THE BOTTOM LINE:
Since the Fed is 'running' the Market now, its influence 'ran the table' this past week. The S&P (500) merely TOUCHED its 50-day moving average (at 1768) and then rallied sharply, by Friday piercing 1810, a pivotal prior line of resistance. The (Nasdaq) Composite held important support around 4000 and surged over 100 points in a 2-day run after Bernanke's policy announcement on a moderate taper and Fed intentions on short-rates.
Asked about downside possibilities or potential in SPX, a minor hourly S&P Head & Shoulder's (H&S) Top chart pattern suggested a 1753 downside target but the Index fell only to 1768 on Wednesday, which was exactly equal to its 50-day average. In such a strong bull market as this is, buying in that area was low-risk as this average is where many fund managers will buy the dip and cover shorts.
On chart patterns that suggest certain downside objectives (as I wrote about in my Tuesday evening Trader's Corner article, just in time to be quite WRONG! in believing SPX could even dip below it's 50-day average) some, like H&S formations, are normally quite reliable but are 'made to be broken' also, so technically oriented traders like me don't get too complacent. The almighty Fed trumps all! The Federal Reserve is not usually such a dominant Market factor but this institution is the only one currently applying 'stimulus'.
Nasdaq is at an extreme in terms of overbought readings on a 13-week basis, but probably won't 'correct' in a sideways move OR with much of a dip until after this quarter is over. Seasonally, corrections often come in Q1; e.g., 2009: dip into early-March; 2010: weakness until early-Feb.; 2011: a mid-Feb to mid-March sell off; 2012, strength all the way into late-March; 2013: decline into mid-November 2012 than up like gangbusters mostly throughout 2013.
The current rally has been in high gear since mid-November of last year and is precisely WHY the Market is now registering such overbought extremes as these things usually go. I don't currently see what is going to keep propelling the Market higher in the coming year at the very steep RATE of gain of the last 13 months. 2014 should be a good year for options traders looking for opportunities on BOTH sides of the market as there'll likely be more two-sided price swings. This as the dominant Federal Reserve influence wanes and economic conditions and forecasts and of course earnings trends come more into play.
In the Dow 30 (INDU), 20 INDU stocks had been in strong advances until recently when advances slowed. This past week's rebound was mostly driven by advances in just 7 Dow stocks: moderate gains were seen in American Express (AXP), DuPont (DD), Goldman (GS) and JP Morgan (JPM); 3 of these 4 are interest rate sensitive of course and there was of course bullish news on the ability to borrow low and lend high! Sizable weekly rallies were seen in Minnesota Mining & Mfg. (MMM), Visa (V) and ExxonMobil (XOM). If not for strength in these 7 Dow stocks, INDU wouldn't have made it above 16200 resistance; the Dow Closed just a bit over this level, at 16221, after touching 16287 at Friday's intraday peak.
The major indices have some 'room' to go on the upside before either hitting implied resistance by either an upper channel line in the case of the S&P, Dow and the Russell, but in some cases, namely the S&P, their upper channel lines are not far away. This will be seen on my charts below as will the upper moving average 'envelope' lines I'm currently using on the Nasdaq Composite and Nas 100 to try and gauge an upper trading 'boundary' or areas where those indexes would be quite far extended above the trading-critical 21-day moving average.
Attempts to measure 'resistance' or upside price targets at all may be a fool's errand in this Market until further bullish news and P/E expectations taper off. The Dow seems to have substantial upside, at least to the low-17000 area, before it would hit longer-term price targets.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart had turned bearish short-term after a double top was made in the 1809-1810 area but after dropping to widely expected support at the 50-day moving average AND of course after the latest Fed policy statement, there was a gangbuster of a rally mid-week.
The recent downswing low was above the prior dip to the 21-day average and the trend remains strongly up. I had some thoughts that SPX might pull back to its up trendline but outside influences (i.e., the Fed) are dominant currently and those influences are keeping long rates down and stocks are king because of it.
I've highlighted near support at 1800, extending to the 1774 area of the 50-day moving average. Near resistance is suggested at 1835, extending to 1845 at the top of the uptrend channel for SPX.
SPX is nearing overbought RSI readings and of lesser account in this Market and bullish sentiment readings suggest that traders are very bullish which has been the case for some time. These indicators are not helpful currently for 'timing' the end of this current advance except as information that may relate to future volatility if there's any perceived bearish news ahead, especially in January-February. I anticipate volume to be low in the holiday shortened week and upside progress should slow down some.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart has reversed its short-term bearish pattern, like the broader S&P 500, when OEX also fell to the area of technical support implied by its 50-day moving average just before a strong rescue rally fueled by the benevolent hand of Chairman Bernanke at mid-week. Decent follow through brought the big cap OEX up through prior resistance at 809-810.
A potential next resistance area is at 814, extending to 820, at the top end of OEX's well-defined and broad uptrend price channel. Near support is anticipated at 802-800, extending to 795 then 791-790.
I don't see upside above and beyond my highlighted resistance given expected light volume next week and attention on holiday cheer beyond what Santa has given the market this year, a tremendous advance over 20% to date.
I thought last week that (like SPX) OEX would head lower, which it did but only a BIT. Now, it looks like OEX could tack on a bit further to the upside but maybe only from 810 to perhaps the 820 area. There's no more scheduled news due that would move the market in a big way and I don't see a huge further upside but hard to say how much added fund buying comes in to 'dress up' portfolios.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) rallied strong from technical support in the 15800 area this past week. 20 INDU stocks had been in strong advances until recently when advances slowed.
Per my initial 'bottom line' comments above, this past week's rebound was largely driven by advances in 7 Dow stocks: moderate gains were seen in American Express (AXP), DuPont (DD), Goldman (GS) and JP Morgan (JPM); 3 of these 4 are interest rate sensitive of course and bullish news was seen on these companies' ability to borrow low and lend high. Sizable weekly rallies were seen in Minnesota Mining & Mfg. (MMM), Visa (V) and ExxonMobil (XOM). If not for strength in these 7 Dow stocks, INDU wouldn't have made it above 16200 resistance; the Dow Closed just a bit over this level, at 16221, after touching 16287 at Friday's intraday peak.
Near resistance is seen in the 16300 area, then well above this level at the upper channel line, which I don't see being reached in what will likely be a relatively quiet period ahead into year end. I don't see traders and investors bidding Dow stocks much higher as there's much to enjoy in gains made over 2013 already. A banner year for stocks!
Near support is anticipated in the Dow 16000 area, then back at 15800, extending to 15700. I'd be surprised to see backtracking to 15800 in INDU or even much near it.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) has resumed its advance after a period of around 3 weeks trending sideways in a relatively narrow range. Strong support was pierced but only briefly and only on an intraday basis. The Fed inspired rally, along with strong reported GDP grown, brought a gain of over 100 points trough to peak. I don't measure much more upside from here between now and year end but this market cycle has been full of bullish surprises.
Last week I noted that "selling pressure would likely next come in around 4100". This week, I've highlighted potential near resistance as not much higher, at 4126, with the upper (moving average) envelope line, currently intersecting at 4170 and offering a estimate for a possible near-term pause or stopping point; a move to 4170 could extend to or approach 4200.
Bullish sentiment continues to be high but why wouldn't it? Sometimes rallies are built on solid growth potential and this seems to be one of them. More grounded in earnings potential than speculative, although with some tech stocks, high flyers (not the Google or Apple types so much), guestimates of earnings are VERY speculative!
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart has broken out of its prior recent range bound trade after one brief intraday dip below its 21-day moving average. There was a weekly close above prior intraday highs in the 3520 area. Not by a lot but enough to set a renewed bullish tone in the Nas 100.
Near chart support is seen at 3500 then in the 3450 area with near resistance at 3560, extending to 3600.
I don't anticipate huge further upside in the coming shortened week but the buyers are still in driver's seat so stay tuned on that. Glad tidings of the past year are a gain to date of over 25% in NDX. There's a lot to celebrate for those fully invested in some of big cap tech gainers from yearly start to finish. Google (GOOG) for example closed at 1100; its current advance began a year ago summer from under $600. Well deserved success in executing a good business model!
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 (QQQ) tracking stock managed to Close above prior intraday resistance at 86.5. I can measure some resistance perhaps next coming in around 87.6, but have only highlighted 88 as potential resistance implied by the upper (moving average) 3% envelope line, relative to the 'centered' 21-day moving average. This is not 'resistance' in the classical sense of an area where prior rallies stopped and is the concept of a price zone where an advance is considered to be rather far extended relative to a 'mean' and vulnerable to a pause or pullback.
In a rare occurrence, volume has been above average on this most recent rebound, showing (in another way than my CPRATIO sentiment indicator) strong trader/investor bullishness. I don't know if I want to run for cover, sell all tech I own, based on being such a contrarian myself but I'm a little nervous owning many tech high flyers going into January.
Near support is at 84 and I've kept 82 as next support in a focus on 'major' support. I doubt we'll see 84 get breached. I rate it more likely QQQ would get near 88 then back to 84, especially with a low-volume holiday season in full bloom over the next two weeks.
RUSSELL 2000 (RUT); DAILY CHART:
Darn if the Russell 2000 (RUT) index didn't get down to the low end of its uptrend channel and then rally in good fashion from there. Sometimes trendlines and by extension, trend 'channel' lines, are SO predictable. Now if we only knew WHEN that would occur, which indexes would do that and so on. But the Russell 2000 does trade fairly predictably, fairly 'technically', fairly often!
I thought last week that RUT might dip again to its up trendline but once was enough for now it seems. Look for support around 1120, extending to RUT's up trendline intersecting currently at 1105.
Key resistance is seen in the 1170 area, extending to 1185 and the UPPER end of RUT's uptrend price channel, which over time will intersect in the 1200 area. I don't know that we'll see the Index venture much above 1150 in a probable quiet trade in the coming week. I'm not taking on any new positions I know that!
I love this time of year, especially along the moderate climate of the mighty Pacific here. I wish my east coast friends to be free from snow, sleet, etc. any such winter weather dampers. I'm glad I'm not traveling for a change and wish one and all great holiday cheer! And as my English friends say in goodbye for now: CHEERS!
GOOD TRADING SUCCESS!