THE BOTTOM LINE -
The upside penetration of the major downtrend resistance, as can be seen in the updated weekly chart of the S&P 500 below, suggests further upside potential for the blue chip indices.
What's an Index Option trader supposed to make of this ?? - stay in S&P calls and look for the first signs of a faltering S&P rally to buy puts in the Nasdaq 100 (NDX). If an index is weak on the upside, it will often be weaker on the downside when the strong index falters.
Too bad for the bulls - the strongest and most prolonged rallies in recent years have been when the Nasdaq LED the advance such as in 2003.
I considered updating the Index Trader mid-week but didn't have much new to say - either the S&P was going to break out above the S&P/Dow resistance discussed last Sunday 2/27 or it wasn't.
I could provide a confirming NOTE now that when an Index keeps attempting to overcome selling at prior highs, especially in the face of other negatives such as the recent spike in oil prices, it's a pretty good sign that the index is going to take out the old high at some point.
The other thing setting the stage for this past week's rally was a substantial improvement in my sentiment indicator, as traders got more cautious/less bullish as the market took its old sweet time to break out to new highs. More on that further along.
FRIDAY'S U.S. STOCK MARKETS -
INDEX TRADER - MIDWEEK UPDATES
S&P 500 Index (SPX) - Daily chart:
Above this area, the upper trading band or my moving average envelope - a line that equals 3% above each day's close - suggests that at 595 the S&P 100 (OEX) would be entering an upside extreme. 600 will be a key psychological resistance and number that OEX traders would be watching if/when it gets there.
Key support is at 580. Any close or two consecutive days' closes under 580 would suggest that an interim top could have formed. 572 is an important next lower support, at the up trendline and also highlighted by an up arrow.
When this indicator above jumps to above 2 again, I will be looking for other signs of the market overheating and be ready to exit any OEX or DXJ calls.
Dow 30 Average (INDU) - Daily chart:
On the downside, key technical support is at the steep up trendline in the 10760-10765 area. Below this an even more important test would be what buying interest again surfaces if INDU retreated to the last downswing low around 10,600.
For a top indication, I would be looking for not only an extreme on this indicator, but a confirming topping chart pattern and a call-put extreme, as discussed relative to the S&P 100 (OEX).
Nasdaq Composite (COMP) Index - Daily chart:
The 50-day moving average at 2083 seems to be marking at least minor resistance. The key technical level remains as at the prior highs in the 2105 area, also marked by a down arrow. Above this area, assuming that the Nasdaq Composite (COMP) breaks out of the doldrums its in, is at 2145 in my estimation, the current intersection of the former support (up) trendline.
Key support and the lower end of the current trading range is in the 2020 area.
For a sustained second up leg in Nasdaq, the public needs to return to former loves and tech biggies like Microsoft (MSFT), Cisco Systems (CSCO), and Intel (INTC) - well actually, INTC has been starting to move and is opening up some distance above its 200-day moving average.
Hey, I did my part! - having just steered my son to his first desktop PC with a must-have Intel processor.
Nasdaq 100 (NDX) Index - Daily:
Immediate overhead resistance is in the 1530 area, at the December - March down trendline. Above here, the 1550 area is quite key. A close above 1150, and ability to hold this area subsequently, is needed to suggest that the Nasdaq 100 (NDX) had broken out, embarked on a next up leg to the important 1600 area.
If what we saw this past week is the best that NDX could do, given that the S&P was rolling upward, I doubt much of a bullish scenario. Watch the aforementioned trendline and above this potential line of resistance, the 1545-1550 area for clues.
Nasdaq 100 tracking Stock (QQQ) Daily chart:
As I discussed in my last update, QQQQ needs to manage a close or better two in a row over 37.70 to achieve a bullish upside breakout above its down trendline - and, above 38 to close over its 50-day moving average.
The ability for QQQQ to hold above the key longer-term 200-day average is a bullish plus of course. But just trading a bit above this area doesn't create much of a trading profit if you bought the stock on the last dip under 37.
At least in owning the stock (I like to trade the stock more than its options), doesn't create another worry of eroding time premiums or time to expiration.
AND NOW FOR SOMETHING DIFFERENT -
If you want to watch an important current influence on the stock indexes, keep an eye on April Crude Oil futures. If this rally is going to keep going, the previous top in the 53.13 area should be support. A close under $53.00 may be suggesting that this high flyer might be headed back to earth.
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 midweek Wednesday.
Good Trading Success!