THE BOTTOM LINE:
The Market shows some signs of hitting at least temporary overhead resistance. When the Market has a scant rally on 'good' news (job creation) can a correction be far off?
It's hard for me to answer this question but I lean to the 'resistance' idea, as in hitting the top ends of broad weekly chart uptrend price channels.
Bullish 'trader' sentiment shot up on Friday in terms of option call to put volume ratios, but not prices so much, as if stocks were generally perceived by Investor types as fairly valued, at least for now.
The Dow 30 (INDU) is performing better than the S&P as INDU has gone to new highs for the current move. There is potential resistance at 18000. About half (14-15) of the 30 Dow stocks are in strong weekly uptrends still. There used to be a concept of a 'solitary walk of the Dow', where INDU climbed but the rest of the Market lagged. Hard to predict if the Dow is showing the way to higher levels or is going to pause at, or dip from, the 18000 area.
There is also the concept of a 'santa claus rally' into late-December but the second week in this month is perhaps early for that seasonal influence. There may be a dip in prices in the coming week, perhaps extending into the following week, setting the stage for a next upswing into late-December/early-January. Stay tuned on that!
On the bullish side, a decisive and prolonged upside penetration of 18000 in INDU would suggest a possible next up leg in the overall Market. A strong move in the Nasdaq Composite (COMP) above 4800 would also be bullish, as would be a sustained surge above 2085 to 2100 in the S&P 500 (SPX).
Overbought readings continue in all the major indices (except for the Russell 2000) on a daily chart basis, as well as with weekly charts. This isn't a definite prediction of a downside correction ahead, but overbought extremes do suggest greater risk of profit-taking selling or selling on bearish news with the US or the global economy.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The S&P 500 has been in a steady bullish advance but SPX has leveled off over the past two weeks as the Index has been stalling in the 2075 area where I've noted initial resistance. A decisive upside penetration of 2075-2085 is needed to suggest another upswing ahead and challenge of 2100; resistance then extends to 2130.
Odds of pullback are increasing given the leveling off of prices, high bullish sentiment readings on Friday with only a limited rally on the strong jobs report. Overbought readings in the 13-day RSI indicator and mirrored in the 8-week Relative Strength Index (not shown) suggests protecting, or taking profits on, bullish positions.
Immediate overhead resistance, unchanged from last week, is at 2075 with resistance extending to 2085 on up to 2100. I've noted potential next resistance at the 3.5% upper envelope line, now intersecting in the 2130 area.
Near support is highlighted at 2053-2050, with fairly major support coming in if SPX were to fall to the 2000 area.
S&P 100 (OEX) INDEX; DAILY CHART
The big cap S&P 100 (OEX) remains bullish in its longer-term pattern but has leveled off at and just under 920. This may well be a function of an 'overbought' condition as suggested by the 13-day Relative Strength Index. I also note in my initial 'bottom line' comments above that the 8-week RSI has just climbed again into an initial overbought reading for OEX and in all the major indexes (except RUT) although I don't feature any of those weekly charts this week.
Next resistance above 920 in OEX is highlighted at 935, extending to 942, at the upper 'resistance' envelope line currently set at 3.3 percent above the 21-day moving average. Near support comes in at 910, then at 900.
The Dow 30 has pushed higher and those (30) stocks are closer to what may happen in OEX ahead than in the broader S&P 500. It's hard to say what comes next, a renewed surge higher versus a pullback - 20 points down versus 20 points higher. What we can say is that there is increased risk of a pullback based on recent price action and overbought readings.
THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:
The Dow 30 Industrial Average (INDU) continues in a bullish pattern. Unlike the two S&P indices, INDU appears to have broken out above ITS resistance (in the 17900 area). Next resistance and perhaps a tougher lid on INDU near term, is at 18000 as pointed out last week given the 18000 area representing potential chart resistance at the top of INDU's long-term price channel.
INDU stocks continue to see strong weekly uptrends in CSCO, DD, DIS, GS, HD, INTC, JPM, MMM, MRK, NKE, PG, TRV, UNH, and V. There are some adjustments to this bullish list from last week, as I calculate 14 the aforementioned Dow stocks, down from 16, as continuing in strongly bullish patterns. (This is my perception and mine alone of the 30 weekly charts involved.)
Half of the Dow stocks capable of further gains are enough to push the Average still higher. It is nevertheless hard in both individual stocks and in the Indices to predict just what might cause an across the board correction. Most of the 14 stocks in strong bull moves had gains last week with below average daily volume. This might be the factor that undermines a new up leg above 18000. Volume is a secondary indicator but stocks are in their strongest positions when gaining on above average volume.
Near technical/chart support is bumped up this week to 17700 with next support seen around 17600, and fairly major support beginning at 17400.
As with all the other major indices, except RUT, overbought readings are seen on both the daily and weekly (not shown) charts, suggesting at least caution in 'chasing' the major indexes higher.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) has paused in its previously strong advance as the Index has leveled off at and just below 4800. This can be a temporary (price) consolidation ahead of a new up leg or building at least an interim top. How to know?
We do know that prices are 'due' for a pause in the normal scheme of things with stocks. One way to measure this is by high readings in the various technical 'momentum' indictors. I rely the most on the Relative Strength Index (RSI) and, on both a 2-week and 8-week basis, the major indices are overbought. Given this, it's not surprising to see a leveling off in COMP.
I suggest focus on key resistance at 4800. A decisive and sustained upside move above 4800 suggests the 4900-4930 could be seen next. Conversely, a decisive downside penetration below the 21-day moving average in the 4700 area is bearish. And here I'm talking about two or more consecutive days below this key trading average.
I note in my initial 'bottom line' comments above that both the 13-day AND 8-week RSI readings have climbed again into an initial overbought reading for COMP and for all the major indexes except RUT, suggesting higher risk of a shakeout. With timing not so predictable of WHEN an 'overbought' market will correct much.
NASDAQ 100 (NDX); DAILY CHART:
The NDX chart is bullish but recent price action suggests a possible interim top. It depends if the Index can climb above 4350 as to whether NDX can resume its prior upside momentum. Such a move above 4350 if sustained and support found on pullbacks to 4350-4325 can lead next to a climb to the 4450 area. Stay tuned!
Key support is found at the 21-day moving average. Break this support in the 4240 area without a quick recovery could lead to a subsequent test of 4200 support or lower. 4100 is the start of fairly major support.
Same deal as last week when I wrote that "NDX is vulnerable to a correction but hasn't had any definite downside reversal type price action yet." Still true but the short-term pattern looks more bearish than bullish currently.
NDX, like the broad Composite (COMP), is 'overbought' on a time frame from 2-weeks to 2-months. Volatility for the Nas 100 as measured by the VXN Index is relatively low. If VXN continues to drop, it tends more toward conditions for a pullback than not.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The QQQ chart is bullish on a longer-term basis but short-term it wouldn't be surprising to see a pullback to near support in the 104 area. Next support is at 102.4-102.
I have previously suggested a counter-trend short in the 105-106 zone. IF short QQQ, I suggest a lowering an exiting stop to 107, from 108.
Resistance is suggested near-term at 106-106.25, then at 107.8, extending to 108-108.6.
On Balance Volume (OBV) is the volume indicator that I track from week to week and OBV has leveled off with prices, which I take as mildly bearish. If there's a downside correction, the next question is whether its shallow or deeper. Shallow is to 104-103.7 currently. A deeper correction is back to major support around 100.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) may have traced out a top in the 1190 area, well shy of its prior top/high/resistance around 1213. A decisive upside penetration of 1190, with support/buying interest found in this same area in subsequent pullbacks to 1190-1180, would be bullish however and lead to a possible retest of the 1213 prior (intraday) high.
Near support is highlighted at 1160 and extends to 1160-1153. Next key chart support is 1140. Fairly major support begins at 1120 and extends to 1110.
I noted last week that declining 'relative strength' (seen with the RSI line trending DOWN) with prices in a SIDEWAYS trend is a mildly bearish divergence. a sideways trend after a prolonged or sharp advance often leads to a declining RSI. This pattern, prices going sideways (or up) versus a momentum indicator like the RSI trending downward on balance, is at least a warning of another dip in RUT. RUT has had a pattern of sharp two-sided price swings.
GOOD TRADING SUCCESS!