THE BOTTOM LINE:
After NDX made a double bottom low in mid-April and gained 8.9% into Wednesday's Open (the S&P 500 & 100 rebounded 6% in the same time frame) traders finally got very bullish as CBOE equities call volume was 2.3 times puts (on 6/4). Good grief, what were they (traders) waiting for! Someone to teach them technical analysis? Kidding! Sort of.
The psychology of bullish/bearish market sentiment extremes and the theory of contrary opinion is that the overall market views of traders/investors usually considerably lags market reversals and AFTER sizable price swings. Traders seem to prefer to wait until they believe trend momentum and in this case, the crowd 'gets' that it's still a bull market.
Not to be too harsh a critic here, as most traders don't live by the adage that chart patterns FORECAST what's coming for stocks well ahead of time, most of the time, ahead of OBVIOUS trend shifts. This is what Charles Dow discovered prior to the 20th century and we're in the 21st. Nothing much new under the sun!
IF you get bullish only when ALL can see major upside momentum, it may be that the herd has determined that the Market will gain another 30/30+ percent like 2013! In stocks maybe one can 'afford' to give up the first 6-9% gain from reliable bottom patterns and trend 'following' works to a degree. This strategy isn't so great in options, at least in directional trades. Trading based on widely recognized price momentum is not generally a great idea in options. My first success in trading Index futures and in forecasting to UBS was in using charts and indicators to identify EARLY trend changes, when momentum first shifted and bullish sentiment was still relatively, or very, low. My biggest following was the options brokers.
The charts look quite bullish now but they (the charts) have looked bullish since the signs for a mid-April bottom. However, this past week brought 'confirmation' of a rebounding economy and some waking up in Europe as to doing more than 0% interest rates.
The Dow 30 (INDU) is the best illustration (versus the S&P 500 & 100 charts) of a broad Head & Shoulder's (H&S) bottom with Friday's strong advance an upside breakout above the H&S neckline and suggesting a potential 'minimum' upside target to the 17400 area. See the Dow chart below.
A short-term correction and pullback can occur at any time, given a near-term overbought condition. Objectives I talk about are expected over time.
I'll save any further prognostications for my individual major market index commentaries seen below.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The S&P 500 (SPX) Index has accelerated to the upside, most easily 'seen' in yet another overnight upside price gap. This suggests a greater confidence in my interpretation of the highlighted 'measuring' gap, as suggesting half way in a move.
If so, SPX could get up to around 1987, close to my long-standing objective for the Index to reach 1980-1985. Stay tuned!
Support is seen at 1920, then in the 1900 area. Resistance (red down) arrows are highlighted at 1960 and then at the upper end of SPX's broad uptrend channel, intersecting at 1985 currently and coincidentally to a key price objective.
As noted in my initial 'bottom line' comments, SPX ran up 6% into Wednesday's Open, from its mid-April (double) bottom, before we saw CBOE traders' awaken from their bearish slumber, causing a big jump in bullish sentiment. First real 'extreme' we've seen in weeks and a reason to have stayed bullish from the lows on and cautiously bullish for some further upside.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is strongly bullish. Upside momentum has accelerated since OEX pierced resistance in the 840 area then did the same above 850.
There's potential for a move to the 880 area in OEX. (And really, if so, why not 900 as big fat juicy target for the bulls!) 870 is next resistance, then 880, at the top end of OEX's well-defined and broad uptrend channel.
The Index is at an oversold extreme both short and intermediate-term. However, a minor dip and some sideways price movement will tend to 'throw off' the most overbought (RSI) extreme readings. Enough so for some further gains ahead.
Technical/chart support is at 850, then in the 841-840 area.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 Average (INDU) has broken out above some important resistance at 16800 and appears headed for 17000-17100. I got struck, after this past week's trade, by the possible Head & Shoulder's (H&S) bottom pattern as highlighted on INDU's daily chart this week.
The last spurt higher so looked like a breakout above an imagined 'neckline' to such a H&S bottom pattern. If so, this recent up side 'breakout' move sets up an INDU objective to around 17400. Over time, I would also say, as I don't anticipate such an immediate strong spurt higher. INDU is overbought on a near-term basis like the other major indices.
Resistance is projected to come in next in the 17000 area, with resistance extending to 17100. Over time higher objective are possible.
Pullbacks to the 16800 area should be well bought, with chart support down to the low-16700 area. Trendline support is suggested currently at 16560.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite Index (COMP) is kept up the bullish pace anticipated after COMP crossed well above a 2/3 retracement of the last big downswing; this in turn, suggesting at least a re-test of the prior top in the 4370 area. This move looks to be on track. I've noted resistance beginning next at 4350, extending to 4370.
That last sizable upside price gap now more so to be half way in a move to the 4370 area.
Near support is suggested at 4250, with support/buying interest on down to the low-4200 area.
Bullish extremes now have been seen in the 13-day RSI and in terms of 'extreme' bullishness suggested by the CPRATIO indicator. Some volatility could come in, versus what has been a very low VIX. Nevertheless, price charts are in a strong bullish pattern and prices should go higher still. Prepare for some possible zig-zags along the way!
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) has been on 'fire' since the Index went to new highs, leading the way in my opinion for the overall Market rally that's got juiced this past week. 3800 may offer some near-term resistance, extending to 3850. NDX is also now quite overbought on both a short-term and intermediate basis. Fairly major resistance begins at 3900-3930.
I've noted anticipated support around 3738-3740, extending to the low-3700 area.
The possible 'measuring' implications of last upside price gap as highlighted below, suggest that was maybe half way in a move, with a target to 3850. This isn't to suggest NDX can't or won't go higher but I'd be happy exiting bullish strategies there.
The game can be more rocky ahead as the probabilities for a pullback increase. I don't anticipate a big downdraft but it won't take much of a dip and, some sideways consolidation, to 'throw off' the bullish 'overbought' extremes; enough so that another up leg is possible after such consolidations.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) is in a strong bullish move and projects still higher but getting there may get more rocky ahead.
Resistance is highlighted at 94 and extends to 95. A move to 95 would fulfills a 'measured move' objective.
Pullbacks to support in the 91.3-91 area could occur but the bulls may not make it even that easy for the QQQ shorts. 90 is the next and likely solid support for the Q's.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) has finally gained some traction and broke out above its down trendline with the move above 1160 which is bullish and suggests further upside retracement. That there could be a strong recovery move was implied by the huge 'double bottom' low.
I project next technical resistance coming in at 1180, extending to 1200. Look for support initially at 1155-1153, then at 1140 and next at 1120.
GOOD TRADING SUCCESS!