THE BOTTOM LINE:
Bullish charts tend to 'forecast' bullish economic news and the most recent example was the US jobs figures. Spoken like a true 'technically' oriented trader/analyst! That would be me and now the worry warts just have to fret about the Fed rate hike and its impact.
I find it easier and especially more profitable to just have some confidence that the strong rally we were seeing was BECAUSE the economy and earnings prospects were surging again. A relatively low level of trader bullishness almost 'insures' that a rally like the one we're in is for real. When you see my 'sentiment' indicator, my CPRATIO line displayed on the S&P 500 (SPX) and Nasdaq Composite spike into the upper 'overbought' (excess bullishness) areas, look out below at some point.
A correction or corrective period is likely to come. Overbought Relative Strength Index (RSI) readings in the major indexes suggest further big gains may be harder to come by without a sideways move OR pullback. For reasons outlined with the charts moderate bullishness is still warranted. It's just that the major gains already went to the quick-to-see traders who saw a trend change developing, as selling dried up and to those who kept in mind that the dominate/primary trend was/is UP.
The Russell 2000 (RUT) no longer the 'odd man out' after gains made this past week. While some of the other major indices were testing or exceeding prior highs, RUT couldn't regain even half of its prior decline. That changed and RUT looks like it can at least tack on some modest gains, which makes the small cap sector looks more in line with the bullish Nasdaq and S&P indices.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The S&P 500 (SPX) looks to be consolidating recent gains, not giving much ground but not charging higher either which also maintains a bullish chart. A pullback to 2050 wouldn't be surprising (or alarming) but meanwhile SPX is finding support/buying interest on even modest dips, consistent with a bullish recovery move.
The chart pattern suggests eventual highs above the prior double top in the 2130 area. I've noted (down red arrows) near resistances in the 2115-2132 zone; assuming an upside break out above this heavy resistance overhang, a next move could propel to the 2165 area.
Near support clearly looking like 2050-2055, with next support, pivotal at the milestone 2000 level. Last week my 'dream' trade for the bulls was to only buy a dip back toward this area; and NOT likely to be seen. The action currently is on a move to rest the highs. A sideways trend ahead would tend to 'throw-off' an overbought condition, in the same manner as a pullback to the key 2050 area.
Options traders are not showing high bullishness, which is why my sentiment indicator (seen above) hasn't yet hit what I define as overbought-'extreme' bullishness' levels. This is just basic contrarian-trading wisdom, which is practiced more by professional traders than not. This facet makes me more comfortable so to speak in the staying power of the current advance. Sure, backing and filling, pullbacks too, but the dominant or (per Charles Dow) 'primary' trend is up.
The S&P 100 (OEX) INDEX DAILY CHART
The big cap S&P 100 (OEX) hasn't yet managed a Close above its prior Closing high of 945.6 and gone on to surpass OEX's prior intraday peak at 948, highlighted as near resistance. OEX's chart pattern looks like a 'high-level' bullish consolidation before a push to new highs. Above 948, a next projected advance to a next potential resistance is to the 965 area.
Pivotal and probably pretty 'solid' support/buying interest is highlighted at 920 again this week, with next support now looking like 915-912 or in the low-900 area rather than 900 even. The usual gist of an upside reversal pattern like this that's continued to rebound strongly and somewhat 'unexpectedly' is future buyers not getting 'ideal' re-entry levels. Conversely, assume a bearish reversal on a sustained drop below 880.
Over time my OEX assessment is for a move to 1000 and the upper resistance end of its bullish long-term uptrend channel (not shown here).
THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:
The Dow 30 (INDU) has regained considerable upside momentum as seen in its bullish breakout (and consolidation) above INDU's highlighted down trendline. The subsequent consolidation above the bearish trendline suggests that what was a resistance, including this trendline, may have 'become' subsequent support per green up arrow support noted at 17760. Next lower support is seen in the 17600 area, at the current 200-day moving average. Fairly major technical support begins in the 17300 area.
I thought this past week might bring a pullback, perhaps even back to the 17400-17300 zone in the Dow such as from a bad jobs number. However, the consolidation above the down trendline suggests higher levels to come and possible if not probable re-tests of prior highs over time. Obviously the Dow is lagging the S&P, which is capitalization weighted - big difference. The 18137 area is a next rally target and a potential resistance, with further resistance anticipated at prior intraday INDU peaks in the 18350 area.
I wrote last week that "INDU is important technically relative to the other major indices in terms of having a well-defined down trendline. A sustained Close above this trendline could set up a potential retest of INDU's two prior highs; i.e., first at 18137, then at 18360." The up move came, stay tuned for what's next!
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) hasn't broken out to new highs but the recovery rally has been powerful (and a runaway upside 'gap' above 4900-5000), plus COMP tends to follow the lead of the big cap Nasdaq NDX which is most recently now consolidating ABOVE its prior intraday and Closing highs.
So, seemingly only a matter of time, not IF, COMP makes a similar new high above the prior top/resistance at 5232. Next resistance is projected at 5300, following internal trendlines higher in the coming week.
Pivotal support is seen starting at the high end of the aforementioned upside price gap and at the 'milestone' 5000 level. Support extends to 4920-4900.
COMP may throw cold water on some of the bullishness that's out there by either not making a sustained new high or only a short-lived one and then pulling back. Why? Mainly, from the tendency we see for the major indexes to 'throw off' an (at least some) overbought condition. This can come from just hitting or nearing a key prior high and then going sideways. I'm not anticipating big price dips; at most, back toward 5000. The prior upside price gap suggests support from 5000 down to the 4925 area.
NASDAQ 100 (NDX); DAILY CHART:
The chart is bullish in its pattern. Nasdaq 100 (NDX) upside momentum seen as potentially uncertain last week "absent a decisive upside penetration of the previous top", quickly came true this past week.
I could have also noted the added importance of a sustained move above prior highs and it's still a bit of a question for the coming week; i.e., does NDX continue to trade above 4685-4700. If so, a next NDX move is possible to 4800-4840 before potential resistance/selling pressure comes in.
Support is noted at 4600 but I'm only stating strong likely areas of buying interest. From 4600 strong buying interest should extend to the 4500 area. Don't look for big 'bargains' ahead in NDX!
I'm bullish on NDX long-term but levels above 4800 may be hard to sustain absent more corrective action coming in this month and some more time passing. To put some possible near resistance in perspective, when looking out into April, a milestone 5000 could be seen in the Nas 100.
The NASDAQ 100 Tracking Stock (QQQ); DAILY CHART:
The Nasdaq 100 ETF (QQQ) is bullish but there's some resistance showing up around 115; resistance probably extends to 116 near-term and 118 longer-term.
I wrote last week that trade "above the 114 level is key to saying that the Q's have resumed their prior long-term uptrend." Still looks that way but near-term corrective action can still come in. I've highlighted expected initial support at 113, but would more emphasize pivotal support starting around 112, extending to the 111-110 zone.
On Balance Volume (OBV) continues to trend strongly higher. The Nas 100 index is 'overbought' of course as seen in the NDX Relative Strength Index (see NDX chart above) but this is a 'potential' for QQQ reactions, not WHEN or 'timing' of potential corrective action.
The RUSSELL 2000 (RUT); DAILY CHART:
It looks like RUT is catching up some with the otherwise bullish Market. RUT this past week made it through and above resistance implied by a 50% retracement of the Index's late-June to early-October decline; a bullish plus in terms of suggesting further gains and more consistent with the overall Market.
In a 'normal' recovery rally a stock or index will typically only rebound about half of its prior decline before selling pressures tend to mount again. RUT looks more buoyant then that and poised for still further gains. The pivotal 62-66% retracement zone may be tested next. I place emphasis on the ability of an index to 'retrace' GREATER than 2/3rds of its prior decline. Hence my chart note below: "consistent Closes above 1223: bullish".
Above RUT near resistance at 1200, then a tougher 1213-1223 resistance zone, next resistance then looks to begin around 1240. Technical chart/technical support begins at 1180, drops to 1160 and extends to 1140. Closes below 1140: bearish.
The Russell 2000 looks headed higher, not dramatically but this sector is 'cheap' relative to the Nasdaq and S&P indexes.
GOOD TRADING SUCCESS!