THE BOTTOM LINE:
An overbought Market trumped bullish charts and corrections followed, but selectively. The S&P looks a bit toppy, the Dow 30 Industrials (INDU) more so but the tech-heavy Nasdaq Composite (COMP) looking still capable of piercing key resistance around 3700.
S&P bellwether GE still looks strongly bullish however.
Speaking of S&P stocks that have had strong moves, Ford (F) has gone from having made a double bottom a year ago at $9, to its most recent weekly close at $17, an 88% gain!
On the Nasdaq front and not surprisingly as the stock is a key tech 'bellwether', Cisco Systems (CSCO) has a strong bullish pattern.
I'm cautious on the S&P and Dow near-term, less so with Nasdaq given this recent several day, but relatively minor, pullback. It appears the Market just got 'ahead' of itself and too extended. This was especially seen in the steep recent ascent of tech stocks with a rate of upside gain that was turning near vertical, with the COMP daily chart tracing out a steeply rising parabolic arc. This most recent correction begin after the 13-day Relative Strength Index (RSI) and a key way to measure 'overbought/oversold' conditions, had reached overbought readings in the 70-75 zone (with the exception of INDU).
Regarding the RSI and 'overbought' (or oversold) readings as a market 'timing' device: of and by itself, as opposed to overbought extremes ACCOMPANIED by a reversal pattern or rally failure at a prior key high AND very high bullish sentiment, the RSI has limitations.
Extreme RSI readings do suggest high risk (of a pullback) in taking on or continuing to take on new positions in the direction of the trend. Stock indices can get quite overbought and STAY overbought for lengthily periods. (Not so much with oversold extremes that occur, at least in a bull market, where oversold extremes are often seen just once or for a short period; e.g., a 13-day RSI in the 30-25 zone.)
As I pointed out back in early-May in my 5/4/13 Index Wrap, Apple Computer (AAPL), another key Nasdaq bellwether stock, broke out above a bullish falling wedge, which was a good omen for a strong Nasdaq rally. Check that comment out and AAPL's chart pattern then HERE and compare to AAPL's current weekly chart seen next. AAPL looks like it can test resistance in the $500 area next.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart remains bullish but short-term momentum has stalled recently as SPX has trended for the most part just under 1700 resistance. Closes below the 21-day moving average and/or near support at 1680 would suggest downside potential back to 1650-1635 support, at the 50-day moving average and the up trendline.
I noted last week, that while the chart was quite bullish, SPX was back at an overbought extreme in terms of the 13-day RSI, as seen below. Volatility was down, but risk of a sell off was up. While there's a hint of the possible formation of a Head & Shoulder's top, for the most part, I simply see SPX as in a 1707-1678 trading range and marking time before there's some further upside. If the low end of SPX's price range gives way that's another story and the lower supports come into play noted already.
Near resistance is 1700-1710, then at 1740-1750 in SPX and over time up toward 1800 as suggested both by the upper end of the daily chart's broad uptrend channel and by the same on longer-term weekly charts.
Trader sentiment tends to reflect a mostly bullish outlook. I would evaluate this as tending toward complacency. Not surprising when earnings trends are good. Still, seasonally, the summer period tends to see lower volumes and it wouldn't be surprising to see another dip to the lower trendline ahead.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is trading back under its 21-day moving average, which is a bearish short-term omen. IBM has been in a multiweek decline and this is weighing on the big cap OEX. There's a slight hint of formation of an irregular Head & Shoulder's top that could be forming in both SPX and OEX. Mostly, OEX can be viewed as being in 765-753 trading range, which, given the prior strong uptrend, is assumed to be a bullish consolidation. A decisive downside penetration of 753 is another story and turns the short-term trend bearish.
I anticipate support developing in the 742-736 area, at OEX's 50-day moving average and at support implied by the Index's up trendline.
I'd hold this week again to the view that OEX needs to trade above 760-765 to suggest objectives to 775-780. Major resistance is anticipated on a move that carried toward 800.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) has had a more significant pullback than the broader S&P indices as we saw at least an intraday dip below 15400 support at week's end. If 15400 continues to hold up as a lower support, then INDU would remain in a roughly 15650-15400 trading range.
INDU's move below its 21-day moving average (which happened from Wednesday on this past week) is often the first tip off to further weakness ahead. Pivotal support is at the up trendline, currently intersecting around 15150. I've highlighted Dow support below 15400, at 15200, but plus or minus 50 points in INDU is of course a minor blip.
Key near resistance support is in the 15650-15630 area; above the top end of the recent INDU price range, resistance is estimated at 15890-16000.
Dow bellwethers GE and IBM present a mixed picture, as GE is still trending higher week over week from its summer-fall 2011 lows, whereas IBM has been trending lower from its March-May peaks, which accelerated this past week as IBM closed below what had been prior support at $190. There are few dramatic chart developments in the other 28 stocks in the Dow. Semiconductor bellwether Intel (INTC) continues to show weakness.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) Index is bullish in its chart pattern but its ability to hold its very steep short-term up trendline (the higher sloping black dashed line) may be in question given recent slowing upside momentum.
I've highlighted initial support for the 3580-3575 area, but should also mention a line of closer by support at 3628-3627. Next support is seen at 3516-3500.
Pivotal upside resistance comes in around 3700, with next projected technical resistance at 3800.
COMP is coming off a second high extreme in its 13-day Relative Strength Index (RSI) at around 75. In very strong index moves like this one has been its not uncommon for 2-3 such extremes before there's much of a pullback.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart remains bullish in all time frames, short, intermediate and long-term. NDX's upside momentum has slowed just recently and a 'line' of minor resistance formed at 3145-3140.
Near NDX support is seen at 3090-3088, with next key support in the 3038-3030 area. I don't anticipate that 3000 will get pierced anytime soon, but a decline to as low as the up trendline, currently intersecting around 2908-2900 could occur and NDX would remain within its intermediate uptrend.
Near resistance as noted comes in around 3140, with next resistance in the 3200 area. What I highlight on my NDX daily chart is more an 'extreme' upper resistance projected at 3250.
It would be logical to assume that NDX will pull back some more near-term after the Index has come off such an overbought RSI extreme. I can envision getting interested in calls again on a pullback to the 3050-3030 area, risking to a Close below 3000. Mostly, I'm taking a wait and see attitude. I have no dog in this fight so am not talking my position.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 (QQQ) chart picture is bullish but it wouldn't be surprising for this ETF stock to pull back some after such a steep rise.
76 is near support and it wouldn't be surprising to see a corrective dip below 76 even, perhaps back to the 74.4-74 area.
Near resistance is at 77 and that probably extends to the 78 area. I've highlighted an upper resistance around 80.
Relatively low volume remains the rule but expect a volume spike if QQQ starts falling back toward 75-74. If long the stock and you're a trader type how much more do you expect to get from this leg up? If, for example, it's a target to 80, relative to that from current levels, you could set a sell stop of a third of that. Just saying.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart is back to somewhat mixed as RUT has fallen back from recent highs in the 1060-1063 area and had been trending sideways. It's trading range has been from 1060-1063 on the upside to 1038-1040 on the downside since mid-July.
I've noted resistance in the 1060 area, with projected major resistance in the 1090-1100 area.
Technical support is highlighted in the 1040 area, with next support at 1020, extending to 1012.
I'd repeat this week, from last, that "A sell off below 1040 would suggest a correction was underway if more than single-day affair." But would add that I don't see a decline to below pivotal support in the 1000 area currently. Back to back closes above 1060 would suggest renewed upside momentum.
GOOD TRADING SUCCESS!