THE BOTTOM LINE -
Strong up moves tend to occur when both a decent earnings trend is present and there is significant disbelief in the sustaining power of an advance - this "sentiment" was borne out by quite bullish call-put numbers in my equities-only COBE options volume indicator on Thursday, as put volume was greater than call volume for the second end of the week trading day in the past two weeks.
As also anticipated, the Nasdaq was struggling to churn through significant resistance around 2000 in the Composite (COMP). A daily, and weekly, close above 2000 is needed to suggest that COMP can eventually advance to 2052-2059 resistance around its late-April rally peak as the Index was trending down. With the Semiconductor stocks struggling it may be hard for the Composite to get above 2020.
THURSDAY'S TRADING ACTIVITY -
The NUMBERS -
The Dow Jones Industrial Average (INDU) rose 41.6 points to 10,410. 21 of its 30 stocks were up on the day. INDU ended with a 1.6% weekly gain.
The Nasdaq Composite Index (COMP) was up only 9 points to 1,999.87, so stayed under the key 2000 level. COMP was up slightly over 1 percent for the week.
THE REPORTS -
The U.S. Labor Department said import prices rose 1.6% in May, the biggest increase in 16 months, due to higher oil prices
The Labor Department also said first-time claims for state unemployment insurance rose 12,000 in the latest week to a 7-week high of 352,000, versus expectations for a fall to 336,000. The 4-week average rose 4,750 to a 6-week high of 346,000.
THE TALK -
The announcement that Target (TGT) sold its Marshall Field's unit to May Department Stores for $3.2 billion provided an early spark to retail stocks these didn't last long - TGT ended up 0.3% but was up nearly 4% to a 52-week high earlier in Thursday's trading.
The Semiconductor stocks was able to rally early, but the boost from positive news - the Semiconductor Industry Association (SIA) said late Thursday that it expected global 2004 sales to rise 29% to a record $214 million due to strong chip demand for computers, cell phones and other electronic gear - did not have a sustaining impact.
OTHER MARKETS -
Bonds seesawed into positive territory after the U.S. Treasury's 10-year note auction was relatively well received. The yield on the 10-year T-note was off by .023% to yield 4.79%.
Against the euro, the dollar dropped .6% to $1.21, after surging 1.7% on Wednesday. The yen rose sharply against the dollar, by nearly a full percent, to 109.31, after Japanese machinery orders for April were much stronger than expected.
MY INDEX OUTLOOKS -
S&P 500 Index (SPX) - Daily chart:
The key determinants of seeing the progression of the reversal and subsequent rebound were the rebound from the 200-day moving average, the decisive upside penetration of the 21-day (avg.), then the 50-day and finally the down trendline (dashed blue line).
Now what? We have to look to the prior highs - red arrow - and the upper trading envelope line as areas where the rally will likely at least slow down or flatten out. The 1150 area, if reached, is not a place to necessarily buy Index puts - but is sure a reasonable profit objective for calls bought at lower levels.
I see key support as being at 1120. A decline to and ability to hold in this area would suggest a shallow correction only and a still strong bull trend - a close below 1120 puts us on alert for a correction to 1110; or, deeper, back to the 1100 area.
I opt for the shallow correction only view given this very bullish - in my opinion - situation of heavy put activity after a strong advance. A bullish reading on my Call to Put volume indicator is a low ratio of daily call to put volume.
S&P 500 Index (SPX) - Hourly chart:
The S&P 500 Index was in a trading range prior to this past week - the breakout above the upper end of this range was fairly predictable as these things go - there was a next move up equal to the prior range as highlighted on the hourly SPX chart below -
Key near support is at 1125-1127, with more major technical support implied by the intersection of the up trendline at 1110 as noted by the green up arrow there. If there is a close under 1125, a downside objective to 1110 becomes a good possibility.
S&P 100 Index (OEX) - Hourly chart:
The S&P 100 (OEX) broke out above its well-defined uptrend channel as seen on the hourly chart below. The move to above this channel now suggests an objective up to the area of prior highs around 560.
Key near support is noted at the first green arrow, which is a level equal to the last down swing low in the 552-553 area.
More major support I calculate to be at the lower end of the prior uptrend channel at around 544-545. Stay tuned on the next move but I think its still higher before OEX comes back down much!
I said last week to favor put purchases at 550-551 (exit on an hourly/close above 552) and there was a quick exit if this trade was taken. The technical divergence that had been occurring with higher (price) highs and a declining RSI did not foretell a downside reversal - hourly price/RSI divergences are less reliable (for trend reversals) than if seen on daily charts.
Dow Industrials (INDU) Hourly:
The Dow 30 (INDU) broke out above its key technical resistance at its down trendline on its daily chart by the move above 10,360. I found more to highlight this week on the hourly chart however -
There is well-defined uptrend price channel that is seen, with a intersection at the upper end showing at 10,500 - I would take this area as a next possible objective and next likely resistance. The Dow did fulfill the triangle objective at 10,370.
Recapping: a series of lower highs and higher lows from 5/12 to 5/24 formed a triangle - going back to the first low anchoring an up trendline and drawing one side of a hypothetical triangle gives a distance "A". Adding this distance to the breakout point (above the down trendline) is line "B". The top of B (10,370) becomes a minimum objective for the next advance.
Going back to the uptrend channel - support is implied at 10350 just under the lower channel line (green up arrow) and resistance, as mentioned at the top of the channel (10,500) - but we also have to keep an eye on whether prices clear last week's high at 10,430.
A recent Trader's Corner article of mine covered "triangles" and price objectives implied by triangle breakouts
Nasdaq Composite (COMP) Index - Daily:
Prices here are still more or less confined within its downtrend pattern, although there were three highs (and two consecutive closes) above the down trendline. However, I like to see prices stay above a trendline like this - otherwise any upside "breakout" is a bit suspect.
Therefore my test for the Nasdaq Composite (COMP) is that it get above and stay above 2000-2005. If there is a strong move above this area, next resistance is at 2050; then at 2070-2075. The Nasdaq is far from taking a lead role in this recent market strength.
I estimate that key near support is now at 1960-1965.
As per my comments of a week ago - the Composite needs to maintain closes above 2000 and then hold this area on subsequent pullbacks to get the chart picture bullish. Then the focus is watching whether COMP can rally to, and ultimately above, its prior highs in the 2050 and 2075 areas.
Nasdaq 100 (NDX) Index - Hourly:
I noted back when that the rounding bottom that could be seen or imagined by the pattern of hourly lows was the bullish tip off that a strong rally could lie ahead. Rounding bottoms and tops are not seen that often but are reliable in suggesting trend reversals. Again, comes the question, now what?
As long as the hourly up trendline is not penetrated by more than a brief opening or closing period, chances are good that the Nasdaq 100 (NDX) will re-test its prior highs around 1495 and just under 1500 as noted at the dashed (red)level line. I think that NDX can get up to the 1500 area, then my crystal ball gets cloudy. There is likely selling interest (resistance) at 1520 next.
Nasdaq 100 tracking Stock Daily chart (AMEX:QQQ:
Last week I suggested having shorting interest in QQQ if the stock got up to the 36.50 area but of course the stock got above this after a sideways period of consolidation and a brief dip to 36. The tip off on the last rally was the move above the prior line of tops around 36.50 then the pullback to 36.50 - what had been resistance "became" support, showing that the market wanted to go higher.
I think that the Q's could advance again and make yet another new high, around 37.50 or higher - even to equal the late-January top that formed in the 38.50 area. More important sometimes as a way to trade the stock - rather than focusing on a price level, making use of the 5 and 21-day hourly stochastic pairing - when both are at the bottom look for a buy, when both at high extremes look for a tradable top.
First support implied by the current hourly up trendline is around 36.50. 36.00 is the key support implied by the last swing low. The chart picture turns mildly bearish if the Q's can't stay above 36.
I was figuring QQQ to be in a broad range between 38 and 34 this month. Maybe less likelihood of 34, and the probably range becomes 35.50 - 38.50.
Good Trading Success!