THE BOTTOM LINE:
While the S&P and Nasdaq made gains this past week, the Nasdaq Composite (COMP) is now hitting some technical resistance. Near-term upside potential for S&P 500 (SPX) may be limited to 1900.
Last week I was anticipating a near-term correction but it was a day-long (Monday) affair only. The snap back rally on Tuesday continues to show the power of the primary bull market we're in. The Market however remains vulnerable for further dips or an overall sideways move.
A weekly Close above 1900 in SPX would continue the strong bullish trend as would a decisive upside penetration of 4375-4400 in COMP.
Extreme bullishness was seen in my sentiment indicator going into mid-week, although bullishness then tapered off some after that. Bullish expectations are high and investors continue to buy dips, such as was seen early this past week. The situation with Russia and the Crimea is a wild card as to how the Market views bearish Market potential in US/EU imposed sanctions on Russia and any potential disruptions to oil supplies and trade.
Best if I now go on to the individual indices for a view on each.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) index chart is bullish. The first day of the past week saw a drop under 1850 support, but a strong rebound followed. Investors, especially funds, are buying every significant dip so far. A jump in non-farm job numbers at week's end helped confirm a continued bullish view of the U.S. economy.
Potential next technical resistance in SPX comes in at 1900-1905, extending to 1936-1940. There are a couple of ways to calculate upper trend channel resistance, as seen in the TWO parallel upper channel lines in SPX below. 1900 is a key next resistance as suggested by the LOWER channel line on the daily chart and 'confirmed' by the upper end of the weekly uptrend channel (not shown). My HIGHER daily chart channel line (drawn through the May 2013 price peaks) suggests potential resistance intersecting in the 1936 area currently.
Near support comes in around 1840, with fairly major support beginning at 1800 and extending to around 1775.
As seen above, the 13-day Relative Strength Index (RSI) indicator is nearing a 'typical' overbought extreme and bullish 'sentiment' has shot back up toward the high end of its range, with the caveat that indications of high bullish sentiment 'extremes' can persist for lengthily periods before a correction sets in a major bull market like this one.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is bullish, most lately seen by OEX clearing prior highs in the 824 area. The chart would remain in a 'maximum' bullish pattern if support continues to be found on pullbacks to what is now assumed to have 'become' support at prior highs in the 824-820 zone.
A next potential target and possible next resistance is seen at 840, extending to the 850 area, at the upper end of OEX's uptrend price channel.
Pivotal technical support is highlighted at 810, extending to 800. Major support is assumed at OEX's up trendline, intersecting around 785 currently.
The RSI indicator has now hit the low end of the area suggesting an 'overbought' market, although such readings can persist for lengthily periods in a strong bull trend. Nevertheless, an elevated RSI suggests caution in taking on new bullish positions.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow (INDU) chart is bullish with the latest move to above 16400 resistance. Bullish uptrends are seen in just under half of the 30 Dow stocks; in 13 especially: AXP, DD, DIS, GE, HD, JPM, probably MMM, MRK, NKE, PFE, UNH, UTX, and V.
Next resistance and a key one in the area of prior Closing and intraday highs, is at 16600. Above this level I've highlighted a potential next target and possible resistance in the 16800 area.
Very near support looks like 16300, with key technical support then coming in 200 points lower at 16100, extending to 16000.
It seems unlikely that INDU will get this close its prior highs without re-testing this area. The question is will such a re-test be sooner rather than later. And, if there's a near-term move to 16600 resistance, will the Dow dip from there?
I have longer range targets in INDU to above 17000; eventually a move to the 17500 area or higher is possible looking out 2-3 months. It's the next 2-3 trading sessions that are hard to predict!
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart is bullish but it should also be noted that as the Index has reached the upper end of COMP's uptrend price channel, upside momentum has slowed and Friday saw a new 4-day low Close. This doesn't suggest a downside reversal but the slowing momentum, if this is predictive of a near-term sideways to lower trend, is something to consider in holding bullish positions.
Immediate downside support is suggested in the 4284 area, at the low end of the upside price gap between Monday's high and Tuesday's low. Retreats to gap areas often find support/buying interest. I've noted chart support at 4250, with next key technical support in the 4150 area.
Overhead resistance suggested by the upper trend channel line comes in at 4375; next resistance is calculated for the 4440 area.
I'm neutral on COMP in terms of taking on new bullish positions or taking on new bearish options strategies for that matter. If there's another significant pullback, such as into the 4200-4100 zone, this might suggest taking on new Nasdaq positions. That much of a dip may be a long-shot. A minor dip back to the area of the 21-day average is a shallow correction possibility.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart is bullish but Friday's dip back to the 3700 area has suggested minor slowing of upside momentum.
The Composite, unlike the big cap Nas 100, has stalled some after reaching the high end of its uptrend price channel; which hasn't occurred yet in NDX. NDX may reach resistance in the 3785 area, as suggested by the Nas 100's upper channel line, but nothing says this 'has' to occur or will occur. I trade NDX options but sometimes COMP's chart pattern is the most telling as to the Nasdaq trend.
Immediate overhead resistance (not highlighted below) is assumed at Thursday-Friday's 3738 intraday highs. Next resistance, as already noted, is seen at the upper channel line.
Near support is seen in the 3650 area, extending to 3600. Fairly major support begins around 3530.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nas 100 tracking stock, QQQ, is bullish on an intermediate and long-term basis but there is slowing of near-term upside momentum as suggested by QQQ's dip below prior intraday highs in the 90.8 area. This may be something if it's suggestive of another downside correction, maybe longer than this past week's 1-day dip on Monday.
Assuming QQQ holds above its 21-day moving average, the stock could take off again, pierce its most recent intraday high (91.36) and keep going to resistance implied by its upper trend channel line intersecting at 92.3. Stay tuned on that.
Conversely if QQQ starts falling under 90-88.9, support is seen next at 89, then 88 even.
The On Balance Volume (OBV) line is zigzagging lower on lower volume than the week before last, suggesting a less bullish outlook in QQQ with the stock now above 90.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) is bullish and the near-term pattern looks most like a minor bullish flag, which suggests another spurt higher, perhaps next to the 1230 area. I've noted near resistance at 1220, at the upper end of RUT's long-standing and well defined uptrend price channel. There's nothing that says uptrend channels won't get pierced but more often these upper boundary lines are places where prices pause and trend sideways thereafter or form a starting point to a more significant pullback.
Near support is noted at 1180, extending to the 1150 area. Fairly major technical support begins around 1120.
Unlike most of the major indexes, the Russell 2000 has reached a 'fully' overbought extreme. This pattern has most often, not always, marked an area where the Index will see slowing upside momentum and a pullback occur. It's not a situation where you want to take on new bullish positions.
The question of buying puts is another consideration but I don't advocate counter-trend trades much given my market analysis is updated weekly only and 'fading' the dominate trend requires day to day observations. In terms of probabilities, I see more downside risk than further upside potential given that RUT is so close to the UPPER end of its broad uptrend channel. Buying at the LOW end of the channel was great on a risk to reward basis as the major trend was up.
GOOD TRADING SUCCESS!