Option Investor
Index Wrap

TWO THINGS

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THE BOTTOM LINE -
It is pretty well impossible to figure out two things here - one is if the indices in general are going to achieve upside break outs of their sideways to lower trends; and two, if there is another down leg coming. No one can say - well, the pundits have plenty of opinions - either fundamentally or technically.

Usually, those with a technical bent such as this writer, think they know what is happening - but hey, we're stymied too! That is because the patterns, both with Nasdaq and S&P, form triangles composed of downward and upsloping trendlines that haven't resolved themselves by a breakout either way.

Usually, faced with an uncertain picture, I give the benefit of the doubt to the dominant longer-term trend, which is up. But, it remains to be seen if the trend can reassert itself anytime soon.

The back and forth movement makes it tough to make money (in long calls or puts anyway) unless you catch some of these shorter price swings we're seeing. Right now, up against the trendlines - see details further on - I would again favor puts if I had to pick a side. And, with the market spooked - does this ever change!? - by the prospect of higher interest rates, well there's a bear thought for you.

FRIDAY'S TRADING ACTIVITY -

The S&P 500 (SPX) was up a scant tenth of 1 percent at 1,140.60 by the close and a half of a percent for the week. The Dow 30 - the new rejuvenated Dow average (adding AIG, PFE and VZ this month) was ahead by about 12 points to 10,472. Only up .02% for the week.

The Nasdaq Composite (COMP) was the bigger winner, ahead by nearly 18 points (+.08%) to 2050. The tech-heavy Index was up nearly 3% for the past week. As noted in the media on Friday, both Indices are not up on the year. Don't spend the money yet however!

Winners: retailers, semiconductors and software sectors on Friday led by Microsoft and Intel. Telecom, Internet stocks, airlines and energy sectors didn't fare so well.

Orders for new durable goods to U.S. factories jumped 3.4 percent in March, far ahead of the average 1 percent gain expected by the Street. The strength in the economy suggested by this latest reading and data met with a good news/bad news response from traders and investors. The tug is between the good news of a strong and strengthening U.S. economy and the negative view that the Market takes about the prospect this bring for higher (interest) rates.

TECH HECK -
Microsoft (MSFT) had a big rally, after a positive broker comment based on MSFT posting of earnings and sales that beat expectations. Hey, never count those guys out.

Their revenues jumped 17% on the back of strong PC sales and broad strength in earnings from its other business groups. The analysis I saw was that going into Q4, an outlook for double digit sales growth based on new products and better IT spending.

Back at the ranch however - Amazon.com (AMZN) fell nearly 7% at one point on Street concerns over its future growth prospects - this after Q1 earnings that were well above expectations. Hey, those analysts don't like to be WRONG for LONG.

OTHER MARKETS -
The dollar was lifted by the economic data based on just what the market fears - a rise in interest rates. The Euro was down 0.6 percent to $1.1838, while Pound slightly to 1.7723. Against the Japanese yen, the dollar dropped to 108.96 after a move to a new monthly high of 109.83 on Thursday night - while we were sleeping the gnomes of Zurich were trading.

The 10-year T Note was off 18/32 to 96 13/32, to yield 4.46%.

MY INDEX OUTLOOKS -

S&P 500 Index (SPX) - Daily chart: The up and down sloping trendlines form something referred to as a symmetrical triangle - all it means is that the price action is typical of a back and forth movement ahead of a next significant move. The direction of the move, above or below the trendlines will then resolve the trend. Either the S&P is back into its uptrend and goes on to make a new high or there is a new down leg. Either way its pretty clear I think - an upside penetration above the red down arrow (around 1142) AND a move above the cluster of prior highs at 1148-1150. If that happens upside potential looks to be to 1160 (prior peak) or to the 1170 at the upper envelope line that has tended to contain many of the prior rallies.

Conversely, on the downside, I consider it key for the S&P 500 (SPX) to hold the green arrow area below at 1105, with leeway to 1100.

Call to put volume ratios for Equities are not at an extreme - the last extreme being bearish. More downside would suggest that the put volume would pick up and we might then see a bullish reading. The bulls want to take charge but don't find enough good reasons yet to keep throwing money at stocks.

S&P 100 Index (OEX) - Daily chart:
Key resistances are 558, then 562 in the S&P 100. On the downside, support implied by the trendline comes in around 540. A move to above resistance suggests at least a re-test of the prior highs - a drop below 540 suggests at least a "test" of support implied by the 200-day moving average.

OEX is getting down toward an oversold stochastic reading but is not there yet. Stay tuned.

S&P 100 Index (OEX) - Hourly chart:
I like the hourly chart here for a quick glance as it shows even more clearly this pattern of lower rally highs, characteristic of a downtrend at least for now - 560 to 565 looks like formidable resistance. Even if the bulls move the ball to there, they still got to take it across the goal line and that will be tough - I lean to buying puts if OEX gets into the 560-565 zone.

Dow Industrials (INDU) Daily:
These charts all start to look alike after a while! 10,500, then 10,550 are the key near resistance levels. 10,300, then in the 10,200-10,180 area are the key supports. A close under 10,200 would suggest a move back to re-test the 10,050-10,100 area. This is one of those times where market action is indecisive - could that mean that WE are uncertain what lies ahead this year - well I am.

Pretty neutral on the RSI here at mid-range. The trendlines are key to assessing the next direction for the intermediate term trend. The chart suggests more of a sideways to lower direction. If so, good to be a (option) premium seller than buyer.

For more on construction and use of trendlines, see my recent Trader's Corner article

Nasdaq Composite (COMPX) Index - Daily:
The Nasdaq, for a change, looks a lot like the S&P segment of the market. 2050-2070 is near resistance. A close above 2070 would suggest potential back up to the 2130-2140 resistance. Doubtful that this would happen without the NYSE stocks also in gear. Strong move in Microsoft (MSFT) and to recent rebound in Intel (INTC) is probably not enough to carry the market higher.

Nasdaq Composite (COMPX) Index - Weekly:
Nasdaq/Tech lovers unite! But the trend looks sideways as noted by the rectangular box. 2200 would be the top of what I could see a trading range ahead, with 1900 as key support - a move to 1800 would not destroy the long-range uptrend pattern however.

The Composite Index could fall some distance before getting to an oversold level again - it may not, but a continued sideways to lower move will, over time, a least put the 13-week RSI closer to an oversold reading.

Nasdaq 100 (NDX) Index - Daily:
1500 remains key resistance, at the trendline - a close over this level AND the ability to hold this area on pullbacks to it, would suggest at least a re-test of the prior 1520 high. 1550 is pretty major resistance. Doubtful the Nasdaq 100 (NDX) will clear this area anytime soon. How about AFTER the election?! Well, I've been wrong before.

1440 is near support, at the last (down) swing low. 1400-1405 is key, and major, support I think at this point.

Nasdaq 100 tracking Stock (AMEX:QQQ)- Hourly:
The hourly chart on the Q's show it best. A lot of resistance and selling interest is showing at 37.25-37.50. 38.25 - over time, this intersection is 38.50 - is the top end of the trading channel that is apparent on the hourly chart. I would sell in this area, keeping with the idea that QQQ is going to remain locked in a trading range on balance. 39 is probably the top of the range for a while, with 34 being the low of it.

NOTE: I will be doing the Index Wrap comments this coming week, taking over for Jeff (Bailey), who is taking a well-deserved break from constant battle on the front lines.

Good Trading Success!

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