Option Investor
Index Wrap

Indexes Hold the Low End of Their Trading Ranges

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THE BOTTOM LINE -
The S&P 500 (SPX) fell below its last downswing low (of 2/22) in the past week, but not on a closing basis (i.e., 1184), so is not yet in a confirmed downtrend. Not for nothing that Charles Dow ONLY looked at the close - "the moment of truth" I say.

Watch for a close under 1184 to suggest that the blue chip indices are in a downtrend on a short to intermediate-term basis. Absent that we could see a rebound to the 1200-1205, with a close over 1205 needed to regain a bullish chart/technical outlook for NYSE stocks.

A picture is worth a thousand words -
The S&P advance reversed in the area of its major down trendline dating from the 2000 top. I often say that two consecutive closes above/below a trendline are needed to 'prove' a breakout - there was ONE weekly close only above the major down trendline that is drawn below.  

Moreover, the S&P 500 (SPX) reversal occurred while there was a bearish price/RSI divergence of weekly longer-term significance as prices pushed to a new high, while the Relative Strength Index did not, suggesting a top may be in place, at least for now. 

In the languishing tech-heavy Nasdaq, the Composite (COMP) has held the low the end of its trading range dating from January with the COMP close at 2007 for the week just ended. There was an intraday (Friday) dip that took the Composite to 2000, but it managed to stay above its 200-day average at 1993 - again, as of the Friday close. Support both at 2000 and at the 200-day average, is the area to watch to suggest that its trend has turned bearish. Stay tuned.

If holding Index puts bought when the Dow Industrials (INDU) failed to take out key resistance at 11,000 (my benchmark back during that week), you could take profits on half of them if the Dow continues to hold near support in the 10,600 area, assuming INDU doesn't re-test more significant support at 10,400-10,360. Dips to and under 10,400 is the area I suggest exiting any remaining DJX or OEX puts.

With the Nasdaq, I would key off the 2000 level in the Composite and off from 1480 support in the Nasdaq 100 (NDX). If you took profits on the dips to these areas, once they held, good going.  If still holding all or some puts, watch these levels closely - NDX could rebound again to the 1495-1500 area in the Nas 100.  However, a close over 1500 on a daily basis - or, more conclusively, two consecutive days' - would suggest that the Nasdaq was remaining in a relatively narrow trading range of 1480-1560. 

We may be in a situation where the market is going to go into one of those relatively dull trading ranges, as there are not sufficient fundamental influences manifesting yet to cause a breakout or a breakdown. If so, those buying calls and puts should ideally only take a trade at the two ends of this range in order to have a relatively tight exit point - this because the Index doesn't have to go too far above or below its trading range to suggest that there is a breakout above or below this range.

Sellers of Index options premiums in a trading range market have a reasonable trading situation also by selling at the upper or lower end of the price ranges being seen in recent weeks/months.

On an unrelated but important note, those OIN Subscribers who e-mailed me questions in response to my last (and usual) Wednesday "Trader's Corner" section appearing in the e-mailed daily newsletter (3/19/05), will get a response shortly both individually and via an answer in my next OIN Trader's Corner article coming up midweek. 

Rising energy costs and the falling dollar, coupled with a less than needed jobs growth expansion, continue to be the main longer- term influences keeping a lid on market advances. This is reflected technically in this inability of the S&P market to achieve a next up 'leg'. And, a second burner economic boost is precisely what is needed to get ratchet up tech stock sales and earnings and propel the Nasdaq Composite much above 2000.     

Anyone, wanting to review my topic of the apparent bearish rising WEDGE chart pattern that stopped the Dow 30 (INDU) rally cold, can view this by clicking here

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

MARKET NEWS and INFLUENCES - 
Closing index prices, a recap of market action, specific company influences and government releases are covered in the e-mailed OIN Newsletter, 'Market Wrap' section.

INDEX TRADER - MIDWEEK UPDATES 
I will update the Index Trader midweek (Wednesday) also when my schedule permits and IF there is a significant change or adjustment needed to my Sunday commentary. This was not needed last week.

MAJOR STOCK INDEX COMMENTARIES/OUTLOOK

S&P 500 Index (SPX) - Daily chart: 
The 1205 area, at the previously broken up trendline (at the red down arrow) is key overhead resistance.  A close over 1205 is needed to suggest that the S&P 500 (SPX) was trying to regain its bullish footing - this kind of rebound would also put prices back above the pivotal 21-day moving average.  

As I mention in my opening bottom-line comments, a close under 1184 is needed to suggest that SPX was in a downtrend again, as this action would take SPX below the price range of the past month. 1165 is a key technical support, at the downswing low of late-January.

I am assuming that there will be a rebound in the S&P 500 (SPX) in the short-term, but am unconvinced that such a rally will carry the Index back above resistance.

After an oversold rebound, prices may slip back toward the lower envelope line again, intersecting around 1175 currently. Reflecting the lower volatility of past weeks, I have narrowed the 21-day moving average envelope trading bands to a level that is 2 percent above/below the average.

My sentiment indicator, as I anticipated, is registering a more bearish level of expectation for the indices. However, my indicator is not yet fully in bullish territory - one dip to the lower extreme would suggest a possible bottom, IF such an occurrence was also confirmed by price action and other key indicators.
 
S&P 100 Index (OEX) - Hourly chart:

575-578 is key overhead resistance, as noted by the red down arrows on the HOURLY S&P 100 (SPX) chart below -  

OEX is about as oversold as it gets on a 2-3 day time frame basis without some type of rebound.  Short-covering ahead of the weekend, suggested that this may have begun as can be seen by the last 2-3 hours of trading on Friday. 

An hourly close over 575 would put OEX back into its uptrend channel - this is also the level of the 21-day moving average (not shown). What would then remain to be seen is if the last rally high at 578 could be exceeded - if so, I don't have a specific upside objective above 578.  580, then 585 offer minor resistance. 

The top end of the hourly uptrend channel at 592 is key technical resistance - of course the upper trend channel boundary moves higher over coming days.   

I suggested last week that rallies up toward the pivotal 580 area in the OEX would offer a put buying opportunity, with an objective to 567-565. Done! My only lower objective currently is to the 560-556 area.

Dow 30 Average (INDU) - Daily chart:  

The 10565 area at a minor up trendline as highlighted on the daily Dow 30 (INDU) chart below looks like near support.  10763 is also a key resistance on the upside.

INDU is getting down toward an oversold reading on the 21-day slow stochastic, but is not quite there yet.  There could well be a short-term rally, followed by another decline that would but this Average into a more fully oversold condition. 

The 10360 area is key potential support, as implied by the January bottom. 

The converging uptrend lines that narrow in, as highlighted on the INDU chart above, have the appearance of a bearish rising wedge.  For this bearish pattern to suggest that a major top has been made, I would not expect more than a rally that carries to the aforementioned 10760 area. 

A rally back ABOVE the (lower) up trendline, would cause me to throw out a major bearish interpretation for a (rising) wedge formation. A major rising wedge suggests a significant or major top - not just foretelling a minor decline, such as a pullback to the last low.   

Nasdaq Composite (COMP) Index - Daily chart:

2050, then 2060, are the key overhead technical resistance levels in the Nasdaq Composite (COMP).  A close over at least 2050 is needed to suggest that COMP was resuming its up trend - also implying that the Index had reached (again) the low end of its trading range.   

2008, then 2000, down to 1993, is the lower support zone.  A close under 1993, at the 200-day moving average would suggest that COMP was in a downtrend.  A downtrend is not proven so to speak UNTIL prices sink below the last downswing low - this has not happened yet in the Composite.  Stay tuned!

COMP might be locked in a 2000-2100 trading range as bullish and bearish influences exert back and forth influences.  The week ahead may decide this - either the lows will hold, or they won't.  Simple, yes?  If you are holding puts in Nasdaq 100 (NDX), taking profits on some of them is not a bad idea - assuming you got profits to take. 

I wish there were as many "profits" as there is implied in the "profit-taking" banter that is always offered as a weak analysis of what was going on in many market moves.  If a strong rally develops, cut any losses in puts to keep em small.  Another opportunity will come later. 

Nasdaq 100 (NDX) Index  - Daily:

1527 is resistance implied by the current down trendline.  A decisive upside penetration of this line would be bullish. Major resistance continues to loom in the 1550 area.

1480-1482, at the low end of the price range dating from January is a KEY price point now. If 1480 was pierced it would set up a possible next downside objective to the 1450 area.   


Nasdaq 100 tracking Stock (QQQ) Daily chart:

QQQQ has fallen under pivotal 36.75-37.00 support - 36.75 is the level of the 200-day moving average currently.  This average has sometimes or often been quite pivotal in the Q's. 

I suggest a downtrend channel in the way I have highlighted the two dashed trendlines.  It does give an idea of a possible downside to as low as 35.  The channel also suggests that if QQQQ pierces 38, a reversal of the bearish pattern is suggested.

If short the stock, a tight protective stop is 37.10. An objective to the 35 area is a possibility, but a near-term objective is to 36.10-36.25.

Daily trading volume on the fall under the 200-day average and the On Balance Volume (OBV)line is declining, so daily trading volume is tending to "confirm" the bearish price action - in the Nas 100 tracking stock I watch volume closely for confirmation, or not, of what is happening with price action. Sometimes OBV turns up ahead of prices and gives an early warning to exit shorts.

Good Trading Success!

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