THE BOTTOM LINE:
The S&P 500 (SPX) pierced key resistance at 1850 this past week. Yet, from the S&P to the Dow to Nasdaq, some near-term market 'internals' I look at suggest prices are rising on declining relative strength. A short-term correction may be ahead and not far off.
Moreover, the Nasdaq Composite (COMP) which has been in the lead in powering this Market higher, is now quite near some technical resistance implied by the approach of COMP to the upper end of a well-defined uptrend price channel.
I won't go into the particulars of market internals right now as I don't have ENOUGH to go on to predict a pullback with greater confidence. I'd call my thoughts here as 'unproven' speculation but with some basis in what I'm seeing. By outward appearances, the Market looks relatively strong. It IS a Bull Market, but corrections happen along the way.
The big cap S&P 100 (OEX) is nearing its prior double top in the 824 area, which bears watching if OEX gets to this line of resistance and does a U-turn again. The Dow 30 (INDU) is lagging a bit currently as there are still too many INDU stocks that are in corrective phases. The stocks in the Dow are so 'mainstream' to the economy that given the watch going on now as to how much recent economic sluggishness is due to our extreme Winter and is temporary, or not.
There are, by my count, 16 Dow stocks or just over half that are at least still mildly bearish in their weekly chart patterns. I'm bullish no doubt and the major trend is solidly UP, but this may also be a time to wait to see if a pullback brings us some lower prices to consider for bullish additions to positions.
Interestingly, equities put volume picked up Friday relative to call volume; enough so, as to turn my sentiment lower on a rise into the end of the week. I usually see this kind of divergence as mildly bullish and maybe so and an interesting note to the end of the week.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) index chart is bullish as SPX cleared its prior and extended line of resistance at 1850. It looks like SPX could be headed for the 1900 area next. The bullish pattern here looks the most solid if SPX holds above 1850-1840 on a Closing basis.
I mentioned before that March tends to be a weaker month seasonally than many and this year, it may be a transitional period as we see how much the economy gets back into gear with some better weather or at least 'less awful' conditions.
The key moving averages seen on the chart are important areas to hold for the bulls. Support on that basis comes in around 1815. 1800 is a key intermediate support.
The RSI is rising but not yet showing an overbought extreme. Bullish sentiment, as suggested by my CPRATIO indicator, has dipped recently, which is a bullish plus, technically, given the move above 1850.
I am somewhat cautious near-term but based more on the related big- cap S&P 100, and to a lesser extent the Dow 30, as to whether those indices will follow suit and clear key prior resistances seen on their charts that follow.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is bullish and reaffirmed so to speak by the Index clearing a cluster of recent intraday highs. There was a pick up in selling Friday as OEX neared its prior minor double top in the 824 area and the Close fell off from the intraday highs.
For a maximum bullish trading stance the big-cap OEX ought to 'confirm' SPX in a move to new highs. This factor is one, among a couple of influences that keeps me cautious on the prospects for the overall Market in the short-term. Longer-term I remain bullish. OEX is in the middle of its broad uptrend price channel and this tends to be a key juncture.
Pivotal resistance is at 824 currently. If this is area is cleared, I have a next target and potential next resistance, at 838, extending then to 850 and the top end of OEX's broad uptrend channel.
I would say again from last week to keep an eye on the 50-day moving average, implying support in the 807 area, extending to 800. 800 is a pivotal support and definer of a short to intermediate bullish trend in OEX. Fairly major support is implied at OEX's up trendline intersecting in the 780 area.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow (INDU) chart is bullish as INDU continues to churn higher and maintains itself for the most part above the important 50-day moving average. The key support zone is from 16150 to 16000 currently in the Dow. Next support comes in at 15800.
There is significant overhead resistance in the 16500-16565 area based on the cluster of prior INDU highs, before the Average faltered and fell sharply by end-January. Assuming this area is pierced, a next resistance and potential target is to 16800. Longer-term, INDU looks headed to 17000 or higher.
As mentioned in my initial Bottom Line comments on the overall market, there are slightly more than half of the 30 Dow stocks that remain in bearish/corrective patterns. Bullish uptrends are seen in others of the 30; namely: AXP, DD, DIS, HD, JPM probably still, MRK definitely, NKE, PFE, UNH, UTX, and V. These 12 or so stocks are what's got INDU moving higher and are ones to pay attention to. Gee, it used to be so simple, as you mostly needed only to watch former Dow bellwether IBM as to market direction!
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart is bullish, but the rate of gain is slowing a bit as COMP nears potential resistance implied by the upper end of its broad uptrend price channel. Specifically, very short-term resistance looks like 4360. If this level is decisively cleared, my neat target above the current uptrend channel comes in at 4450.
Near support in COMP is seen at 4280 with next technical support at 4200, extending to 4150.
I'm a bit cautious on the leading light of the market, namely the tech heavy Nasdaq, more for the prospect of a slowing trend or sideways movement, or a dip, based on what's happened previously at the upper end of COMP's well-defined uptrend channel. When they 'work', channel lines are quite handy as a trading guide! Nothing works all the time but trading is based on probabilities based much on past patterns. Yes, "past performance is no 'guarantee' of future performance" and all that!! But patterns do repeat in the Market; less so with individual traders/investors.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart is bullish, but the Index appears stalled in the 3700 area and I've noted this as near-resistance to watch. If 3700 is cleared AND holds up as support on dips, a next target and possible resistance comes in around 3765-3770.
Near support is noted around 3650, extending to 3600. Fairly major support comes in at NDX's up trendline, currently intersecting around 3515.
I consider the big cap Nasdaq the current overall Market bellwether and if NDX slows down or dips, the rest of the major indexes are not likely to hold up especially well. There is definitely a tendency for minor dips after the Index hits the upper end of its price channel. Stay tuned of course as to whether the Nas 100 churns up toward the 3765 to 3800 area and if so, what happens after that. Moves to the upper end of the channel have been good areas to take some profits on bullish positions.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nas 100 tracking stock, QQQ, is bullish in its pattern, although like the underlying NDX, the stock appears 'stalled' in the 90.8 area, which is noted as near resistance. Next resistance is suggested at 92, at the top end QQQ's of broad uptrend channel.
89 is highlighted as near support, with next lower support at 88 even. Fairly major support comes in around 85.
Volume picked up on Friday, when it looked like QQQ could break well below 90, perceived as a key near support.
The On Balance Volume (OBV) line has been declining as prices trend sideways, which is a bearish price/volume divergence. I'm bullish on the big cap Nasdaq on a longer term basis, but cautious in my short-term outlook as a downside dip or correction may be near at hand. Stay tuned on that!
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) has a pattern much like SPX, as the Russell has gone to a new high above 1180, including a new Closing high, but looks to be also finding some selling pressures. Buyers were of course enthusiastic when RUT dipped all the way to the 1100 area, but as the Index approaches 1200, there's a mood of greater caution.
Technically, there's been SOME caution in recent months when RUT nears the upper end of its broad price channel. After a dip all the way to the RUT's up trendline, the path all the way back up to the upper end of the channel is not necessarily an easy road. There's more FEAR of corrections once a sharp and steep downswing has occurred.
Near resistance, as noted, is anticipated next in the 1200 area, extending to 1215-1220. Near support is highlighted at 1160-1150. Fairly major technical support comes in around 1120, extending to 1100.
One technical factor not previously noted, is that the 13-day reading in the Relative Strength Index (RSI) indicator has gotten into what I call a 'fully' overbought 65-70 zone. RUT can of course get 'more' overbought and the RSI climb higher (higher readings are merely a function of upside price momentum), but in terms of this indicator, it's registering an area that often sets the stage for significant subsequent pullbacks.
GOOD TRADING SUCCESS!