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Index Wrap

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THE BOTTOM LINE -
The market is presenting a quite mixed picture, not surprising given the contradictory cross-currents of a strengthening economy, a corresponding prospect of higher interest rates, a difficult Iraqi conflict and a major spike in energy prices.

From a technical standpoint there are reasons to think that the indices reached at least temporary bottoms last week and I highlighted those key points in my recent Trader's Corner article

However the reality is also a continuing slippage of upside momentum, given that many indexes now are either trading under their 200-day moving averages [Nas Composite (COMP), Nas 100 (NDX), Dow 30 (INDU), Dow Transports (TRAN), Russell 2000 (RUT) and the Semiconductors (SOX)] OR are only a short distance above, in the case of the S&P 500 (SPX) and the S&P 100 (OEX). In the Dow for example this is the first occasion it is trading under its 200-day average since just over a year ago.

While the Dow is managing to hold above the psychologically important 10,000 mark on a weekly closing basis and above key technical support in the 9860 area in terms of intraday lows to date for the recent correction, it is hard to see yet if and when much of a rally will get going. It is one thing to find a low, quite another for a sustained rally to get ignited. Well, sometimes the market does climb a "wall of worry" and there are plenty of worries out there.

I will key off from the ability/inability of SPX to hold above 1080 and the OEX above 525-530 on a daily and weekly closing basis. If these key blue chip indexes slip under those price points, the dominant trend turns down in my estimation.

FRIDAY'S TRADING ACTIVITY -

The morning release of economic reports brought weaker than anticipated consumer sentiment, a neutral inflation report and industrial production figures better than expected.

The Nasdaq was off on weakness in the semiconductor sector (SOX) and overall by the concern over the sharp surge of oil prices and when and how much on the expected Fed hike of interest rates.

The S&P 500 (SPX) fell a fraction of a percent on the day, to 1,095.7. The Dow 30 (INDU) did manage to close up slightly, by a couple of points - to 10,012.8 - it was down 105 for the week however.

The Nasdaq Composite (COMP) was off nearly 22 points (1.1%) to close at 1,904.2. SOX weakness was a key influence as it fell nearly 2% on the day. .

Crude oil futures ran up to a new peak, with the June crude oil contract closing at $41.38. Gasoline is now around 2 bucks a gallon nationwide! - and, up to 2.40 here in California at the majors.

OTHER REPORTS AND DATA -
U.S consumer prices were reported to have rose 0.2% in April, the smallest gain this year. The core rate of the consumer price index, which strips out food and energy costs, was up 0.3%.

Industrial production was reported at a better than expected 0.8% as indicated by the Federal Reserve. Capacity utilization rose to 76.9% from 76.5%, which was the highest level in 3 years. An increase in business sales boosted the inventory-to-sales ratio and that set a new record low in March according to the Commerce Department.

The University of Michigan reported that its latest consumer sentiment index figure stayed at 94.2, same as late-April. But expectations on the Street was for an improvement. Consumer sentiment continues to be a hard figure to quantify, but the Street does look at this survey to try and gauge how consumer spending, still the mainstay of the economy, will fare in the weeks ahead.

OTHER MARKETS -
Bonds rallied slightly after the inflation numbers - the speculation was that the Fed might not raise rates as soon as June.

The dollar gained against the Euro (+0.7%) to close in New York trading at $1.188. Against the Yen, the dollar was off some, - 0.3% to 114.42.

MY INDEX OUTLOOKS -

S&P 500 Index (SPX) - Daily chart:

As I said last week, the S&P 500 could get down to about 1080. Now what? I suggested that I would be a buyer of the SPX calls in this area (1080) - I also now would say that I will exit on close under 1080 or to below the 1080 level (thinking that such a close will set off some institutional selling, even though "cash" is not offering much of a return, but it's better than seeing stock value slip further and further) - setting a stop based on the closing level is higher risk; suppose SPX closed at 1060?

I usually count on an oversold condition such as the one we're in now to diminish the likelihood of going into "free fall", but these are also times of potential "shocks" such as from a terrorist attack. Calculation of risk-to-reward is important - I look at how much I could or might lose always, not first and foremost how much I might make on a trade.

Near-term upside potential is to 1115-1120 on a rebound, but SPX may struggle to close back above 1117 resistance implied by the 21-day moving average.

One bullish backdrop to this market is the amount of recent put activity, put volume which as my Call to Put indicator in a bullish area. Enough so to form a "contrary" type indicator - the thing with this type trader "sentiment" measure is that it can go on for some time before it sets the stage for a rebound; e.g., usually, these 1-2 readings at the lower ("bullish") line, are associated with a turnaround or upside rebound that occurs as long as 5 trading days later.

5-6 trading days later is an eternity in options, but it is a telling forewarning to not get to complacent if holding index puts. Might be a good time to sell puts.

S&P 500 Index (SPX) - Hourly chart:

Resistance, at the hourly down trendline is at 1100. A plunge to below 1080-1076, would suggest SPX falling to the lower end of the implied downtrend channel in the 1066 area. On an hourly basis or near-term, the index is overbought - this factor plus the fact that the last rally reversed at the down trendline, is suggesting that the path of least resistance remains lower.

S&P 100 Index (OEX) - Daily chart:

525-530 looks to be the key support as far as what happens next. Near resistance is at 540-542, then 550. Major resistance is at 560 and major support is probably at 510 (rather than 500 which is the "obvious" psychological support making me think that OEX won't get there, at least anytime soon).

So far, the OEX has been managing to hold above its 200-day moving average and I continue to look at this key average. Why? No special reason in terms of 200 being some magical level, but in terms of it being an investment and longer-term benchmark, yes.

You can see from the 14-day RSI that the S&P 100 is getting down toward an oversold reading at the lower (green) level line - nothing "magical" about this level either, just a benchmark and something that gives you an idea about whether the market could rally, if there was some good news or just a feeling that this decline is overdone and there are some stocks worth buying.

Dow Industrials (INDU) Daily:

The Dow 30 Average closed just under its 200-day moving average - first week that this has happened in over a year I mentioned already. 10,060 is near resistance. A close back above 10,200 (prior support) is probably needed to get something going to the upside here. More major resistance comes in at the downtrend trendline at 10,400 where the red (down) arrow is positioned.

9850 is important support - a close under this level would suggest that those prior lows going back to November could be re- tested - this suggest downside potential at that point to the low-9600 area. I don't consider this so likely at this juncture, but it should be in our sights, if there is another bout of weakness. The bear has gotten into town and onto the Street of Dreams!

Nasdaq 100 (NDX) Index - Daily & Hourly:

1380 now looks like support - I was doubting that prior support at 1400 would hold and it didn't, intraday at least. There is a faint suggestion of a rounding bottom setting up on the hourly chart - time will tell on this possibility. Trendline resistance is at 1410 on the hourly chart. The Daily chart picture of prior highs and former lows, as well as the 50-day average, suggest that significant technical resistance also comes in at 1435-1440.

Below 1380, we should be watching that cluster of prior lows off late-March in the 1368 area as to whether buying in the big cap Nasdaq (Nasdaq 100) will come in there again. Stay tuned!

Nasdaq 100 tracking Stock Daily & Hourly (AMEX:QQQ):

Well, I'm at break-even on some QQQ stock I bought at an average price at 34.75 by buying dips under 35 - my exiting sell stop is just under the low end of the downtrend price channel as seen lower right - it intersects in the first hour of trading on Monday at 34.25. I will exit at 34.15. I stay with stops.

QQQ may be a buy on dip to the area of its prior lows at 34, but significant selling could also touch off a many (sell)_ stops just below 34.0. I would rather get back in if there if the Q's fell to say 33.5 and then rallied. This might be the low in a bear trap reversal. A bear trap reversal just being a kinda cute name for a decline to a new low followed by an immediate upside reversal.

Resistance is what I have attempted to identify at the red arrows on both the hourly chart (at 36.25, then at 36.40 at the upper trendline) and daily charts (around 36.90 in terms of the daily chart down trendline).

Good Trading Success!

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