THE BOTTOM LINE:
This is one of those, 'on one hand...but on the other hand' takes on the market. It looks like a mixed picture in terms of which way for the next move in the near-term. For those who like to think there's always a way to figure out a next price target for the market, sometimes you just have to wait and see more price action for more of a clue as to what comes next.
Generally, a move to new highs such followed by a sideways consolidation at or above prior highs is bullish, as seen with the S&P and Dow. When this price action comes after an index or stock gets 'overbought' in terms of various technical indicators and after traders got extremely bullish it also injects a cautionary note about a continued bullish stance. The fact that the Nasdaq indexes are struggling to hold above their prior swing highs, also suggests that a deeper pullback may lie ahead in the overall market.
In terms of the S&P 500 (SPX) which I'm looking at currently as the 'lead' index, I don't see much upside potential above current resistance in the 1100 area in the near-term; e.g., perhaps to around 1120-1125. The odds of an SPX pullback to the 1050 area, or even to a retest of the prior 1120 downswing low, are about equal to the potential for a move to 1125 in my estimation. With this equation, upside potential relative to downside possibilities looking roughly the same, I don't want to gamble on a direction here.
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) did meet my 'bullish test' for the index to at least hold above the index's prior high at 1075. I also noted last week that the bullish best case would be for a move above and beyond this level which has hardly happened. Instead SPX has seen more recent intraday volatility.
Key near resistance is in the 1100 area. I often have written about the tendency for the major indexes to sometimes struggle to break out above, or to hold as support, key round numbers. SPX fluctuated above and below the 1000 for a time you will recall. Above resistance implied by the cluster of recent highs in the 1100 area, I've noted a next potential resistance at the upper boundary of the index's uptrend channel, which currently intersects at 1118 and will rise gradually over time.
An important support is 'defined' at the 50-day average, currently at 1046. Next support is suggested at the prior downswing low at 1020.
While prices have been trending sideways, the RSI has been in a declining trend. There are two ways of looking at this aspect also. One is that the recent lateral move is 'throwing off' the recent overbought reading in the RSI. And, once the 13-day RSI at least gets to a neutral reading at or below 50-45, SPX will start to rally again. The bearish case is that with prices drifting sideways on a declining RSI, this is a type of bearish price/RSI divergence. All in all, doubt about the near-term direction of the index is suggested. Old trader saying, "when in doubt, stay out!"
In terms of my sentiment indicator seen above at the bottom of the daily S&P 500 chart, bullishness was quite high coming into this recent sideways move and didn't back off much by the end of the week. It suggests to me that traders are not looking at bearish/downside risk overly much at this juncture. This aspect also injects an element of doubt in my mind as to whether there's 'too much' complacency currently.
From a technical perspective, the index is still up near the top end of its uptrend channel, not the bottom. I tend to get more bullish after pullbacks, not after strong upside runs. But traders and investors have as a group manifested the opposite view and get more and more bullish as prices keep going up. 'Too much' bullishness is in fact seen as a bearish warning in the Theory of CONTRARY Opinion.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) Index also seems stalled not far under the top end of my highlighted uptrend channel on the OEX daily chart below. Near resistance isn't far above the 500 close on Friday. I've long assumed that the 500 area or a bit higher (e.g., 510-515) would offer fairly tough resistance. If there was instead an upside penetration of the upper channel line, hen 520-525 looks a possible further upside objective.
While prices haven't dipped under 500, there's little headway above it either. The recent absence of continued upside momentum doesn't negate the still bullish chart, but if past patterns repeat by prices correcting at or near the top end of its price channel, OEX's upside potential near term looks limited.
Downside risk on a correction may be limited to a pullback to the area of the 50-day moving average at 484; below potential support implied by the average, I'm looking at the prior 473 low as a target or a bit lower to 465, the low end of its uptrend channel.
In terms of the RSI, it's falling toward the midrange 'neutral' area associated with where rallies have set up previously. Stay tuned on that!
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) Average chart pattern remains bullish, but INDU may struggle some more around the pivotal 10000 level. I anticipate further upside potential for the current move if INDU can get some traction in the 10000 area; e.g., potential such as tacking on another 250 or so points higher (from 10000).
I'd look to exit DJX calls after just such a rally as the odds increase for a correction at the upper channel boundary. Somewhere ahead there's potential for a correction of a few hundred points or simply a 'normal' Dow corrective downswing from peak to trough and where the Average gets closer to RSI oversold areas again.
Pullbacks to the 9700-9660 area could find good buying interest and be supported. A next key support is implied by the prior 9430 intraday low.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
Last week I wrote about the Nasdaq Composite (COMP) having potential to form a double top and we may be seeing this. There have been 3 minor Closes over the prior (2168) intraday high but with intraday whip-saw price action since then and an inability for a decisive move above that prior high. Double tops don't always have exact duplicate highs, just an inability to gain more than minor further upside traction above the prior top, leading to a later fall.
Resistance is apparent so far in the 2180-2200 area. If COMP climbs above its cluster of recent intraday highs on a closing basis, it sets up a possible next test of my projected next resistance around 2257 or at the top end of COMP's uptrend channel.
Support should be found around 2100-2080, then in the 2040 to 2030 area. If there was such a pullback which then found renewed buying interest in the tech heavy Nasdaq Composite, the opposite pattern, a potential double bottom sets up.
Bullish sentiment, as seen above with my indicator, was discussed already with the S&P. I'd just also note that there hasn't yet been the pattern of a deeper correction to follow high extremes often seen previously. Nothing says this must happen but I try to keep in mind that although the market's been in a strong bull move the economy and consumer spending, is still quite weak.
Bullish market sentiment tends to get extreme and STAY extreme for prolonged periods when the economy is also roaring along. Based on resurgent oil prices you'd also think the economy was going gangbusters. Something isn't ringing quite true!
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) pattern is bullish but there's been the same stall in the area of NDX's prior peak at 1955. Resistance or selling has been coming in around 1777-1780. If this area can be pierced, there's potential up to around 1830 before technical resistance might again resurface as noted on the chart.
If the recent waning upside momentum continues, a next support is at 1710, then down in the 1660-1657 area. 1650 is currently my maximum downside target. I'd be a buyer in this area if reached provided it wasn't under conditions where there wasn't a knife-edge plunge through it.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
The chart or price pattern is of course the same for the Nasdaq 100 tracking stock (QQQQ) as discussed above in the underlying NDX index. The key On Balance Volume (OBV) indicator has continued to point lower as more volume is seen on down days.
I indicated last week that: "It's still a bit soon to say that the Nas 100 index is headed substantially lower but right now I rate the chart as showing a possible interim top." The fact that prices haven't plunged doesn't mean a lot just yet. The ball always seems to 'hang' a moment at the top of an upward throw.
As to the idea of a possible top and the advent of a correction, I'll be watching 42.5 as one key to further bullish or bearish prospects. A move below 42.5 would suggest that still lower prices may follow; conversely, ability to hold at or above 42.5 suggest only a shallow correction. My QQQQ trading strategy or 'system' is still holding long positions. It would have taken a more extreme 21-hour RSI reading on the recent run up to cause a long exit signal.
Near QQQQ resistance: 43.7
Next overhead resistance: 44.7
Near QQQQ support: 42.5
Next support: 42.0
Second intermediate support: 40.7, extending to 40.4
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT), which has sometimes led the Nasdaq or been a foreteller of what may be coming there, is showing the most clear cut double top so far. Near support is at 600, extending to 592 at the moving average.
576 is a sort of must-hold next support given the prior downswing low at that level. The 560 area is the low end of RUT's broad bullish uptrend channel. A plunge below this area, without a quick rebound to follow, would turn the chart decidedly bearish.
Conversely, if RUT rallied to above its prior highs in the 620-625 area, especially on a closing basis, a next possible target on follow through buying is at resistance around 650 at the top end of its uptrend channel.
GOOD TRADING SUCCESS!
NOTES ON MY TRADING GUIDELINES AND SUGGESTIONS
1. Technical support or areas of likely buying interest and highlighted with green up arrows.
2. Resistance or areas of likely selling interest and notated by the use of red down arrows.
I WRITE ABOUT:
3. Index price areas where I have a bullish bias or interest in buying index calls, selling puts or other bullish strategies.
4. Price levels where I suggest buying index puts or adopting other bearish option strategies.
5. Bullish or Bearish trader sentiment and display the graph of a CBOE daily call to put volume ratio for equities only (CPRATIO) with the S&P 100 (OEX) chart. However, this indicator pertains to the market as a whole, not just OEX. I divide calls BY puts rather than the reverse (i.e., the put/call ratio). In my indicator a LOW reading is bullish and a HIGH reading bearish, consistent with other overbought/oversold indicators.
Trading suggestions are based on Index levels, not a specific option (month and strike price) and entry price for that option. My outlook often focuses on the intermediate-term trend (next few weeks) rather than the next several days of the short-term trend.
Having at least 3-4 weeks to expiration tends to be my guideline for trade entry choice. I attempt to pick only what I consider to be 'high-potential' trades; e.g., a defined risk point would equal in points only 1/3 or less of the index price target.
I tend to favor At The Money (ATM), In The Money (ITM) or only slightly Out of The Money (OTM) strike prices so that premium levels are not as cheap as would otherwise be the case, which helps in not overtrading an account. Exit or stop points, as well as projected profitable index price targets, are based on my technical analysis of the underlying indexes.