THE BOTTOM LINE:
I had the idea that this past week might see little added gain but upside momentum only slowed, as the S&P 500 tacked on 1.3% (versus +2.4% the week before); the Composite also gained 1.3%, versus +2.6% in the prior week. Look for any pullbacks after the quarter ends as 'window dressing' by fund managers is still a big factor in this market.
There is a possibility that the S&P has reached an upper 'resistance' area, which is also seen on the Russell weekly chart; I'll show the SPX and RUT weekly charts in those commentary sections to illustrate.
The Dow 30 (INDU) has finally hit a 'fully' overbought extreme in terms of its daily chart and the 13-day Relative Strength Index. Once we get into a new quarter, buying may slow and selling perhaps pick up enough to cause at least a sideways to lower move.
Overbought considerations admittedly mean much LESS in a runaway bull move but eventually all trends slow and have pullbacks. Even a sideways move will then tend to 'throw off' an overbought condition; corrections can be either over time or price; sideways corrections are 'time' corrections and lateral moves ALSO 'throw off' an overbought condition.
The Nasdaq has broken out ABOVE the upper end of its broad weekly uptrend price channel and its very strong upside momentum continues. Yes Virginia, it's a BULL MARKET big time and many traders are wondering when this Market will slow down or correct. You know it (a correction) is coming sometime but you don't know WHEN. And, unfortunately, this kind of power move for options and futures traders presents the 'problem' of getting out of bullish positions too soon and then waiting for the pullback dip that never seems to come!
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart continues in a bullish pattern although the rate of upside price change has slowed as SPX is nearing the upper end of its broad uptrend channel. The upper end of this kind of channel can act as resistance or just slow upside momentum further. Both the daily and weekly charts are in agreement so to speak of potential resistance coming in around 1850-1852 currently. As I say further on in my comments on the weekly chart, potential upper channel resistance could be something or it could be nothing. I can only point out any striking factors about the charts.
Support is seen in the 1810-1800 area, extending to 1780. If SPX achieves a decisive upside penetration of 1850, a next higher target looks like it's to the 1900 area.
Bullish 'sentiment' is about as high as it ever gets without traders foaming at the mouth dancing in the streets! Both the RSI and my 'CPRATIO' indicators are at high extremes and are at least suggesting caution on taking on more bullish exposure.
S&P 500 (SPX) WEEKLY CHART:
COULD BE SOMETHING, COULD BE NOTHING
To give you a different 'visual' on the S&P, the upper resistance end of SPX's broad weekly chart channel has also been reached, suggesting to watch the 1850 area as of possible significance in turning prices lower for a while to 'cool down' the overheated(?) bull!
Since the 'key upside reversal' I highlighted some time back in this space and in my companion Trader's Corner column, SPX has tacked on a further 8% gain. Not bad for what followed a mid-point correction or a move that was already well along.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is bullish but OEX has also reached potential resistance suggested by the upper end of its price channel which can create either a slow down to the advance OR a point from which a pullback may begin.
In such a strong move as this one the other possibility is that the index or stock in question just pierces the upper end of an existing channel and starts yet another up leg. The odds of this happening is less in an overbought situation and the RSI indicator suggests that OEX is at a 'fully' overbought extreme. The 13-day RSI has hit an overbought extreme repeatedly and the Index just keeps going UP. Here, I'll just point out a second technical influence, given both a possible price resistance point AND an overbought 'extreme'. The odds of a correction has increased, for not only the two technical factors but that the end of quarter window dressing is about to end.
Resistance is highlighted in the 823, with next resistance estimated for 840. Near support is at 810, extending to the 795 area and the 50-day moving average.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow (INDU) is also in a very strong uptrend with many of the 30 Dow stocks in solid uptrends. Unlike the S&P, resistance implied by the upper end of INDU's uptrend channel is still above current levels at the most recent intraday high. The major indexes track each other but do have different patterns as seen in the a long period when the Dow was stuck in a sideways trading range from about mid-may into November; this, while the S&P and especially the tech-heavy Nasdaq were tracking mostly higher. Lately of course the Dow has been playing catch-up.
I would also note that INDU doesn't often get to such an overbought extreme as seen currently. Such extremes have been associated with downside reversals in the past. Past patterns don't 'guarantee' future results like the warnings we see about investing and trading! Still, the Dow tends to be consistent in certain ways so stay tuned on this one.
I've highlighted support in the 16225 area, extending to around 16050. Resistance is seen at the most recent 16520 intraday high, but a push above this area could result in a next target to the top end of the aforementioned uptrend channel, currently intersecting around 16700-16720.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) is in a strong bullish pattern but near-term caution is suggested by the minor downside reversal of Friday. This reversal even fits my definition of a 'key' downside reversal; namely, a move to a new high, followed by a Close below the prior days Low.
Next resistance looks like it would come in at 4200, then 4250. Near support is suggested at 4065-4050, extending to 4000 which is should offer fairly major support, if reached.
COMP has all the technical ingredients now of a possible pullback: possible beginning price action, an overbought extreme suggested by the Relative Strength Index (13-day) AND very high bullish sentiment as I measure it in by equities call to put daily volume ratio. On a 5-day moving average basis, my 'sentiment' indicator is as overbought as it ever gets, suggesting at least a temporary unsustainable expectation for prices to keep going up.
All price swings have a beginning, middle and end point even in a super strong bull run like we've had in COMP. I'd say 'of course' corrections eventually happen but in major bull move it can be hard to believe there's ANY direction but UP!
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart has the same pattern as the Composite, one suggesting that NDX may too have begun a counter-trend pullback. I'd read my COMP comments above in terms of the pattern of price, overbought and extreme bullish sentiment.
I've suggested a next resistance, above the recent NDX high in the 3590 area, as coming in around 3620, extending to 3700. A first key technical support looks like 3500, extending to 3450 currently.
The upper moving average envelope line, set to 'float' at a value that's 3 percent above NDX's 21-day moving average is a guide to what might be the upper trading area of an advancing trend. It's not a price zone that suggests 'resistance' in the way a prior high could be but functions more to assess the extent of a next advance. Corrective pullbacks in strong bull moves may or may not 'start' after the index trades at or above an upper envelope line.
It's rare for downside correction to begin in a strong bull move in the major indexes WITHOUT a prolonged period of the Index trading between a 21-day centered moving average then back up to/toward the upper envelope line, usually repeatedly. Start with a 3 percent value in the indexes. I ONLY rely on moving average envelopes used with the major indexes, a technique over complicated with individual stocks.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 (QQQ) tracking stock is bullish but trend momentum is slowing a bit as we near the end of the strong bullish influence of being at the end of another strong quarter. In 2014, other influences are going to come in, as the Fed is no longer functioning as the 'supreme' determinant so to speak.
Resistance is at 88, then 88.8 and then sell pressures especially likely if QQQ were to get to 90 area. I think this ETF stock can eventually get to 100 but it's had a long run higher and a pullback to 84, even 83, would merely 'set up' in my opinion an eventual advance to 100. A perhaps more likely occurrence in a spring rally assuming economic growth goes like the Fed is projecting.
Near support is 86.4, extending to the 84.8 area.
The OBV On Balance Volume line is no longer trending strongly higher, which reflects the caution I think is upon us as traders see how high QQQ has come already.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) appears to have reached resistance for now in the 1168 area, coinciding with my upper trading 'envelope' line. 1180 is a next resistance. A further take on RUT possibly being at the end of a run higher, is seen further on with RUT's weekly chart and my highlight of its current long-term uptrend price channel.
Given recent price action and how 'overbought' RUT has gotten I rate the odds as better than even that prices move lower, not dramatically, over the next 2-3 weeks.
A key first expected support area is at 1150, with next technical support coming in around 1130.
RUT has a well-defined multimonth up trendline and trendlines with RUT are more 'regular' as this index trades fairly technically also seen with the Dow mostly. 1120 is key trendline support.
RUSSELL 2000 (RUT) WEEKLY CHART:
COULD BE SOMETHING, COULD BE NOTHING
ANOTHER quite different take on chart/technical resistance here is seen with the WEEKLY Russell chart suggesting possibly significant resistance/selling pressures at just about where the Index has gotten to this past week.
GOOD TRADING SUCCESS!