THE BOTTOM LINE:
In a renewed surge higher the S&P 500, Dow 30 and Nasdaq Composite have nearly reached my anticipated targets of 1800, 16000 and 4000, respectively. These areas may offer some resistance but there's very strong upside momentum here and traders are not yet entirely throwing caution to the wind and buying calls with both hands and feet!
I wrote last week of a 'rotational' type correction; the Nasdaq had faltered some but the Dow and S&P were resurgent. At some point the pattern here looks like there could be an across the board pullback but when is a big unknown. This brings to mind a column I saw by Steven Rattner, an old Wall Street guy who's worked in finance and led the task force on the Auto Industry bailout and reform. Rattner wrote a piece on whether the market was so efficient in pricing all factors into stocks that you couldn't 'beat' the indices. Rattner mentioned a number of fund managers who substantially outperform the averages. Warren Buffet famously said that "I'd be a bum on the street with a tin cup if the markets were always efficient." Rattner went on to say that even when market participants are "convinced that the overall market is expensive or cheap, markets can indeed be irrational and predicting the timing of the inevitable correction can be challenging." I'll say! (And, the preceding italics are mine.)
And, as the economist John Maynard Keynes (who apparently outperformed the market averages in his own investing in his day) said: "Markets can remain irrational longer than an investor can remain solvent." Especially true among options traders who have a certain time frame to be 'right' in!
Anyway, I'm not going to suggest going against the trend, but also don't recommend chasing this thing higher. In a bullish aside, my call to put ratios, measuring trader sentiment, have been on the high side this past week but are not EXTREME. 'Extreme', as in extreme bullishness would be daily equity call volume that was well over double that of daily total equity put volume on the CBOE; e.g., a ratio of 2.2 to 2.5 total call volume to put volume. The highest such ratio this past week was 1.9 and that was on Monday. No, as Yellen said in testimony recently, stock valuations were not 'bubble' like. Not yet anyway. In fact as Nasdaq got pretty frothy and valuations quite high, investors and traders started moving back into the 'mainstream' S&P type stocks.
The Dow 30 (INDU) as I noted last week had bullishly "broken out above a sideways rectangle seen previously on a weekly chart basis (not shown here), or above a broad 14685-15650 trading range pattern dating back to mid-May." This recent decisive upside penetration of this range, easily suggested a move to 16000 in INDU as a next target but then an eventual move to the 17000 area as implied by the 'typical' upside projected by such a breakout move. Unlike what we've seen since mid-May, the Dow is back to 'leading' the overall market or at least being a overall market bellwether again. Whereas, the Nasdaq's upside rate of change has slowed from what it was and the 4000 area is a very key potential resistance in the Composite. A strong move above 4000 propels COMP above its long-standing uptrend channel as seen on both daily and weekly charts. I could then only guess at upside potential above 4000; ah ha, you think, I'm always 'guessing' anyway!
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart has this past week accelerated above a zone of prior congestion or a line of prior highs in the 1775 area. My target for SPX has been to the 1800 area for awhile now. I've noted potential technical resistance at the upper end of the S&P's broad uptrend price channel, currently intersecting in the 1815 area, with resistance possibly extending to around 1830 in terms of weekly chart uptrend channel line (not shown here).
Near support is seen in the 1764 area, at the 21-day moving average, with chart support next coming in at 1750 and the area of prior recent intraday lows.
If SPX had a second leg higher equal to the prior upswing the Index could over time advance to 1870; this would be a measured move objective. For now I'm focused on what happens at the upper channel line. As often as we see a reversal at the upper end of these price channels, we'll just witness a slowing of upside momentum for a time as prices creep higher 'hugging' this line.
SPX is in overbought territory again as seen above, in terms of the 13-day RSI and somewhat so in terms of extremes in (high) bullish 'sentiment', but in a runaway move and strong bull market, such potential influences don't mean as much in terms of a possible downside reversal of any size. Bull markets get overbought and then often stay overbought for lengthily periods. Such readings remind us that risk of a correction risk has increased, more than such indicator readings necessarily 'signaling' a top.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart has the same accelerating upside momentum as seen with the S&P 500. I've highlighted (with my usual red down arrow) possible next resistance coming in around 810-811, but don't have a higher resistance estimate in OEX based on trendlines or prior highs, etc. As with SPX, a 'measured move' objective in OEX is to around 830 but this isn't noted on the chart as 'resistance'. Such a price objective is where a next up 'leg' would be approximately equal to the last and gives some idea of a next target, assuming OEX breaks out above the uptrend channel highlighted below.
Near support comes in around 790-787 area, extending to 780. Fairly major support comes in at 760-762 currently, at the lower end of OEX's broad uptrend channel. You may wonder how I have the Index's up trendline drawn such that the last dip fell below this line. The idea of an internal up trendline is to draw it intersecting the MOST number of lows over the period of an advancing trends. This basically ignores one odd man out low. Bottoms often overshoot trendline support in that occasional sell offs are driven by more panicky selling than usual and prices may dip below technical support but quickly rebound.
I see no technical reason, other than a overbought condition common in strong bull trends, for OEX to not work still higher such as to the 810 area, but 830 would be my current 'maximum' upside objective before some corrective action sets in. Corrections can be sideways consolidations also such as seen with the sideways trend in OEX from late-October into the 11/13 upside breakout; corresponding to the Fed's perceived magic wand.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) has accelerated above a long standing overall sideways trading range. As I noted above in my initial 'bottom line' commentary, prior to this past week INDU had bullishly broken out above a sideways rectangle seen on a weekly chart basis as reflected in INDU's broad 14685-15650 trading range dated back to mid-May.
The recent decisive upside penetration of the Dow's 14685-15650 trading range, easily suggested a move to 16000 in INDU as a next target but could also imply an eventual move to the 17000 area. This target is suggested by a 'typical' upside projection based on the length of time that the Average was in the aforementioned range and the distance between the range bound line of lows and highs. Unlike what we've seen since mid-May, the Dow seems to be again be 'leading' the overall market and acting again as an overall market bellwether.
Potential near resistance is suggested ahead at 16000, extending to 16200. Support is seen at 15800, then at 15600.
Besides continued longer-term bullish upside momentum in INDU stocks AXP, BA, DD, DIS, GE, HD, JNJ, MMM, MSFT, NKE, PFE, PG, TRV and V (14 stocks, nearly half of the Dow 30), we've seen advances recently in GS, JPM, KO, MRK, UNH, UTX, WMT and XOM (8 stocks). 2/3rds of the 30 Dow stocks advancing strongly to moderately, versus mostly CAT, CSCO, IBM, T and VZ (5) struggling in sideways to lower trends, makes for an overall bullish INDU chart.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) Index is bullish but its upside momentum has slowed some. I see pivotal resistance not far overhead above the key 4000 level. Specifically, I've highlighted resistance at 4011, extending to around 4050 if COMP breaks out above the upper end of its broad uptrend channel.
Near support is noted at 3900, extending to around 3865 currently.
I anticipate COMP working higher but not having a major further up leg above the low-4000 area. If I'm wrong in this assessment, a measured move objective is suggested to 4200. I won't rule it out but am not expecting it. Stay tuned!
COMP is again approaching an overbought condition in terms of the Relative Strength Index but this isn't necessarily or commonly a show stopper in a strong bull move either.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart has achieved a bullish breakout above 3400 and could work higher to 3470 to perhaps 3500 which I've previously seen as a longer-range target and possible resistance. The last dip in NDX found support in the prior upside gap area so the chart has remained bullish in that NDX 'held' near-term technical support, which in turn suggested that the recent line of resistance in the 3400 area could be pierced. If they can't take em down, they'll take em up!
Support is now bumped up to 3350, with next lower support suggested in the 3300 area.
Last week I was a cautious on NDX but gave "the benefit of doubt to a next leg higher. Expect a move in the direction of the dominant trend until proven otherwise!"
NDX is not yet back at even an 'overbought' extreme as suggested by the 13-day RSI. The big-cap Nas 100 has gotten overbought repeatedly, dipped a short-lived bit, throwing off the overbought extreme and then has surged higher. It's a bull market. That's what they do.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 (QQQ) tracking stock is near apparent resistance in the 84 area, at least in the way that I've constructed
QQQ's uptrend price channel as seen below. Such construction is more art than science. I could also take an interpretation that the upper channel line on the daily chart intersects in the 86 area currently. If there's a decisive upside move above 84, look for a further advance to the 85 area and possibly to 86 over time. The weekly chart channel (not shown) suggests potential next resistance coming in at 85, which might only be temporary also. Stay tuned.
As usual, substantial pick ups in volume don't come in on the direction of upside moves above prior resistance but rather expect nervous bulls to dump stock on a break below 82 support. Next lower support looks like 80.8, extending to 80 even. The 80 area, if seen, might be a next buy point even as others dump the stock.
The On Balance Volume (OBV) line, the only volume measure usually worth looking at with QQQ, continues to trend higher. Since we have volume figures with any Exchange Traded Fund (EFT) that we can also assess along with price action, the OBV indicator is consistent with the bullish price chart.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart is still mixed. A decisive upside penetration of 1120-1122 is needed to suggest that RUT can follow the rest of the market higher. RUT tends to do more if Nasdaq is humming along and tech stocks are taking a bit of a rest it seems. We've seen RUT be a market bellwether at times but given very bullish S&P and Dow charts and an initial move in COMP and NDX above their lines of prior resistance, I'm not sure RUT lagging here means anything more then the seasonal tendency for RUT to do better and sometimes outperform the overall market in the first Quarter.
Near resistance is at 1122, then well above, judging by the upper channel line intersecting around 1155 currently. The weekly RUT chart (not shown here) suggests potential technical resistance coming in around 1150 also.
I've highlighted near support in the 1095 area, extending to the RUT's up trendline intersecting in the 1080 area currently.
GOOD TRADING SUCCESS!