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Index Wrap

BULLS HOPES KEPT ALIVE

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THE BOTTOM LINE -
The S&P 500 (SPX) is right at resistance implied by its long-term down trendline just above 1200 -

SPX needs to achieve a decisive upside penetration of 1200-1210 to suggest that there could be another few percentage points that get tacked onto the Index. A close above 1210 a couple of days running and at some point a substantial rally such as to around 1250, would be a significant long-term bullish technical note.

The Dow 30 Industrials (INDU) has managed to break out above this same down trendline on its weekly chart - sloppy, but it's going up just the same -

And the Nasdaq, even the favored Nasdaq 100 (NDX), furGIDibotit!

The Nas Composite Index (COMP) is still languishing at levels far under the lofty heights of mid-'99-early-2000 even when viewed in the more objective "semi-log" scale (i.e., measures equal PERCENT moves, not equal price moves). Ah, we thought it would go on forever.

So much for the long-term trends!!

DISQUIETING ON THE WESTERN FRONT -
With crude oil bursting above $50 and staying there, is there a new acceptance of a high-energy cost built into the current business cost structures? Current consolidation in nearby crude futures looks like a pause before at least yet another dollar or two spurt higher in the near-term. The dollar is also sinking into a new and lower trading range.  Not great bullish backdrops, but so far, good U.S. growth trumps these longer-term negatives. 

FRIDAY'S U.S. STOCK MARKETS - 
Friday's closing index prices, a recap of market action, specific company influences and government releases are covered in the Option Investor Market Wrap.

INDEX TRADER - ** A MIDWEEK UPDATE **
I will update the Index Trader midweek (Wednesday) if my schedule permits and also depending on whether there is a significant change or adjustment needed to my last commentary.

[This past week I wasn't available for this Wed. update, contrary to my earlier expectations.] 

S&P 500 Index (SPX) - Daily chart: 
Major Resistance (R) 1235
Near & Key R 1218-1220

First key Support (S) 1185
Major S 1165
 
The S&P 500 (SPX) got down to close to my 1175 target at its weekly low at 1183. The key sign that the lows were running into support (buying interest) was that the lows were touching, not dipping under, a rising bullish trendline dating from the important late-January bottom. 

The first close over the key 1200 level, which was also above the important 21-average, was the tip off to exit any puts positions.
Now, with the mighty MO (Momentum) that's going on, it seems like better than 50/50 to be new highs.  Sustaining them is another thing. 

The key now to the potential for this market to move into a second leg higher lies ahead and lies with SPX's ability to move above the 1218-1220 area next.  

The key did turn out to be how far and the long the Index dipped under 1200 - it was not more than around 15 points and very short-lived. 

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

Key Resistance (R) 580
Next R then 585

Near Support (S) 566-567
Next lower S 556-557

No change in the picture of key resistance - it is and remains, 579-580.  The dip under the key support at 570 was instructive as to how to trade the S&P 100 (OEX) next. 

I suggested last week that ... "A close under 570, if not reversed in the following 1-2 days ..." was the litmus test for how deep the correction would be.  An extension of the prior up trendline coincided to where the buying interest showed up. Then it was only one day that the bears keep OEX under 570 - a good showing for the S&P 100.

BUT, OEX still has to cross and then, hold above, a formidable "line" of prior highs around 580. If this happens, then the extension of a key trendline suggests a next resistance around 585. This picture assumes this past week's strong rebound not just an extension of the trading range upward a bit.

We finally got a significant shift in my Sentiment Index as bearishness built up in the wake of the sharp fall into early this past week.  That bearish sentiment rose, at least by this measure, on an UP day, was suggesting to me that traders and short-term investors had learned some caution. 

A more bearish or at least cautious posture is a normal part of the cycle ahead of more sustained rallies.  It now seems more likely that the S&P will go on to make new highs.  At some point, a target in the 590 area seems possible - but first, 580.

The theory of contrary opinion - bottoms tend to be associated with a high level of bearishness and tops with a high level of bullish conviction. Alice in Wonderland.   

Dow 30 Average (INDU) - Daily chart:  

For all practical and certainly for trading purposes, the Dow 30 Industrials (INDU) held in the area of its 21-day moving average and above key technical support in the 10600 area. Good showing for the bulls.

Now what remains to be seen whether the upside momentum that ended the week will carry though into the coming week - the bulls will likely be attempting to scale and go beyond the old 10868 high.  You see double tops (and double bottoms), but not so many triple tops.  My guess is that they take the Dow Average to a new high (no triple top), such as to around 11000, before there is another Dow Index (DJX) put trade that sets up.

PER LAST WEEK:
"I think it more likely that the Dow 30 (INDU) will drop back to at least the low-10600 area first" (before another rally). You heard it here first folks.  And keep those cards and e-mails coming.

The 21-day slow stochastic when at the extremes shown has worked pretty well with INDU and pretty consistently has highlighted significant (i.e., tradable) tops and bottoms - the indicator is coming back up toward overbought territory.  Multiple readings and time spent at the upper extremes of this stochastic model before there is significant downswing, is pretty much the norm. 

Dow 30 Average (INDU) - Hourly chart:  
The HOURLY chart is included just because it offers a whole other take on the chart or price pattern here. And, really graphically shows the importance of the 10,850 area resistance overhang.  

"The next 2-3 days should tell the story" - OPPS - I said that already last week.  Ya can't go back, only forward - stay tuned for what's next in the ever-changing Market!


Nasdaq Composite (COMP) Index - Daily chart:
The key thing in my mind, while looking at this past week's price action, is the quick rebound from the 2020 area.  It is common, especially around trade at a multiple of "1000", for strong buying interest to surface somewhat above what is thought to be solid support.

My dear 'ol pappy used to say to never wait for only 'perfect' buying opportunities.  Well, he actually said never wait just for perfect opportunities of ANY kind, including the perfect mate (otherwise, he would never have grandchildren!).  

And stock traders, the good ones, don't wait for only letter perfect trading opportunities - just ones that have a good risk to reward.  The sellers wanted to sell some ABOVE 2000 too - they're no dummies either.

Enough buying interest to keep COMP above 2000 does not necessarily translate into the MO (Momentum) necessary to assault 2100 again, which looks like tough resistance. 

The key to this market is probably going to be how well the S&P does, as it is leading the charge. I like the markets better when Nasdaq is leading - the percent gains are greater!

Overbought/oversold measures like the Relative Strength Index (RSI) above are in mid range and therefore neutral. 

Nasdaq 100 (NDX) Index  - Daily:

I rate there being a better chance for a new high (above 1561) for this move than a new low (below 1490) in the week ahead.

The Nas 100 Index (NDX) held support on the lows of the past week.  While it dipped briefly under the key 1500 area, that was short-lived.  The quick rebound to back above the 21-day average suggests that another test of the 1550 area, the top of the late-January sell-off gap, as well as recent highs.

There may be enough follow through buying to propel NDX above 1550 again, maybe this time to hold above this level on its way to the 1575 area again. Unless, NDX is going to be locked in a 1550-1490 trading range - this seems doubtful, at least for long. 

I assess the worst case downside potential is to around 1450. As always, I tend to use the "two consecutive down day" RULE. For example, two consecutive down days below 1500 would have activated, so to speak, objectives down to the 1450 area.

Nasdaq 100 tracking Stock (QQQ) Daily chart:
Just as there was a good likelihood for a rally failure in the 38 area, there was some likelihood for the Nasdaq 100 Tracking stock (QQQQ) to trade around 37, but hold above its key 200-day moving average. Now what?

The price pattern here is suggesting that the bulls want to try and take the stock through 38-38.20 area again - that's where most of the hourly highs occurred even though there was that short-squeeze/running of stops that took the Q's briefly to within a hair's breathe of 38.50.

Volume didn't pick up all that much on the rebound.  The jury is still out on whether there will be any kind of breakout above 38. 

I'm a skeptic on there being enough buying to drive another attempt to reach $39. I did buy some of the stock on the dip under 37, new longs and covering shorts, which seemed like a no-brainer as it became clear there was buying coming in - the risk-to-reward trade assessment was favorable.

NOTE on figuring the aforementioned QQQQ Risk-to-Reward Assessment: buy the dip in the stock to under 37, risk to 36.75 by use of sell-stop.  36.75 would not likely be seen if the buying interest was in fact decent. Holding 37 made a rebound to 38 seem a lay up - opps, pardon the sports metaphor. Risk 25 cents, reward potential $1 or more; i.e., risk to reward ratio is 1:4.  1 to 2 is ok, 1 to 3 better, and 1 to 4 is now you're talking!

Beyond looking like there's upside potential back to 38, my crystal ball is hazy. A close over 38, with decent follow through the next day - not another collapse of the rally - would be bullish. A key does look like the SOX index as to what could fuel this rally further.

CHIP (SEMICONDUCTOR) STOCK INDEX ($SOX) -
There may be enough going on in this current rebound in the Semiconductor Stock Index (SOX), what with the break out above its downtrend channel and above its 200-day average, to propel it to the 460 area. Is that enough to get QQQQ to 39? - I'm not convinced but am a watchful observer of this index for clues to the potential for the Nasdaq indices. 

Please send any technical and Index-related questions to me at Contact Support with 'Leigh Stevens' in the subject line, for possible use and answer in my next Trader's Corner article on Wednesday.  

Good Trading Success!

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