THE BOTTOM LINE -
Given that the S&P 500 (SPX) is holding at and above its 200-day moving average [even though the S&P 100 (OEX) and the Dow 30 (INDU) are not], that this index is now oversold on both daily and weekly charts and that trader "sentiment" is at the level of bearishness we commonly see at market turning points, I think most if not all of the gains from SPX, OEX and DJX puts has been realized. As I noted last week as areas to watch, SPX has also held above key support at 1080 and above 527-530 in the OEX.
The Nasdaq Composite (COMP) is not as oversold yet as SPX, but is getting there. COMP appears to be digging into support on dips below 1900 and has made an approximate double bottom relative to the late-March lows. There is probably not a lot of downside left - and the Nasdaq 100 (NDX) has actually held above its late- March low on what liked a reversal day at the beginning of this past week (17th) and forming a rounding bottom on hourly charts.
That is the technical picture and consistent with fundamentals: an improving economy and earnings picture eventually outweighs the predictable rebound in interest rates and other shorter-term factors like the spike in energy prices. Iraq is the wild card but has more political than economic fallout at this point.
FRIDAY'S TRADING ACTIVITY -
Market volume was light, as traders and investors were gun shy and reluctant to take on positions ahead of the weekend and after a choppy trade all week.
Stock market participants have been keeping one eye on the nearby July crude oil futures, which ended down 87 cents (at 39.93) after Saudi Arabia said it would suggest to OPEC members at a weekend meeting - not a formal production get together - to raise oil production by more than 2 million barrels per day.
Expiration of options on stocks indexes and individual stocks seemed to lift volume early in session, trading slowed way down as the day went on.
The S&P 500 Index (SPX) gained 4.4 points to 1,093.5. The Dow 30 (INDU) closed at 9966, up 29 points.
The Nasdaq Composite (COMP) ended at 1912, up 15.5 points and the Russell 2000 index (RUT) was up not quite 1 percent to close 545.8.
Federal Reserve Governor Bernanke helped lift stocks in the morning after saying Thursday at a luncheon and that was quoted as:
"The good news is that, because of the impact of private-sector expectations about policy on current long-term rates, a significant portion of the financial adjustment associated with the tightening cycle may already be behind us. As we look ahead, core inflation appears likely to remain in the zone of price stability during the remainder of 2004 and into 2005."
The Governor also spoke about the inflationary price trend for commodity prices, when he also said that there were signs that commodity prices, with the exception of oil, "may be peaking."
Well, what about oil prices - guess he didn't want to go out on a limb and predict that one.
The Semiconductor sector rallied (SOX index) from a Thursday night report from Semiconductor Equipment and Materials International that indicted North America-based chip equipment orders for April totaled $1.59 billion, up 16% from the $1.38 billion in March and up 111% from the $757 million in April 2003. The April book-to-bill ratio, which measures the value of orders received against the value of products shipped, was 1.14, up from 1.09 March. Good News although the rally was limited - the SOX ended up 4.3, to 458.2.
OTHER MARKETS -
The dollar fell .4% against the euro to $1.2006, dropped 0.7 percent against the British pound to $1.7892 and lost 0.5 percent vs. the yen to 112.14.
MY INDEX OUTLOOKS -
S&P 500 Index (SPX) - Daily chart:
I am still of the same view that as long as the S&P 500 (SPX) can hold above 1080, at both some key prior chart support and its 200-day moving average that a bottom is forming - this as opposed to a pause on the way still-lower. This view suggests what the criteria is to suppose that another down leg lies ahead - a daily close below 1080; better evidence even is two consecutive closes under 1080.
Forming still more lows in at and above the 1080 area might go for awhile - if so, the stronger would I expect a next rally to be.
Resistance is at 1100 at the down trendline and extends up to 1107. A close over 1107, the current level of the 21-day moving average, is what is needed turn the technical picture a bit more bullish. Stay tuned!
Above 1105-1107, further resistance can be anticipated in the 1120 area. A close over 1120 would suggest upside potential of another 20 points higher from there - toward the upper trading (red) band or envelope line.
My Put to Call to Put indicator gave the most bullish reading in a while last week, as the level of put activity picked up. Such readings by themselves don't get me into index calls, but given the other things that suggest that SPX is digging into support and finding buying interest for stocks there, I anticipate a strong rebound soon - within a few days more. The market is more likely to "find" some good news when it gets oversold like now.
S&P 500 Index (SPX) - Hourly chart:
Resistance, at the hourly down trendline still is apparent around 1100, then at the prior hourly high at 1105. SPX has not yet been able to achieve an upside penetration of the upper end of its bearish downtrend channel. It seems to me that the Index either breaks out above 1100 soon or there is another downswing.
If there is another swing lower potential support is at 1087 (see highest most green arrow), at the minor up trendline that has been traced out recently on the hourly chart. Next, we should look to the prior hourly low at 1076 as a possible low again.
S&P 100 Index (OEX) - Daily & Hourly charts:
528-530 is key support - the ability of the S&P 100 (OEX) Index to hold this area will be my gauge of rally potential. Near resistance is at 538, then around 540. 448-550 is the next area of expected resistance and anticipated selling pressure.
533 is near support - at the trendline on the hourly chart at right. The 527-528 area, at the prior lows of earlier in the month, is key support with a close under this area suggesting that the 520-521 area could be seen in OEX.
Dow Industrials (INDU) Daily:
The Dow 30 Average still trades under its 200-day moving average which is bearish overall. I'm keying in however more on the 9850 level - the area of the prior lows that is seen at the dashed green level line. 9600 is the next level of support below these prior lows and dates back to another set of lows.
Resistance has been seen at 10,060, then is anticipated around 10,200 - and, lastly, up in the 10,400 area at the intersection of the down trendline currently.
Nasdaq Composite (COMP) Index - Daily:
Key technical resistance is at the down trendline first - this intersects in the 1920 area. If the recent low at 1865 doesn't hold if there is another decline - and that day had the look of an upside reversal and possible "exhaustion gap" - then my next downside target is to around 1850 at the lower envelope line.
A close or two back above the 21-day moving average would suggest potential to 1965-1975, possibly back to the 2000 area on a rebound.
The COMP is oversold as registered by the 14-day RSI but could get a bit more oversold still judging by the weekly RSI (not shown and using a "length" setting of 8).
Nasdaq 100 (NDX) Index - Daily & Hourly:
The last daily low was at a level above the prior low as seen on the daily chart below left. This fact and the possible rounding bottom formation that has been traced out on an hourly basis could be an indication of a bottom - particularly the daily low and reversal that occurred from a price area a bit higher than the last low. (The rounding pattern is of interest but is not as reliable as if seen over a longer period on the daily chart.)
The 1380 area still looks to be the key support. Key resistance is at 1435-1438. A close over this area is needed to suggest that a strong rally might be underway.
Nasdaq 100 tracking Stock Daily & Hourly (AMEX:QQQ):
35.5 - 35.7 is key near resistance as is highlighted on the hourly chart at right below. Resistance then comes in just over 36. A close over 36.75 would be a breakout above the down trendline on the Daily chart (left, below).
34 still looks like key support. I would trade next only when this sideways price range resolves itself with a breakout higher - I would say lower also, but am not inclined to play the short side when an index is oversold.
I would rather wait to buy QQQ at some point as I figure my risk to reward potential is better on this side of the market - except for a "scalping" type trade I don't see big potential in shorting on a further rally. Well, maybe shorting on a move back up the 36.25 area, with a tight stop at 35.50 and an objective to 34.25.
Good Trading Success!