THE BOTTOM LINE:
A key downside reversal pattern led to a stumble in S&P and Dow momentum ('Mo') but tech marched higher, just a bit slowed down in the Nas Composite.
There was a key downside chart reversal this past week, as the major indexes rallied to a decisive new high but Closed the day under the prior 2-days' Lows. But, as noted, this apparent reversal pattern has led only to a slightly down week for the S&P and Dow. But, there's also been some further gains in the Composite and continued strength in the red-hot big cap Nasdaq 100 (NDX). A longer range objective for NDX is to 4000.
I found that very high bullish sentiment, as suggested by my CPRATIO 'sentiment' model, was worrisome and it is, but this kind of 'excess' doesn't pin down a top. Extreme bullishness in a bull market can persist for long periods. Bullishness has moderated some, but remains relatively high. The tech froth and fever is probably skewing bullishness, as traders are not throwing money at mainstream economic stocks like traders are with key stocks in the Nasdaq universe.
I've had an objective in the S&P 500 (SPX) for 1980-1985 which may or may not be seen in the near-term. If SPX goes to this area, it seems likely to then touch or test 2000, a big milestone number.
I'm watching the following key resistances, which if overcome, suggest further upside momentum to come:
S&P 500 (SPX) - resistance at 1964 intraday; 1968-1970, Closing.
S&P 100 (OEX) - resistance at 870, per long-term charts.
Dow 30 (INDU) - resistance at 16910, then 16970-17000.
Nasdaq Composite (COMP) - key resistance at 4415, then 4450.
Nasdaq 100 (NDX) - resistance, 3875-3900.
An overall tech bellwether, the Semiconductor Index (SOX) should find technical (up trendline) support around 625; its Friday Close was 629. A bellwether stock within SOX is Intel (INTC) and the semiconductor stock is in a strong long-term uptrend; INTC Friday Close: $30.9, up 61% in 18 months. If SOX falters here, it may be a sign that Nasdaq stocks may get choppy ahead with some downside pressure.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The S&P 500 (SPX) Index remains bullish in its overall pattern. There was a key downside reversal that set up this past week, but this formation appears so far to have led only to slowing momentum and a sideways move. SPX was down slightly on the week.
There remains risk of a minor or interim top formation ahead. A more bullish chart would emerge with consistent Closes above minor resistance in the 1960 area. 2000 remains a long-term target and would be a 'double' for SPX within the past 5-year period.
My concerns for a 'stumble' in SPX last week had to do with an overbought level in the 13-day Relative Strength Index (RSI) and an 'extreme' in my bullish sentiment indicator (CPRATIO). Extremes in bullish sentiment plus an overbought situation COUPLED with an apparent downside reversal in the price chart, suggested high risk for a pullback. Working against this view, so far at least, is that SPX hasn't fallen any appreciable amount and there's continued supportive strength in the Nasdaq, especially in the big cap Nasdaq 100 (NDX).
A risk for those who want to stay the course in SPX calls is that SPX gets choppy ahead and trends sideways in a trading range pattern, say between 1940-1925 on the downside and 1980, possibly closer to 2000, on the upside.
Near support is highlighted in the 1940 area, with support extending to 1925. As noted already, bullish sentiment has pulled back from very high recent readings as traders appear to have realized that there IS risk of a pullback, especially with liquidity drying up some in our summer slow period.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is bullish overall but 'neutral' in its recent sideways trend. This, after what looked a key downside reversal was traced out in OEX. Such reversal patterns are normally suggestive of more than a minor pullback. I thought, ah-ah, a correction is starting given the related overbought RSI and such high bullish sentiment as seen in the spike above in my CPRATIO indicator accompanying my SPX chart.
I wrote last week that: "My concerns about a stall in the trend, taking prices either sideways or lower, is an overbought situation both in terms of the Relative Strength Index (RSI) and extreme bullishness among options traders as I measure it; see my 'CPRATIO' indicator accompanying the SPX chart above." We have seen the stall. Stay tuned if this leads to more of a sideways movement, a new up leg or a pullback.
A next objective and potential resistance in OEX is highlighted this week at 870, only down slightly from 875 noted last time, and with next resistance suggested at 880. 890 to 900 looks like a fairly major resistance zone. At such time as there's a more neutral mid-range reading in the RSI indicator there's somewhat greater likelihood of a next move up testing 900 in OEX.
Near support remains highlighted this week at 860, with support extending to 850-845.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 Average (INDU) is bullish on a long-term and intermediate basis, but neutral to bearish on a short-term view given the recent double top in INDU. These two tops don't constitute a 'major' double top as would be the case if the two peaks were a few weeks or few months apart rather than a few (trading) sessions apart. The more time that goes by before a second similar top forms makes the pattern more significant in suggesting a tradable bearish double top.
The two Dow oil stocks (CVX and XOM) helped push the Dow Average to the prior price peak, but the bullish oil influence has waned a bit as world crude prices haven't spiked significantly with the Iraq situation. AXP, CAT, DIS, GE, INTC (discussed above in my 'bottom line' commentary), JNJ, KO, MMM, MSFT, TRV, and UNH all look 'capable' (from bullish charts) of higher prices. If CVX and XOM stay up or go higher, and the other aforementioned stocks keep gaining the Dow could break out to the upside. This past week's price action isn't compelling for a further bull move near-term. INDU is a laggard here as sexy tech has the glamour, where high P/E ratios don't keep potential buyers away necessarily as is the case with 'old economy' stocks.
Near support is highlighted at the uppermost trendline, currently intersecting at 16740. Next support is highlighted via the green up arrow, at 16600.
Pivotal resistance is seen at the prior top in the 16970 area, with resistance likely extending to 17000 even, with resistance then extending to 17050 and next to around 17280-17300 in terms of what I'm seeing on the weekly Dow chart (not shown here).
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite Index (COMP), after looking like it would top out for a time at or near the prior 4370 intraday high, went on to Close near 4400 at near-term technical resistance. To move into a clear cut bullish pattern COMP should close above 4415 at the previously broken up trendline. Next resistance is at 4450.
COMP is still in an overbought area in terms of the Relative Strength Index AND there's still a lot of bullishness among options traders, but my CPRATIO 'sentiment' model has come down from the extreme seen recently (at 2.6). Besides, if COMP keeps going up, high bullishness is only a sign of a lot of other traders being bullish and probably complacent in their view that's there's limited downside risk. There's often substantial downside risk after a prolonged advance when most market participants are bullish on stocks!
Near support is highlighted in the 4350 area, with support extending to 4300. Fairly major support comes in the low-4200 area.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) is bullish in its pattern after an end of the week push higher, after buying interest was repeatedly found at 3800 support. NDX had been in a narrow uptrend channel, as defined by a steep up trendline, but fell below implied trendline support briefly. Friday's rebound put NDX back into its bullish price channel.
Another pullback to 3800 or under in the upcoming holiday shortened week would lean bearish. A push above 3850 would suggest next resistance around 3875 could be tested. Further resistance then comes in around 3950, at the current intersection of the upper channel line. Long-term resistance is suggested at 4000 and I think that's where NDX is headed; eventually and perhaps after some further corrective action.
Near support as noted is at 3800-3790. A Close below 3800, not reversed the following day, would be bearish short-term. Next support comes in around 3750. Major support is at 3700-3680.
NDX is well into its 'typical' overbought territory in terms of the 13-day RSI and this suggests significant risk for those would be bulls coming (very) late to this party. That and the very low Nasdaq 100 Volatility Index (VXN), also seen below, suggests some risk that volatility could rebound and prices pull back, given bearish economic/Market news. It's impossible to correlate a low VXN with tops, but tops of any degree seldom occur without a low VXN; e.g., at or below 13.4-13. VXN went out Friday at 12.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) is bullish like the underlying Index of course. The bullish charts are completely similar with only the support/resistance levels different.
Support in the Q's comes in around 92.5, at the line of recent lows, then next at 92 even per the green up arrow highlight. Next support in QQQ then is seen at 91, at the current intersection of the stock's up trendline per my trendline highlight.
QQQ near resistance is suggested at 94 even, then in the 95 area, as implied by the upper channel line.
Volume has been quite low on this latest rebound, which is fairly typical of QQQ. New buyers are afraid to jump in and the bulls have got the would be shorts running scared as the big cap tech index seems to only go UP. Volume jumps in QQQ usually ONLY when the many holders of this EFT guard profits and exit long positions. The On Balance Volume (OBV) line continues to trend up and is a related bullish volume aspect to the bullish chart pattern.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) has rebounded following the Nasdaq higher, after its prior steep decline. A heck of a call buy opportunity occurred when RUT formed the second part of a double bottom.
Where to from here? The Russell has yet to overcome it prior recent 1193 intraday peak and then challenge/retest an area of prior highs in the 1208 area. If RUT can manage a couple of Closes above 1200-1208, the Index is in a position to possibly head next to 1260-1265. However, with RUT continuing to hover near its RSI overbought zone, this backdrop isn't great for suggesting that the Index will have such a further up leg.
Near support is at the current intersection of RUT's steep up trendline at 1170; RUT technical support then extends to the 1160 area.
GOOD TRADING SUCCESS!