THE BOTTOM LINE:
The S&P and the Dow have seen two weeks of Closes above prior multimonth trading ranges but the tech heavy Nasdaq may see a lid on much further upside. A mixed technical picture between tech and the rest of the market.
Moreover, as you may have noticed yourself or heard from some market analyst(s), the Dow Transportation Average (TRAN) did not match the Dow Industrials (INDU) in a new monthly Closing high in February. Since then TRAN has been declining versus a higher trending INDU. This pattern is an initial bearish divergence in terms of Dow Theory. The Dow transports can rebound of course over time and 'match' the Dow 30 in its own new monthly highs but the current pattern does warn of the possibility of an economic slowing ahead.
Dow Theory suggests that a weakening TRAN suggests that shipments of goods may be slowing, although manufacturing and sales output may still be steady. If this pattern leads to a buildup of inventory, INDU earnings will also slow ahead. Mostly we have seen more or less steady economic growth but Dow Theory advocates have long held that very early bearish warnings on earnings have been predicted by diverging patterns of TRAN versus INDU and vice versa.
The S&P 500 and 100, plus the Dow 30 have had upside moves that have carried the indices to Closes above the top end of a prior 13 week trading range. These upside breakouts have not yet been substantial and sustained moves. This doesn't of course negate these bullish charts but it's early to tell if the Nasdaq will break out.
The Nas Composite (COMP) and big cap Nasdaq 100 (NDX) are at or near fairly major upside resistance implied by the top end of uptrend price channels (weekly and monthly charts) and continue to trade below their all time intraday highs dating back to March 2000.
The S&P 500 Volatility Index (VIX):
The S&P 500 (VIX) volatility index has been hovering around 12 which is about as low as it tends to go without a countertrend price move, which is a mildly bearish omen. The timing of a rebound in VIX is tricky however. A low VIX could suggest downward pressure ahead on stocks as we enter a period of several weeks with limited input on earnings.
Those wanting to hedge downside pressures that might develop ahead in their stock portfolios might wish to buy VIX calls at 12 and on dips below such as toward 11. Speculators could consider this also but taking a call (or put) position in VIX options are not for the feint of heart and upside moves are hard to predict in terms of timing and longevity of a thrust higher. The options are actively traded by fund managers.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The S&P 500 (SPX) is bullish in its pattern. As noted above in my initial 'bottom line' comments, the S&P 500 (and big cap 100) has had an upside move that carried SPX to a Close above the top end of its prior 13 week trading-range. This upside breakout hasn't yet been especially sizable and sustained.
Caution here regarding no major move higher as of yet doesn't negate the bullish chart. It's not uncommon for a breakout move to be followed by a pullback to a prior line of resistance to test this area as new support. In fact I'm more trusting so to speak of a pattern that completes a successful show of support at the top resistance end of a prior trading range, especially one of many weeks duration.
I mentioned initially also that it's hard to 'trust' in a new up leg in SPX without a similar move to new highs in the Nasdaq and that consideration continues to give me caution in assuming that SPX will see a big new up leg; e.g., to 2200.
Key near support in SPX is highlighted in the 2120 area, extending to 2100. 2180 looks to offer a next pivotal chart support. Near resistance is at 2132-2135, extending to 2140 as highlighted and then on up to 2160.
The 13-day RSI momentum indicator remains below a typical 'overbought' extreme and my CPRATIO sentiment indicator has been in a neutral range, although there's been a slide toward a more bearish outlook.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) is bullish in the same manner as the broader S&P 500 in the breakout above its prior multimonth trading range as highlighted below. Prior resistance, at 930-932, will 'become' a new and key support if the latest advance is not a false (unsustainable) breakout into a new up leg.
Near support is noted at 932, extending to the area of the 21-day moving average in the 927 area, then to 923-920. Near resistance is projected at 940, on up to 946, perhaps extending to 950.
Longer-term chart resistance, at the top end of a broad weekly uptrend channel comes in at 958-960, but that's another story in case a sustained next up leg develops.
Based on the OEX chart alone, without consideration of the lackluster tech/Nasdaq performance of late, the chart pattern alone warrants a bullish stance until proven otherwise; more so on a rally extension ahead and/or if buying/support is seen with OEX on pullbacks and rebounding from the 930-932 area.
THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:
DEVELOPMENTS RE DOW THEORY:
An implied bearish aspect implied by Dow Theory relating to prospects for the longer term trend for stocks and for the economy in general I wrote about in my initial 'bottom line' commentary above which I'll repeat here: "... you may have noticed yourself or heard from some analyst(s), that the Dow Transportation Average (TRAN) did not match the Dow Industrials (INDU) in a new monthly Closing high in February. Since then TRAN has been declining versus a higher trending INDU. This pattern is an initial bearish divergence in terms of Dow Theory. The Dow transports can rebound of course over time and also 'match' the Dow 30 in new monthly peaks but the CURRENT pattern does warn of the possibility of an economic slowing ahead."
"Dow Theory suggests that a weakening TRAN suggests that shipments of goods may be slowing, although manufacturing and sales output may still be steady. If this pattern leads to a buildup of inventory, INDU earnings will also slow ahead and the economy with it. That's the theory and its proven true many times in the past, but not always especially when the lagging Average catches up. Mostly the U.S. has seen more or less steady economic growth but Dow Theory adherents have long held that EARLY bearish economic/earnings warnings have been predicted by diverging patterns of TRAN versus INDU and vice versa."
CURRENT DOW CHART PICTURE:
The Dow 30 (INDU) formed a bullish 'symmetrical triangle' that I noticed on the last low in the 17800 area and wrote about in my Trader's Corner (5/7/15) article and the markup of the INDU daily chart is reproduced below. The only thing that's changed (from 5/7) is subsequent price action AND anticipated current support and resistance levels as seen below.
Anticipated resistance is suggested at the prior 18350 high, then next in the 18460 area. Technical/chart support is suggested at 18050, at the current intersection of what was resistance implied by the down trendline. Next INDU support is highlighted in the 17950 area.
The move in the Dow from the 17800 area to above 18300 was a good-sized rebound but typically expectations implied by the triangle pattern seen here would be for a further prolonged advance beyond the recent high. A pullback to 18200 or so doesn't change an expectation of a move above the highs for the recent rally. That said a decline to below 18050 for a couple of days running would be more bearish than what I'd expect from the chart. Long range resistance isn't seen until the 18760-18800 area. Stay tuned.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) is bullish in that it remains in an uptrend as defined by the past pattern of higher highs and higher pullback lows. Making the pattern currently 'mixed' is that COMP has yet to see a move to a new high above 5120 from late-April. A couple of Closes, preferably consecutive back to back such Closes at new highs, would tend to confirm a continued bull trend. If new highs get made, something further to look for is a possible re-test of the prior 5120 peak followed by a subsequent rebound that 'establishes' a new support base.
The ability OR inability for COMP to go to new highs above 5100 is technically (and psychologically) significant as COMP is in the territory of its all-time (intraday) high of 5132 dating back to March, 2000. Many if not most traders and fund managers are well aware of the possibility of a double top and a possible pullback from recent COMP highs and are reluctant to bid up COMP stocks from current levels. 'You first' or 'after you' kind of thing! Of course, COMP has also had a tremendous run up over recent years as COMP went from the 1500 area in early-2009 to over 5000 in 2015! P/E ratios in tech stocks are quite 'elastic' in growth periods but enough may be 'enough' for now. Stay tuned on that!!
COMP support is highlighted in the 5040 area of the 21-day moving average with next support at the milestone 5000 level.
NASDAQ 100 (NDX); DAILY CHART:
The big cap Nas 100 (NDX) chart has the similar pattern to the broad Composite as it nears a possible test of its prior intraday peak at 4562. NDX is well under (further away than COMP to ITS all-time high) its prior intraday top of 4816 in March 2000.
A possible bullish impediment technically or chart wise is that NDX is bumping up again implied resistance at the upper end of its broad long-term uptrend channel, at 4546-4550 currently (not shown here). This matches the resistance seen already in NDX and potential resistance for the current move. I've noted resistance basis the daily chart below at the 4562 prior high, then at 4600.
Support is highlighted at the 4482 and the 21-day average, with support extending to 4450. Fairly strong technical support is implied by the NDX's up trendline intersecting currently at 4378.
Lastly, NDX, like COMP, on a long-term chart basis has been at an overbought extreme for some weeks now. This isn't to say that the big cap Nas 100 Index can't and won't continue to move higher but, on the other hand, it's not for 'nothing' that Nasdaq is lagging the S&P in a move to new highs.
The NASDAQ 100 ETF STOCK (QQQ); DAILY CHART:
The Nasdaq 100 ETF tracking stock (QQQ) looks to be poised to re-test and possibly break out to new highs above 111.16. Next resistance is suggested, at the top end of an uptrend price channel, in the 113 area.
QQQ support is highlighted in the 109.5 area, then at the lower end of the same broad uptrend channel and intersecting currently around 107.7
As is common on rallies BUT not on the last move to the 111 area, daily volume has been relatively low on the most recent advance. And as usual, On Balance Volume or OBV is tracking higher. If this was a typical (company) stock technically we'd say that the volume trend was not 'confirming' the most recent advance. This may be so but volume doesn't often 'expand' and get bigger on rallies.
There's caution on this rally due to the prior top looming as possible resistance. I have no strong conviction that the Q's will achieve a decisive upside penetration of the prior top and go on into a new up leg. I don't have a strong conviction that they won't either! I would like to play the short side at the TOP end of the channel accompanied by an overbought RSI extreme in NDX. I like the 'extremes'!
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) is mixed in its pattern and hasn't of course matched new highs for the current move seen in the S&P and Dow. RUT is consistent with the Nasdaq and the medium to small cap stocks as a Market segment is no longer leading the tech stocks higher as it was into mid-April. RUT tends to be stronger in the first Quarter and a little beyond in terms of a seasonal influence.
A minor top in the 1260 is apparent on the daily chart. Resistance is obvious at both 1260 and then at the prior double top in the 1275 area.
On the bullish side, the Index is trading above its 21-day moving average and support is seen accordingly in the 1240 area. Chart/technical support extends to 1230.
RUT's longer-range chart pattern (not shown) traced out multimonth (mid-October to late-April uptrend channel, which RUT has fallen out of and hasn't regained. This past week's high stopped AT the low end of this channel.
I anticipate that RUT may trend basically sideways ahead, in a 1220-1230 to 1260-1270 trading range.
GOOD TRADING SUCCESS!