THE BOTTOM LINE:
I realized by mid-week that the narrow-range sideways trading range (which followed a very strong multimonth advance) was a bullish consolidation and the next move could be substantially higher. Moreover, there had been only a minor pullback from recent highs which defined the low end of the sideways move. The overall pattern suggested that the next move would be up and there would NOT be much of a pullback. Again, a sideways move after a prolonged run up, is assumed to be a consolidation before the dominant trend resumes.
I wrote a brief Trader's Corner's piece on what I was now seeing as a definite bullish pattern which you can view HERE.
The Thursday-Friday outcome that followed my Wednesday article is now seen in my first two hourly charts.
I wrote last week in THIS column that the "major indexes look vulnerable to lower prices over the next 2-3 weeks..." Well, WRONG on that but by the Close on Wednesday, given the lack of any downside follow-through, I reinterpreted (in my 7/31 Trader's Corner) my prior assessment that there would be much downside risk. Well, there's always risk; this is the stock market, but I was by mid-week seeing mostly upside potential.
I'll say something in general about the various index charts, which is a pattern not often seen in the major indexes. You can look for a 'cup with handle' pattern on the daily charts that follow. This pattern owes its name and bullish interpretation to William J. O'Neil in his book, How to Make Money in Stocks.
The 'appearance' is the daily trading bars tracing out a pattern that look like a cup profile with the 'handle' on the right. It is considered by O'Neil and others as a short-term bullish consolidation. After the lip of the cup is pierced, which in SPX is at 1700, a rise of another 10 to 20% can follow. This much of a further rise might not occur in a broad based index, as opposed to an individual stock, but it gives you an idea of there being potential for substantial further upside.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) is bullish as SPX broke out above pivotal resistance at 1700. The breakout point was/is 1700 and this area is approximately the mid-point of SPX's broad uptrend price channel. What often follows a rise above the midpoint of the channel a move toward the UPPER end of the channel. Both the upper daily and weekly (not shown) channel lines currently in intersect around 1770-1780 currently. I view this area as the current 'maximum' upside potential for SPX.
Traders should also be quite aware that SPX and the other major indexes for the most part, are back into overbought extremes in terms of the RSI. Volatility is down substantially from the last low but overbought markets can get volatile and have sharp shakeouts on bearish news.
Near support is seen at 1680, extending to 1650. Pivotal resistance is at 1750, extending to 1770.
In terms of my bullish/bearish trader sentiment indicator (CPRATIO) seen above, there's not yet the kind of 'bullish', throw caution to the wind, attitude; which, in a contrary opinion perspective is bullish.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is back into both an intermediate AND short-term bullish pattern.
I wrote last week that "If OEX starts trading back above 760 objectives to 780-785 are possible." I've noted next potential resistance in OEX in the 770 area, with resistance implied by the current intersection of the upper channel line at 790. The weekly chart channel (not shown) suggests the same technical resistance area.
Near support looks like 753-755, extending to the 740 area.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) chart Closed finally above near resistance at 15600 making for a bullish pattern on both a short-term and intermediate-term basis. The long-term trend has been VERY bullish for some time as I've been noting for weeks now. Take a look at monthly charts for a change of pace!
I noted last week that "A strong move above 15600 is needed to suggest the next price swing for INDU is a thrust toward the upper end of its channel. Giving some confidence in that direction are bullish charts for Dow components BAC, BA, CSCO, CVX, DD, GE, HD, JNJ, JPM, MMM, UTX and XOM." I'd add to the bullish or mostly bullish Dow charts DIS, HPQ (yes, one of the dogs of the Dow is barking!), KFT, PFE, PG and WMT.
Next technical resistance looks like it comes in around 15770-15800; with next resistance up toward the current intersection of the upper channel line, at 16200. The weekly chart channel (not shown) suggests intersection of the upper channel resistance closer to 16500.
Key technical support is seen at 15400, extending to 15300.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
I wrote last week about the Nasdaq Composite (COMP) Index looking 'mixed' with a flat-lined sideways trend. I had the thought that 3500 looked more 'likely' than 3700. I look about to be very WRONG on that front as COMP closed within easy striking distance of 3700. The key technical event was a decisive upside penetration of the 'break-out' point at the prior 3625 high. The Composite had formed the same rounded 'cup with handle' bullish pattern as seen with the S&P and described briefly in my initial 'bottom line' comments.
I did note last week that "The simplest rule of thumb is to trade next in the direction of a next breakout move above/below its (3577-3625) price range." Trading the breakout UP is looking ok. I would caution that the rate of change on the upside is getting quite steep. An upside move going 'vertical' for an extended period has also been associated with sharp corrections that tend to follow a straight-up parabolic move.
COMP support is bumped up to 3580, with next support suggested in the 3500 area.
Near resistance is calculated at 3700, with next key resistance coming in a full 100 points higher at 3800. The weekly chart (not shown) uptrend channel line comes in around 3870 currently and may mark the start of more major technical resistance.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart is now consistent as being bullish both short, intermediate and long-term. NDX achieved a decisive and bullish upside penetration of its prior 3036-3090 trading range to put its short-term trend solid back on a bullish track.
NDX is back to an 'overbought' RSI reading but the chart pattern looks like a runaway move and NDX could spurt next to the 3200 area. I've noted resistance there and more resistance at 3300. NDX's long-term weekly chart uptrend channel (not shown) suggests technical resistance next coming in around 3340.
Support is highlighted at 3030, extending to 3000. I thought last week, and what a difference three more days of market action makes, that "a dip to 3000 is more likely than a strong move to new highs just yet." However, once the upper end of the aforementioned narrow trading range was pierced, it was apparent that a new up leg was coming FIRST and foremost.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 (QQQ) chart picture is bullish like the NDX as the ETF stock shot up above 76 and almost reached 77. Given how far QQQ rallied, it's remarkable that so few participated, given the low trading volume seen for the past 5 trading sessions. Spikes in daily trading volume in QQQ tends to only come on sell offs, not generally on strong advances, unlike rallies in company shares typically.
QQQ looks to have potential to 78 on this current advance, although if the rally continues unabated, the rate of price gain gets quite steep. If they go on long enough, steep vertical advances are quite vulnerable to sharp pullbacks. Major resistance starts at 80. Long-term weekly charts (not shown) suggest major resistance coming in around 82 currently.
Key near support is at 74.5, then at 73.5.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart went from a short-term 'mixed' picture to solidly bullish. Near support is bumped up to 1040 this week, with support then extending to the 1020 area.
The only technical 'resistance' that I can currently measure on a daily chart basis is at the upper channel line, currently intersecting in the 1085 area. The same upper channel line, only on a longer-term weekly chart basis (not shown), comes in around 1120 currently.
Given the recent upside acceleration in RUT, I see the index headed still higher. A sell off below 1040 would suggest a correction was underway if more than single-day affair.
GOOD TRADING SUCCESS!