Over the last three months, economically sensitive and re-opening stocks and sectors continue to power the stock market higher. The ability of Financials, Industrials, Consumer Discretionary, Materials, and Energy to take on leadership roles are encouraging. It suggests investors believe in a sustainable economic recovery. Also, rising US interest rates and rising commodity prices imply investors are pricing in reflation. This may be one of the primary reasons for the recent rotation from the large technology stocks and growth areas into value-related cyclical areas. It would also explain why many Technology stocks have been confined to the sideways trading ranges while the rest of the market has rallied to all-time highs.
The market appears to be digesting the recent highs well amidst recent politically charged headline news on the riots and the impeachment proceedings. The best measure to determine if this is just noise or something more is to keep an eye on the key US indexes of the S&P 500 Index (SPX), Dow Jones Industrial Average (INDU), and Nasdaq Composite Index (COMPQ).
The well-defined uptrend channels that have developed in these indexes over the past few months hint of the market is more focused on the upcoming stimulus plans and the implementation of fiscal and monetary policies from the new Biden administration than on the current front-page news.
Here are the near-term technical views on SPX, INDU, and COMPQ.
S&P 500 Index (SPX – 3,795.54)
For the past 2-plus months, SPX remains in a bullish rising uptrend channel as defined by 3,700-3,734 and 3,839-3,850. The uptrend channel is 150-points. A convincing breakout above 3,850 renders SPX target of 4,000, near-term. Trading support rises to 3,776.5 or the 1/12/20 low. The bottom of the uptrend channel around 3,700-3,734 remains pivotal near-term support. Violation here warns of the next correction to 3,633.5-3,660 (Dec 2020 lows and the 50-day ma), and below this to 3,584-3,618 (channel breakdown downside target).
Dow Jones Industrial Average (INDU – 30,991.52)
The blue-chip Dow Jones Industrial continues with its 2-plus month uptrend channel between 30,090-30,217 and 31,216-31,360. The height of the channel is 1,270 points. A breakout above 31,360 signals the next INDU rally toward 32,630, near-term. A negative outside day has developed on 1/14/21 as INDU failed to clear above the top of its channel. A moderately overbought condition also warns of the potential for a near-term consolidation. Trading support rises to 30,793 (1/8/20 low), and below this to 30,090-30,217 (bottom of the channel), 29,931 (50-day ma), and below this to 28,820 (channel breakdown downside target).
Nasdaq Composite Index (COMPQ – 13,112.64)
The Nasdaq Composite Index (COMPQ) retains its 2-plus month uptrend channel between 12,797 and 13,343. The channel is 546-points, and a breakout above 13,343 suggests the next COMPQ rally to 13,889, near-term. A moderately overbought condition is also developing into this rally. Trading support is 12,963.92 (1/12/21 low), and below this to 12,797 (bottom of the channel), 12,525-12,443 (11/21/20 and 1/4/21 lows), 12,389.5 (50-day ma), and 12,251 (channel breakdown downside target).