THE BOTTOM LINE -
I anticipated two things going into the past week - the Sept. S&P 100 Index options would go out with OEX at between 445 and 450 - enough to rain on the bears parade, at least those holding 445 puts AND that the market would continue to work at least modestly higher as long as traders weren't too bullish - they aren't yet.
With bellwether Dow (and S&P) stock GE breaking out, these Indices seem now more likely to at least challenge if not break out above, key overhead technical resistance. The S&P 500 continues to creep further above its 200-day average but also is nearing its downtrend line. An interesting week ahead. Specifics are with the charts below.
THE NUMBERS -
The Nasdaq Composite Index (COMP) rose 6 points (+ 0.3%) to 1,910.09, helped by some gains in semiconductor shares (SOX) even after some negative news on chip orders - for the week, the Nasdaq was up 0.8%. The Russell 2000 (RUT) small-cap index ended 0.2% lower.
FRIDAY'S TRADING ACTIVITY -
Even with the craziness of quadruple witching (it rolled off the tongue better when it was merely 'triple'), it was hard to figure the Transports (TRAN) going to a new high along with the CBOE Oil Index (OIX), as crude oil prices spiked up sharply on Friday. Stocks in general would have done even better without the jump in oil prices.
Nearby crude futures rallied to above $45 a barrel as many oil and gas operations in the Gulf of Mexico were halted and with a few days ahead to ascertain and fix hurricane damage. With much of our imports coming into the U.S. via the Gulf coast states, the heavy storms are making it difficult to ship, produce and refine crude oil.
Stocks also dipped some after the University of Michigan reported a drop in its consumer sentiment survey number. U of M's consumer sentiment index dipped slightly, to 95.8, from 95.9 in August, below an improvement to 96.5 that had been anticipated.
Never underestimate the power of the blue chips and some positive take on earnings in a market that is trying to find direction -
General Electric (GE) shares rallied in early trading after Prudential said it was time to buy the company's stock. Pru's analyst said GE's energy business, which represents nearly one- fifth of sales, is expected to start rebounding in the fourth quarter and continue accelerating throughout 2005.
Ford (F) rallied nearly 2% after the company lifted its earnings forecasts for the year, citing financial services and improved costs.
Circuit City climbed over 4% after the consumer electronics giant reported a fiscal Q2 loss that was less than expected. The company said average customer spending was higher than last year.
On the other hand, there's tech -
Qualcomm (QCOM), the 2nd most heavily weighted stock in the Nasdaq 100 (NDX) Index, dropped nearly 4% after the maker of mobile-phone equipment maker warned that accounting errors would result in lowered earnings - opps!
The latest survey on orders for chip equipment confirmed a slowdown in the semiconductor industry, which has been hit by earnings warnings from key chip companies like Intel (INTC), National Semi (NSM) and LSI Logic (LSI). However, with all that probably priced into the Semiconductor Index (SOX) and more, SOX rallied some and looks like it might even challenge its key 400 resistance area again. The market "discounts" and OVER-discounts.
OTHER MARKETS -
The dollar gained slightly against the Euro and Yen - however, sharp gains were seen against the Canadian dollar after inflation data there raised doubts about the extent of further interest- rate hikes in Canada.
MY INDEX OUTLOOKS -
S&P 500 Index (SPX) - Daily chart:
Key near resistance comes in at the down trendline as noted by the first down (red) arrow intersecting around 1133. Based on the still-bullish chart pattern, there could be a move through this area, toward prior highs in the 1146 area. If this kind of advance develops it would also put the S&P 500 (SPX) in the area of my upper trading envelope line. SPX looks like it wants to go a bit higher still.
Near support is in the 1115 area down to around 1110. A close under 1112-1110 breaks the current uptrend.
I figure that the price move is going to be to whatever it takes to get my sentiment indicator more toward a bearish level - that is, at least a one-day reading at the upper extreme.
S&P 100 Index (OEX) - Daily chart:
OEX is at a key juncture here, with the Index struggling so to speak to break out above technical resistance implied by the down trendline on the daily chart, which is also the intersection of the 200-day moving average. A move to new highs here, above 548, especially on a closing basis, would set up a target to around 558 as a maximum next and maybe final objective.
I give the slight benefit of the doubt to a move through this overhanging resistance and for another 10 point upside. I wouldn't overstay in calls however as downside risk is probably equal to the further upside potential at this point.
The low VIX or CBOE Volatility Index number has most often this year occurred in the same time frame as when rallies have reached their peaks. High VIX numbers have tended to occur at bottoms, per the red and green arrows on the Volatility Index chart (middle) below.
There may be a bearish RSI divergence shaping up but it's too soon to tell on this - there is not yet a new closing high where we can then see if RSI confirms by also going to a new peak. RSI has not quite gotten up yet to what is typically a high extreme either, which is another use of this indicator.
NOTE: I wrote a response to a Subscriber question in my most recent Trader's Corner article on the possible significance of the recent low VIX levels.
Dow 30 (INDU) - Daily chart:
I'm not trying to be redundant, but this next chart looks like a duplicate of the S&P 100. The Dow Industrials (INDU) is holding in what looks to be a tight consolidation just under the top end of its well-defined downtrend channel. If a move higher happens soon and there is a decisive upside penetration of the top end of its 10,230 - 10,350 range, a move to the 10,500 area is possible.
After a relatively tight consolidation and back and forth narrow trading range, I usually anticipate a breakout type move, as long as it doesn't take TOO long for it to happen - the longer it goes sideways, the more it looks like a top. It's time for INDU to make its move. Or NOT, in which case the Dow is likely to trend back down toward support in the 10,100 area.
If near technical support implied by the low end of the recent price range around 10,230 gives way, then I look to important support coming in at 10,100.
The momentum is down now according to the Stochastic process model or indicator - the one above has length set to 21. Based on this indicator, look for prices to break soon.
Nasdaq Composite (COMP) Index - Daily:
It's looking like the Nasdaq Composite can climb further based on its pattern here - looking at a bull flag measurement, the top end of the uptrend channel and my upper trading envelope, 1950 looks like an upside objective.
Near support is at 1890, then in the 1865 area. A close under 1890 would suggest the lower support as an objective rather than the upper target.
Based on the upside momentum we're seeing in the daily total Nasdaq up volume, as measured on a 10-day moving average, I would have to judge the Composite as capable of going still higher.
Nasdaq 100 (NDX) Index - Hourly:
I've taken another look and assessment of upside potential for the Nasdaq 100 (NDX) based on the well-defined uptrend channel being traced out on the hourly chart. While 1440 is resistance that must be overcome - with a move to there and not further would set up a double top - another rally to touch the top of the channel at the down (red) arrow would take NDX to around 1460.
I suggested on Thursday that 1420 looked like the area to exit calls and look at put positions - this is now looking like too low for an upside objective as NDX could get to 1440.
The 1410 area is support implied by the low end of the uptrend channel, per the up (green) arrow on the chart below. A break of this area, would suggest downside potential back to support in the 1380 area.
The sideways move has put the RSI back down out of the overbought territory. Note that the last price peak was both a double top and was accompanied by a lower RSI reading - sure enough, a pullback followed, although just enough so far to "throw off" the overbought reading. Another rally seems likely - stay tuned!
Nasdaq 100 tracking Stock (QQQ) Daily:
Based on the pattern I'm seeing, I now think there is some potential for QQQ to break out above its resistance overhang at 36 and advance to around 37. Support at 35 needs to hold however. A close under 35 would suggest that the Q's were heading back to 34 support.
The stock in the past week approached an overbought extreme in the RSI, but there is tendency for a couple or multiple readings like this before prices break. Stay tuned on this.
The On Balance Indicator (OBV) continues to trend steadily higher, suggesting some accumulation of QQQ and provides an ancillary clue for a move still higher also.
Good Trading Success!