THE BOTTOM LINE:
It's been a banner 2013 for stocks, up 30% in the S&P 500 and 39% in the Nasdaq Composite! Stocks may have woken up in 2014 with no where to go but down, at least a little.
I indicated last week to "Look for any pullbacks after the quarter ends as 'window dressing' by fund managers is still a big factor in this market." It was drive drive drive em up into year end as money came into funds and then flowed into stocks.
It can be seen on my highlighted charts that the major indexes appear to have hit some technical resistance suggested by upper channel lines and the like. This and an overbought market looks to have finally resulted in a correction. I don't look for a major downdraft, but profit taking selling is likely to come in to a degree and buyers may hold back some to see how a pullback develops. Bullish convictions or sentiment was so high for so long, things were also bound to cool down. More with the charts below.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) remains bullish in the longer run and possibly bearish on a short-term basis although so far SPX hasn't had much of a pullback, it just looks like it's due. Starting off in 2014 with a 30% run up in the year just ended could well bring in some tax advantaged profit taking selling and with buyers willing to hold off and see if prices pull back some. A key area is often to be found by where the 21-day average is at, suggesting potential support around 1810, extending to 1790-1780.
Overhead resistance is suggested by the recent SPX intraday high at 1849, with resistance then extending to the Index's up channel line at 1860.
It wasn't until the S&P got to a new high 'overbought' extreme in terms of the 13-day Relative Strength Index (RSI) that a correction finally followed. That and the end of quarter buying that was driving stocks ever higher. 30 percent is enough to make for a very good year and how do you top that? You don't!
Extremes in bullish sentiment were also seen before this market had even a minor crack. I think we're going to see more downside and get the bullish outlook down some before there's another leg up.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart started back pedaling some after hitting the top end of its broad uptrend channel but only after 2013 was ushered out with all the buying still coming in AND the Index got extremely overbought in terms of the RSI indicator.
Where to now is the question. I've suggested resistance at 825 and support down in the 807 area of the 21-day average; next support is seen at 800. I rate it more likely that OEX works down toward the 800 region before the Index tacks up to 825 or higher. You can't help but notice how afar OEX is up into its broad uptrend channel. Even a modest pullback to midpoint in the channel only puts OEX back to 800, or to 795-792.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow (INDU) has paused after hitting minor resistance near 16600. I think there may be more to come on the downside, such as an eventual decline back to support around 16200.
Near anticipated resistance comes in at 16588-16600, with next higher resistance projected for 16800.
Looking at the 30 underlying Dow stocks, AXP, BA, DD, DIS, GE, GS, HD, JPM, MMM, MRK, NKE, TRV, UTX, V, and XOM all continue to look quite strong on a weekly chart basis. That's half of the Average. Hmm, maybe 16600 resistance will be challenged next!
INDU did hit an overbought extreme in the RSI indicator and it has an historical pattern of correcting after such extremes but this view is contrary to how the stock charts look currently. Stay tuned on the battle of the bulls and bears! The bears have been lying low.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) is bullish on a long to intermediate term basis but short-term, momentum is pointed lower. I anticipate a further decline, not dramatic but perhaps one that pulls COMP down to around 4050 which I've highlighted as near support; fairly major support/buying interest comes in around 4000.
Near resistance is 4176-4200.
COMP finally retreated only AFTER its 13-day RSI got 'fully' into my overbought zone. Interesting that this degree of 'overbought' finally happened and then, a correction began! End of the quarter buying of course was a fundamental factor in keeping COMP advance going as long as it has. Time for a pause and pullback.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) has finally retreated from its relentless march higher along its upper trend channel boundary and from highs around 3% above the 21-day moving average. It looks like there will more selling ahead to drive NDX lower in the coming week. Tech stocks are due for a pause at the very least.
Near support now looks like 3520, extending to 3500; next chart support then comes in around 3450.
Near resistance is at 3600.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 (QQQ) tracking stock is finally undergoing at least a minor pullback from resistance suggested by its upper channel boundary. Of course, QQQ had been just advancing to and along this upper trendline; hugging the line but not falling much or only in very short-lived manner. After end of year 'window dressing' buying ran its course, a relatively small amount of selling has pulled prices lower. A dip below the 21-day moving average may see follow through selling.
Daily trading volume picked up by week's end as traders are sensing and seeing slowing upside momentum. With nearly 40% yearly gains in the Composite, it's no wonder that there would be at least some profit taking selling.
Near resistance is at 88, extending to around 88.7. Near support is at 86, with next technical support coming in around 84.6.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) remains bullish in its intermediate and long-term chart pattern but near-term RUT has fallen back from resistance implied by its upper channel line, in a long overdue correction. Support is suggested around 1135, then in the 1120 area currently.
Overhead resistance looks to come in at 1165, extending to RUT's upper channel line.
GOOD TRADING SUCCESS!