THE BOTTOM LINE:
I'm pretty much in repeat mode from last week when I say again that "The Market has had a very strong move up from its last low but (finally) appears to be hitting some technical resistance."
I've been highlighting in recent weeks the 21-day moving average envelope indicator as a way to ascertain the last major low (mid-Oct.) and going forward, a potential rising line of resistance. Use of Moving Average Envelope indicator with the major stock indices is a way of ascertaining lower and upper extremes relative to a 'centered' mean; i.e., a moving average in this case.
I just completed an overview in my most recent Trader's Corner article on the strategic use for the moving average envelope indicator for the major stock indices. But which I don't use for individual stocks - too much variation. This indicator adds 'envelope' lines set by the user (to float) at an upper and lower percent value relative to a 'centered' moving average. I use '21' as the length setting for the moving average envelope study or indicator. I hope the aforementioned article link will provide a useful primer on how this indicator for the indexes can provide periodic guidance on projecting future highs and lows.
The Relative Strength Index or RSI is showing overbought extremes in all the major indices except the Russell 2000 (RUT). RUT looks like the first index to suggest that peak values for now may be at hand. Bullish sentiment was high in the week prior to the holiday shortened past week. That and 'leveling off' price action in the S&P indices and the Dow suggest that a sideways to lower correction may be upon us. Stay tuned!
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The chart has been strongly bullish for some weeks relative to the mid-October bottom but a line of resistance has formed at recent intraday highs; i.e., resistance is suggested around 2075. This recent pattern, even though in a low volume week, suggests that there may not be any or much more upside potential just ahead. SPX (and the Market) is 'due' for a pause or pullback.
Immediate overhead resistance as noted comes in at 2075, with resistance probably extending to 2100. What I note as next resistance above 2075 is at the 3.5% upper envelope line, currently intersecting at 2115.
Near support continues to be highlighted at 2040, which is both suggested prior technical/chart support and this area also the current intersection at the technically important 21-day moving average. Next support and likely to be fairly major support is at the milestone 2000 level.
SPX is at an overbought extreme as measured by the 13-day Relative Strength Index (RSI). Moreover, trader bullishness was fairly high coming into this past week. Price action, and the aforementioned key indicators suggest risk of a sideways to downside correction in the near to intermediate-term.
S&P 100 (OEX) INDEX; DAILY CHART
OEX is bullish in its pattern but the Index has rallied so substantially from its recent bottom that the natural tendency to eventually pause or pull back is starting to be felt. OEX saw repeated intraday highs in the same area just under 920. True, a low volume Thanksgiving week but I don't 'discount' 'leveling off' price action in an 'overbought' situation just because volume was relatively low. Still, the real test should come on more normal participation is the coming week. Stay tuned but I anticipate a pause or pullback ahead that would 'throw off' the high current RSI reading.
Near resistance is at 918-920, with fairly major resistance projected in the 940 area, as implied by the upper envelope line. This isn't like a prior actual high but is one way of projecting an upper 'extreme' for a next price swing.
Key near support in the 905 area is suggested by a line of prior support and at the 21-day moving average. Support extends to the milestone 900 level. Next support looks like 885-890.
Along with the other major indices OEX is at an 'overbought' extreme as measured by the Relative Strength Index on a 13-day time frame.
THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:
The Dow 30 (INDU) has been on tear along with the other major indices but leveling off price action is seen with recent intraday highs forming at and just under 17900. Resistance is seen at 17900-18000. If there was to be another up leg, next resistance is projected in the area of the upper 4% trading 'band'/envelope line currently intersecting in the 18350 area.
Chart support is seen at 17600, extending to 17400. Fairly major support begins in the 17200 area.
The Dow has been led especially by STRONG weekly uptrends in CSCO, DD, DIS, GS, HD, INTC, JNJ, KO, MMM, MSFT, NKE, PG, TRV, UNH, V, and WMT. These 16 stocks, just over half of the Dow 30 Average, could continue to propel INDU higher, and lead the Market up also.
A pause/pullback is not a slam-dunk but INDU when looked at as a whole, is suggesting a momentum slowdown. Still, the bottoms up analysis of the monster cap INDU has been showing very strong buying interest in a good portion of the Dow Industrials. GE which is a Dow 'bellwether' stock has stopped moving up and has fallen back some from its prior highs. The fact of an overbought reading in the Relative Strength Index lends some technical support to the risk of a correction from recent highs.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) and big cap Nas 100 (NDX) did not level off this past week as was seen in the S&P and Dow, or of course like the near-term downside reversal in the Russell. Still, I think COMP is nearing potential resistance, first at 4800, then at 4900.
Fairly major resistance is assumed at the milestone 5000 level. The March 2000 all-time COMP monthly high was just over 5100.
Near COMP support is at 4680-4700, with next chart support in the 4600 area.
COMP is also at an 'overbought' RSI extreme but this is an ancillary indicator, not a primary one as overbought conditions can persist for lengthily periods in strong bull market trends.
Trader bullishness, as measured by my CPRATIO sentiment indicator tapered off this past week and is no longer 'extreme' as I see it. In the week before this indicator was showing some excess.
NASDAQ 100 (NDX); DAILY CHART:
I noted over the past week(s) that "I'd be scaling out of NDX call positions on a move into the 4300-4350 zone" and such an advance into this price zone came this past week as NDX continues its advance. The chart remains bullish but the more or less straight up move suggests some risk of a correction. 'Straight up' sometimes leads to straight down or to a significant pull back at least; e.g., back to 4200 support.
NDX is the one index that could be headed again to potential 'resistance' at the upper trading band or envelope, currently intersecting just over 4400. Near resistance is highlighted at 4360. Pivotal near support has advanced to 4300, from 4200, which looks like second tier or next lower support in the area of NDX's 21-day moving average.
Of course NDX is at an 'overbought' RSI extreme. What else could be after a straight up move! The Nasdaq 100 volatility Index, VXN is back down to a relatively low level. This can be construed as mildly bearish the longer this goes on but we can't do market 'timing' based on it.
All in all, NDX is vulnerable to a correction but hasn't had any downside reversal type price action so is an unproven theory at this point!
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
I also wrote in the past couple of weeks that "QQQ 'resistance' and a next potential upside 'target' was to 105, extending to 106." I also suggested a speculative counter-trend short of this ETF in this zone. IF short QQQ, my suggested exiting stop is at 108.
Resistance is seen in the very near-term at 106-106.25, then at 107.8.
Near support is highlighted at 104, with next anticipated support coming in around 102.8-102.9, an area of prior buying interest and at the 21-day moving average currently.
On Balance Volume (OBV) continues to trend higher but daily trade volume is very low. OBV is in sync with the strong uptrend but daily volume is mixed in that buyers don't appear to be still active at current lofty levels.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) per my statement last week of RUT possibly being the 'canary in the coal mine' relative to the overall Market as suggesting that peak stock prices may be at hand for now.
RUT looks to have traced out a near-term top in the 1190 area, well shy of its prior top/high in the 1213 area.
From the line of prior intraday highs around 1190, Friday saw a sharp pullback to support implied by the 21-day moving average. Next support looks like 1160-1153, extending to the 1140 area.
The declining RSI in the face of an overall sideways trend as noted last time has suggested this pattern as a bearish price/RSI divergence.
GOOD TRADING SUCCESS!