THE BOTTOM LINE:
The downside looks limited in the major indexes, but upside looks to be as well. This makes it likely for a 'trading range' market ahead that favors options sellers. A range-bound trade for awhile longer technically tends to 'throw off' recent overbought extremes.
Overbought/oversold type indicators are now in a 'neutral' mid-range on a daily chart basis; with weekly such chart oscillators coming down fro extremes. This seems to fit a pattern of a lateral or sideways trend ahead, especially now that we're in a lower volume summer period. This assumes there won't be some dramatic economic deterioration in China or Europe.
I'm assuming that, as the 'lead' index for the overall Market currently, the S&P 500 will continue to hold its up trendline as seen below.
To apply some contrary thinking to mine currently: If we took the Dow chart as the key index, its up trendline support doesn't come in until 250-300 points lower from the Friday Close (15070). The Nasdaq Composite would have daily trendline support 120-125 points lower than its Friday Close (3423).
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) has held its up trendline support twice in recent periods of weakness. Based on the trend channel that SPX has been in, the most favored outlook is to assume that SPX's lower support trendline will continue to highlight slightly rising buying interest. If however trendline support in the low-1600 area gives way, next support looks like 1580 currently. 1540 is major support.
I also assume that the 21-day moving average will continue to 'define' key resistance. As noted on my SPX chart below, a strong and sustained move above this key trading average (currently at 1642) could set the stage for a least a test of next resistance in the 1660 area and back to the 1687 intraday high.
As I note in my initial 'bottom line' comments above, the lower to sideways trend has pulled the RSI back to a neutral midrange reading. Bullish sentiment as dampened also. Both conditions do not suggest another sizable down leg and supports the idea that SPX continues to trend gradually higher and above its up trendline or the low end of its multimonth bullish uptrend channel.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) remains within its broad bullish uptrend price channel. Within this broad channel, the short-term trend was bearish until recently but this has morphed to mixed as the Index trends sideways. The range between its up trendline and resistance implied by the 21-day moving average is a narrow one but could easily go on into next week.
If there's a breakout above 740 and the high end of OEX's recent narrow range, OEX could see 750 resistance tested next and the prior 757 intraday high as well.
If on the bearish side, OEX breaks under 725 or to below its up trendline (and near to its 50-day moving average) the Index drops back to 710 or the low-700 area. I don't see a move, at least not a sustained one, to below 700.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
Enough of the 30 Dow stocks (INDU) are in a corrective mode to suggest that the Dow would be holding up well if prices drifted sideways a while longer and 15000 support remained 'intact'. INDU stocks in corrections include minor bellwether American Express (AXP) which looked quite bullish coming into last week but which broke trendline support this past week.
A move above 15200 and the 21-day moving average, would suggest that the Dow had renewed its bullish trend if this was more than a 1-day affair. Next resistance is at 15500.
15000 as already stated is a pivotal line of support currently. Support at recent lows is also suggested by INDU's 50-day moving average. Technically, a chart aspect of more pivotal importance is whether the Dow holds above its up trendline is 15000 was pierced. Trendline support is currently suggested in the 15750 area. Major support begins at 14500.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) Index has seen buying interest/support on dips into the 3375-3400 zone. The overall price trend is 'mixed' because the near-term trend has seen a sideways to lower drift; still however within broad uptrend channels on a daily and weekly chart basis. COMP could fall to as low as to the 3300 area and only be at the lower support end of its broad bullish uptrend channel highlighted below.
COMP looks temporarily confined between support at the low end of its prior upside gap, and its 50-day moving average at 3375 and resistance implied by the Index's 21-day average. This pegs key near resistance at 3460, extending to 3500 and on up to the 3530 area.
Strong technical support should be found if COMP were to break under 3400-3375 and start a move that carried back to its up trendline intersecting at 3300.
The drop in the RSI and in my bullish 'sentiment' indicator suggests that downside potential is limited. Stay tuned on that!
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) is near-term bearish as prices have fallen from the top 'resistance' end of its broad uptrend price channel highlighted on the NDX daily chart here. Most recently, NDX has been unable to pierce technical resistance implied by its 21-day moving average. Conversely, NDX has found recent support on a dip to its 50-day average.
A potential 'breakout' move up is suggested by a Close above 2985 that went into a following day such a further climb above 3000; next resistance is 3050.
A potential 'breakout' move down is suggested by a decisive downside penetration of the 50-day moving average, currently at 2920. If NDX were to break 2920-2900 support, trendline support is suggested in the 2875 area, at the internal up trendline; the up trendline connecting the MOST number of lows dating from the 2535 November bottom.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 (QQQ) is trading sideways to lower within its broad uptrend channel, making for a mixed overall trendline.
The 50-day average is assumed to be a technical support at 71.5, with support then extending to the up trendline at 71.0-70.9. Major support begins at 70.
Resistance has been seen on a closing basis at the 21-day moving average, currently at 73.3. Anticipated resistance then extends to 74 even.
I'm anticipating that the Nas 100 ETF stock will maintain its longer-range uptrend and stay within its uptrend channel. Absent that, the 'worst case' downside target looks to be 70.
RUSSELL 2000 (RUT); DAILY CHART:
I wrote last week that the "Russell 2000 (RUT) could reach the 1000 area again but climbing above it for long may be tough. I'm not banking on it currently." I'm glad I didn't; 'bank' on it I mean. Resistance/selling pressure continues to be found in the area of the 21-day moving average.
A Close above its 21-day average, without slippage the next day, would suggest that the bullish trend was resuming after 14 trading days of a sideways drift. This lateral/sideways trend does have the effect of 'throwing off' an overbought condition.
Generally, sideways moves after a prior strong advance turn out to be price consolidations ahead of a further advance. This pattern looks like what we're seeing here.
If there is another bearish shoe to drop instead RUT could test support at its 50-day average (currently at 960), extending to trendline support around 950. This is my 'worst case' bearish outlook, for one more dip to, but mostly not below, the aforementioned two technical supports.
GOOD TRADING SUCCESS!