Computer (AAPL). In taking another close look at AAPL's weekly chart and looking again at the optimal placement of its long-term uptrend line, AAPL's major trend only starts to look in trouble on a weekly close below 488; the stock is hanging in so to speak at $500 so far.
The Dow Industrials (INDU) and Dow Transports (TRAN) are looking good on a major trend basis and both Averages have gone to new weekly Closing highs and thereby given 'confirmation' of a primary up trend in the Market. TRAN hasn't gone to a new weekly closing high since early-July of 2011.
Rating the technical outlook: near-term risk of a sideways to lower dip that would 'throw-off' the overbought condition, which includes increasing bullish market sentiment. Longer-term, the market looks headed higher and the bull market is intact. Prior SPX highs in the 1550-1576 area dating from the massive 2000-2007 double top could be exceeded as part of the current move; one dating from the March 2009 low.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P chart continues in a bullish pattern. The bull flag that formed in early-January (1/2-1/8) had the 'predictable' outcome once the top of the 'flag' was penetrated; namely another strong spurt higher. This important pattern, which includes bullish AND bearish flag formations warrants a description with examples in my next Trader's Corner columns which I've slotted for Sunday and Monday (a market holiday of course for MLK day).
There are 2-3 technical aspects to point out increasing risk for the bulls near-term:
1.) SPX is approaching potential resistance at the top end of its uptrend channel, especially at the psychologically and numerically important 1500 level.
2.) The approaching overbought condition suggested by the 13-day Relative Strength Index or RSI indicator.
3.) The spikes showing up in my measure of bullish/bearish trader sentiment which suggest another 'type' of overbought condition suggested when daily equities' options call volume starts nearing twice that of the daily put volume. Such readings can go on for a while but usually they indicate that stock prices are getting overheated and vulnerable to a correction, even if mostly sideways for a time.
Near support is suggested at 1460-1450, with next support around 1430, at the low end of the highlighted uptrend channel.
I've highlighted resistance at the upper channel line, in the 1495-1500 area. I don't have higher targets on a near-term basis; on a longer-term basis, 1550-1575 looks like it could be tested. We don't see big TRIPLE tops all that much in the major indexes and a rally failure in the 1550-1575 area would set that up. This could happen of course, but it would be somewhat surprising to me if this year saw another major top in this area.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is bullish in the same way that the larger SPX pattern is. There is also the same approach to potential resistance at OEX's upper channel line, per my notations of possible resistance in the 674-677 area in the coming week; a shorter 4-day trading week.
I suggested last week that the best part of the current move is probably behind us, at least before a correction sets in even if that's just a sideways move. Volatility has fallen sharply since late-December and we're no longer seeing call premiums expand.
OEX has also reached a 'fully' overbought condition in terms of the RSI model, which can go still-higher of course, but warns of a correction risk. We can't rule out either the possibility that OEX forms a double top, at least for a time as some of the January new-year buying slows down.
Resistance is suggested at 674-677, then probably on an approach to 690-700. Support is in the 660 area, than comes in around 650-647.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
Last week I was seeing the Dow 30 (INDU) as heading toward a test of a 'next' technical resistance at the "upper end of the price channel that the Average has traced out in recent weeks suggesting key near resistance at 13600-13650"; Exactamundo! Sometimes the chart patterns are quite prescient.
I pointed out last week also that there were a good number of Dow 'laggards' that were having minor oversold bounces (even HPQ!) and others that continued in very strong uptrends; e.g., CSCO, CVX, DIS, HD, JNJ, KFT, MMM, PFE, TRV and XOM.
While INDU has gone to a new Closing weekly high for this move and relative to the September-October highs, there is some technical resistance suggested by INDU's upper channel line and the basis on which I note pivotal resistance at 13685-13720.
INDU looks 'due' for a correction and I rate the likelihood of a further strong and sustained thrust above 13700 as somewhat lower than a pullback to support at 13500; or, a fall back toward the 21-day average, currently intersecting at 13345. Beyond the near-term INDU looks capable of again testing major resistance in the 14000-15000 price zone.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite continues to have bullish price action at it climbed further above 3100 as it could be headed toward resistance around 3150-3170. 'Ultimate' near technical resistance comes in at 3185-3200, as I've highlighted at the top end of COMP's bullish uptrend channel.
Near support is seen around 3085, extending to the 3050 area. Major support is expected at 3000 but COMP maintains a bullish chart as long as the Index doesn't start closing below 2950.
The odds of a correction, even if that's a sideways 'time' correction, grows as the Index gets nearer to the prior fall highs in the 3177-3195 area. These highs correspond to potential resistance that also is implied by the top end of the uptrend channel. Most key is the fact of prior highs. Failure to move through this prior top sets up the possibility of a double top, at least for a time. Longer-term, COMP could advance to the 3500 area sometime this year.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) index remains in a bullish pattern but looks to be stalled for now, witness the line of resistance that's developed around 2750. Assuming a break out above this near resistance, key resistances then come in at the top end of NDX's uptrend channel which, in the coming week, intersects at 2803-2815.
The other obvious resistance is implied by the prior (fall, 2012) cluster of highs in the 2860-2880 area. It seems unlikely that NDX is going to work much higher than the 2800 area, if that, at least near-term. Over the coming weeks/months, the trajectory seen with NDX's long-term weekly chart (not shown) suggests potential up to the 3000 area.
Near support comes in around 2700, extending to 2670. Major support begins at 2600 and the prior (down) swing low.
I mentioned in my initial 'bottom line' comments that Apple Computer (AAPL) bears watching as a key NDX bellwether and that it is holding weekly chart support to date in the $500 on a closing basis. A weekly close below 488 breaks below AAPL's long-term up trendline and would very likely be part and parcel of weakness in NDX.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) has the same bullish pattern as the underlying NDX with the same pattern of a near-term 'line' of resistance that's developed in the 67.3 area; the only recent exception was a brief recent advance to near 67.5.
If QQQ can achieve a decisive upside penetration of 67.3, next key technical resistance is suggested at the top end of the Q's broad uptrend channel where I've highlighted potential resistance at 68.6-68.9. Ultimately, the most pivotal chart resistance is implied by QQQ's September top in the 70.4-70.6 area.
Near support comes in around 66.2 in my estimation, with support extending down to around 65.3, the end of the (coming) week's intersection of QQQ's up trendline. Major support begins in the 64 area.
Volume has been relatively low as the stock has been churning around and going sideways. I don't expect a sizable jump in daily trading volume unless there's a move below 66.2-66. If we saw such a drop, the prior upside gap might get 'filled in' by a decline to as low as 65.3, which is also support implied by the intersecting trendline as noted already.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) Index continues in a strong bullish pattern, as highlighted by RUT's fairly steep uptrend channel. RUT has continued to climb within this steep channel. Meanwhile the Index has climbed to a higher overbought extreme in terms of its 13-day RSI.
The best further upside potential I see anytime soon for the Russell 2000 is to 900 or a bit higher and I've specifically noted resistance at the upper channel line in the 908-915 area.
Key support as implied by the current low end of RUT's uptrend channel is highlighted at 866-873.
RUT is out far ahead of the rest of the market and this isn't likely to go on and on. It's a matter of time rather than if RUT experiences a correction of even a fibonacci 38% of the Index's advance from its mid-November low; a 38% retracement which would be back to 843 currently is an example of what would be a fairly 'minimal' correction as an example.
GOOD TRADING SUCCESS!