THE BOTTOM LINE:
The big cap Dow 30 (INDU), S&P 100 (OEX) and Nas 100 (NDX) indexes may have only paused in their uptrends, versus the broader S&P and Nasdaq indices that have looked more 'toppy'. To add to a mixed picture, the small cap Russell 2000 (RUT) could have found a bottom after retracing a Fibonacci 62 per cent of it previous advance and then rebounding. RUT also has a history of bottoms when its 13-day Relative Strength Index (RSI) falls to the 35 area which is what you'll see on that chart at bottom.
I've been suggesting exiting bullish positions as further upside potential has looked to me about equal to downside risk (of a pullback) in the S&P 500 (SPX) and Nasdaq Composite (COMP). I make such recommendations given risk-to-reward looking about equal (and not a good NEW trade bet) and also based on how prolonged the move has been up until the point where many stocks stopped sailing and started bailing.
I haven't said that a bearish outlook and strategies are warranted, especially in the INDU, OEX and NDX. These look like they could break out to the upside, having previously gone to new highs for the move and, in the case of OEX, successfully re-tested its up trendline. I redrew NDX's up trendline this week to a slightly lower slope which 'redefines' it somewhat, as will be seen on its chart. INDU didn't retreat even to its up trendline, given sizable advances in IBM, INTC, MSFT and moderate strength in bank/broker stocks GS and JPM, as well as with healthcare stock UNH.
The Dow might have even stronger bullish prospects if the current advance broadened out with MORE of the 30 Dow stocks continuing to move higher. Keep in mind with the Dow also that it is a price average and not capitalization weighted. Any company in the Dow with big price gains will move INDU more than might be the case in the cap-weighted S&P 100 Index for example.
IF 'decisive' upside breakouts occur in the big cap indexes and these continue higher is should pull up the broader SPX and COMP. I consider a decisive upside chart 'breakout' to be initially suggested by TWO consecutive days at new Closing highs, which hasn't happened yet.
UNRELATED TO MARKET COMMENTARY, BUT OF POSSIBLE INTEREST:
The 'Investor Exchange' (IEX) and only a few months old is an equity trading venue owned by buy-side funds and highlighted in Michael Lewis' fascinating Flash Boys book. IEX traded 119 million shares on both Thursday and Friday, which is getting respectable. Friday saw matched trades of 106 million shares within this pool, a percentage well above many public exchanges; i.e., such trades were crossed with orders within this pool and not routed out. IEX is the only such dark pool that publishes its rules of operation, fee structure and by ways described in the book, prevents High Frequency Traders from 'front-running' orders coming into IEX. An idea whose time is come, judging by the way their volume is growing!
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The S&P 500 (SPX) Index is mixed in its short-term chart pattern as the Index has been trending sideways for the past two weeks. SPX has a minor double top pattern within its current lateral trend. The intermediate-term trend remains up. There was one Close below the important (from a trading perspective) 21-day moving average but only one and SPX has rebounded from the highlighted up trendline, although that's a re-drawn line to reflect what looks to be the current 'best fit' up trendline.
1960 is a key near chart support. Back to back Closes below 1960 would suggest at least an interim top. Next support is 1940.
Near resistance is at multiple tops that occurred at and just under a 1985 line of resistance. Next higher resistance is projected at 2008, extending to the upper channel line intersecting currently around 2022.
The 13-RSI fell to a more or less 'neutral' (not overbought, not oversold) reading in the 50 area. Bullish trader sentiment has no longer been consistently on the high-bullish end of the CPRATIO indicator scale. No trading recommendations.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) went to new highs around 880 which is bullish and then stalled a bit. However, on recent weakness OEX held a key support at its up trendline and 21-day moving average.
870 is pivotal near support, extending to 865. A next important chart support then comes in at 860, extending to 857 at the 50-day moving average. Traders should keep track of the 21-moving average but investors will focus more on the 50-day average.
Near resistance is at 880-881, extending to around 885. Resistance currently implied by the top end of OEX's broad uptrend price channel well above current levels, is at 894.
OEX looks like it may be poised to break out above 880 but I'm watching from the sidelines currently. I'd want to see two back to back daily Closes above 880 to resume a short term bullish outlook, with the 880 area subsequently acting as support on pullbacks; prior resistance, once penetrated, often 'becomes' later support.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 Average (INDU) has been drifting sideways in the past few sessions and needs to achieve a decisive upside penetration above 17150 to regain short-term upside momentum. I seem to always be adding a note about what I mean by 'decisive' and a move well above a technical line of resistance is the most obvious way to see that; alternatively, Closes over two days running that simply stay above such a prior line of prior intraday highs is also a bullish plus.
I discussed last week that there were in my evaluation only around 8, of 30, Dow stocks that hadn't "faltered" in their bullish weekly chart patterns. I'd expect to see this number of (bullish) stocks EXPAND before seeing sizable further gains. Instead, as noted above in my initial 'bottom line' comments, the INDU rally this past week was largely due to a major thrust higher in IBM, INTC and MSFT, as well as moderate strength in bank/broker stocks GS and JPM and with healthcare stock UNH.
Near resistance is at 17000, extending to 17075. Near support is seen at 16800, with next technical/chart support suggested in the 16720-16700 area.
I'm neutral on the near-term outlook. INDU could go up, could go down. Yes, I know, not a profound statement but that's the way things look, especially when you flip through the 30 Dow component charts. It's a coin toss to a degree but short-term momentum is down and the trend uncertain in the near-term.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite Index (COMP) fell under its steep up mid-May/early-July up trendline and led to limited downside and pullback to a line of support that developed in the 4350 area. COMP traded briefly below its 21-day moving average, but the Index only once Closed below this key trading average. I'd rate the short-term trend as mixed/sideways currently. The intermediate to long-term trend remains up.
Resistance is seen at 4437, at a minor down trendline. This trendline resistance extends to recent highs in the 4450 area. Above 4437-4450, resistance is implied by the prior 4485 high.
Long-term resistance may come into play in the 4650-4700 area if we look out over the next several weeks. First, COMP has to make it back above 4485-4500! As mentioned already, pivotal near support is 4350, extending to 4300.
The Nasdaq Composite, which of course includes a large stock universe, has been relatively weaker than the S&P 500 in terms of slippage below its prior peak and its pattern of some descending highs (making the minor down trendline). COMP also looks to be weaker than the elite Nas 100 big cap index. The RSI retreated to a 'neutral' mid-range reading and bullishness has tapered off, which could be a 'set up' for a next rally, but all eyes are on NDX for that. The most bullish aspect is possible 'base-building' in COMP as the Index establishes a line of support at 4350.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart has been undergoing, what is so far, a short-term correction with a still-bullish pattern of higher relative pullback lows. A revised up trendline is seen below a bit under the prior trendline. Bullish technical aspects are seen with the up trendline and the pullbacks TO (and not a point under) NDX's 21-day moving average. Not so bullish is the recent stall and remaining to be seen is the ability of NDX to pierce 3950.
A pair of closes above 3950 would suggest potential for a new up leg, especially to the technically (and media!) important 4000 level.
I've highlighted initial support at 3850 but bulls should also watch for any decisive downside penetration of (or simply a minor close below) NDX's 21-day moving average at 3872 to suggest declining upside momentum. Next support is highlighted (green up arrow) at 3800.
I'm still trading 'neutral' on NDX. The way some tech stocks continue to advance keeps the Index challenging the 3950 area. Stay tuned as to a breakout above this resistance. A close above 3950 to be 'true' should be followed by a second such close if NDX is headed next to 4000. It almost seems a 'likely' fate that NDX, having come near this big target, will test the 4000 level.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) short-term pattern is mixed in the basically sideways trend of the past two weeks and the inability over this past week for QQQ to pierce 96.3 after a few attempts.
If 96.3 near resistance is pierced and QQQ then holds above the 96 area on pullbacks, it sets up potential for the Q's to advance toward the upper end of its broad uptrend price channel, which currently intersects around 97.4. Near technical support is in the 94.5 area to 94 even; 94 is highlighted on the chart. Next lower support is assumed to lie at the up trendline currently intersecting at 93.5.
The On Balance Volume line (OBV) is trending sideways to a bit lower still, so this key measure of volume is also neutral and should shift more strongly up or down by a breakout or breakdown.
As with NDX, I'm trading neutral and lack conviction in the prospects of a renewed push higher or at least don't like the risk to reward equation of NEW bullish strategies. I've suggested in the past couple of weeks to take profits on bullish positions. If wanting to stay in, with profits or without, risk protection could be set by liquidating stops based on a fall in QQQ below its 21-day average.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart remains bearish but hope for a bottom is suggested to me by RUT's retracement of a Fibonacci 62% AND by the oversold extreme suggested by the Relative Strength Index. It happens that for whatever reason, maybe just that RUT trades very 'technically', oversold or overbought extremes at 35 and 70 respectively, are frequent harbingers of tradable bottoms and tops.
Very near resistance is suggested at the 50-day moving average at 1152.8 currently. Next resistance, as highlighted on the chart (red down arrow) is at 1170, with next resistance suggested at 1185. Near support is in the 1130-1131 area, with next potential chart support at 1120.
As I wrote last week: "I suggest, besides keeping an eye on price action for signs of bottoming, to follow the 13-day Relative Strength Index (RSI) when readings are below 40 and especially when RSI gets to around 35." The 13-day RSI got to 35 before rebounding. Stay tuned for what follows in terms of a potential bigger rebound. This 'oversold' rule of thumb for RUT bottoms works a lot but not always, otherwise it wouldn't be the Market!
GOOD TRADING SUCCESS!