THE BOTTOM LINE:
The downside risk looks to be greater than upside potential if bullish positions were taken at current levels. Still a plus for higher prices is a tempered bullish outlook among traders. It's been an observation of mine and others that strong secular (occurring over a multiyear period) bull market moves will tend to keep going UNTIL after there's a bullish abandon in a bubble or bubble-like period. Significant dips don't tend to come until there's a prolonged period of strong bullish sentiment and we're not there yet.
The Dow-lead bull move has put INDU at an overbought extreme on a longer-term weekly chart basis and traders may be banking on stocks taking a hit at some point. We're in a higher-risk situation to be sure for new bullish strategies. If you look at the channel (trend) lines, current S&P and Dow levels are closer to technical resistance implied by the TOP end of major index channel lines than lower support trendlines. This is not to say that prices won't just keep moving higher, especially by tracking gradually higher and hugging the upper trend channel line.
Longer-term bullish as noted is that we're NOT seeing more days of higher volume in total daily equity call volume numbers relative to put volumes. There hasn't been such a pattern of prolonged high bullish 'sentiment' relative to a sizable top since March of last year, which was repeated again in September. In each case the S&P 500 fell a 100 plus points after more prolonged bullish 'extreme' highs in my CPRATIO measure of bullish trader sentiment seen with the S&P and Nasdaq charts.
On a purely price basis, rather than on a psychological basis which is what bullish/bearish sentiment attempts to measure, traders should take note of an increasing risk of a shakeout. If there was to be a surprise, an overbought market suggests prices will tend to AT LEAST level off if not fall back to the mean, which is what up trendlines are measuring visually. Pullbacks to the dominant up trendlines is my current 'worst-case' outlook, but with twice the distance back to support as opposed to how far up to chart resistance.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart remains bullish. SPX has had a bullish two consecutive days above major prior highs in the 1550-1555 area and the index continues to track higher within its broad uptrend channel.
Further near-term upside potential, especially given an 'overbought' RSI, looks to be limited to the upper trend channel line currently intersecting in the 1580 area but rising to 1600 over time.
Downside support is seen at 1540, then at 1520 at the current intersection of the lower trend channel line. I don't currently see downside potential as to lower than to the 1500 area.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is bullish in its pattern but some 'technical' resistance isn't far overhead either. 706 to 710 is along the upper trend channel boundary with potential of being a zone of rising resistance.
OEX has been rallying along the upper end of its uptrend channel for some time. It's hard to say how long this pattern will continue. The trend is definitely up. RSI has been at a so-called overbought extreme before with the index price then leveling off, which in turn tends to 'throw off' or moderate an overbought condition. It's a bull market.
Support is suggested in the 690 area, extending to 680-675. As long as the last downswing low isn't pierced, the OEX trend remains up on an intermediate-term basis.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) continues to be the lead index in the current market. Last week I was projecting possible resistance coming in around 14600, but this week projected resistance looks more like 14700 assuming INDU again hits the upper end of INDU broad uptrend channel.
Near support looks like 14400, but major chart support is well under, at 14060.
Dow stocks still leading the charge higher are an impressive list and number; i.e., AXP, BAC, BA, CSCO, CVX, DIS, GE, HD, IBM, JNJ, JPM, KFT, MMM, PFE, PG, TRV, UTX and VZ. Based on a 'bottoms up' approach on the foregoing 18 stocks, INDU looks like it has further upside potential of a couple hundred more points easily. Still, corrections in half the number of the 18 Dow stocks just noted could translate into a pullback of 400 points. New buyers need be beware of pricing yourself 'high'.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) remains bullish in its pattern which is a repeat of what I wrote last week. So, here we are again. Why not still higher? I see upside potential to the 3300 area and downside 'risk' (of a correction) to 3200 support, extending to 3160.
Trader sentiment has been rising occasionally here and there but a 5-day moving average of my CPRATIO model doesn't suggest what I consider to be excessive bullishness; the kind of 'extreme' bullishness where a correction looks close or closer at hand. This facet may be an 'all-clear' on a major top so to speak but not about the potential for a quick dip to the 3200 area and a pivotal line of support currently.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) appears to be in a bullish consolidation, which is implied by prices going sideways after its most recent jump higher. Note that prices haven't fallen back into the upside price 'gap' from early-March.
A sideways move after a sharp run up is generally a bullish consolidation. Recent intraday highs suggests a current line of resistance coming in just over 2800, in the 2811 area. A decisive upside penetration of 2811 would suggest enough upside momentum for NDX to at least test prior highs (from 2012) occurring in the 2860-2880 area.
Key support is at 2780, extending to the 2750 area. Fairly major resistance is seen in the 2860 area, extending to around 2880 currently, then to 2900. 3000 still looks like a longer-term objective.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) has a similar 'line' of resistance as NDX. With the NDX tracking stock, QQQ, key resistance comes in around 68.9-69.0.
If they can't take the stock back down to or lower than 68, there's upside potential for a breakout move above 69 and yet another up leg such as to test the prior 70.5 peak of September of last year (2012).
On Balance Volume or OBV is mostly the only volume measure worth following with QQQ and OBV is falling lately. Could be we'll see the stock dip to between 68 and 67.3. Generally, I favor buying dips back to the up trendline in the stock. From the low-67 area, upside potential looks to be up to 70-70.5 over coming weeks.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) Index remains bullish as RUT continues to trend strongly higher within its well-defined uptrend price channel. Potential technical resistance in the 972 area is currently implied by the top end of RUT's uptrend channel.
Near support is seen in the 940 area, with lower trendline support suggested around 920. 900 looks to offer fairly major support at this juncture.
GOOD TRADING SUCCESS!