THE BOTTOM LINE -
The way the rally fell apart near the end of the week, finally appeared to dampen the excessive optimism shown in my sentiment indicator, measuring daily call to put volumes, as the end of the week reading came down from the bullish 1.7 area back to a more neutral 1.2. There has seemed to be a lot of conviction that the market was not going to give back MORE than half of the last advance. And, that this then was a good place to buy more calls and sell puts.
I was skeptical myself that so many were going to have to right. It's never quite that simple with the market.
MARKET NEWS and INFLUENCES -
MAJOR STOCK INDEXES - COMMENTARIES/OUTLOOK
S&P 500 Index (SPX) - Daily chart:
It's clear from this past week's trade that S&P 500 (SPX) technical resistance begins at 1185 (at a prior low) and extends to 1190-1192. This is about as expected. Key technical support remains as 1160, down to 1154. 1160 is the 50% retracement mark of SPX's run up from late-Oct to early-March. 1154 is where the support up trendline on the daily charts intersects currently. You can give or take a little either way on this as trendlines don't always "fit" exactly.
As the S&P and Nasdaq approach (or have touched) their 50% retracements, I naturally discussed the concept of retracements in my most recent Wednesday's (3/30) Trader's Corner article. This article can be seen by clicking here.
The common retracements are 38, 50 and 62 percent. What is common about them is that the index prices will often enough stop right at one of them and then reverse direction. Not shown on the chart below, the 62% retracement for SPX is around 1143.
A further point in the up trendline shown on the chart, would be with a fall to the 1154 area if also followed by a rebound from there. This is always what defines, or un-defines, trendlines. I'll call support as in this area (1154) also because that's where two lows (Aug and Oct) so far establish the index's up trendline.
The chart pattern looks bearish with decline potential to the 1160-1155 area. I would also consider S&P related index call positions on any dips in the SPX index that fell below 1150. I continue to think that the 1150 are is the low end of the trading range that the index is likely to remain in for the future I can foresee, which is over the next few months.
S&P 100 Index (OEX) - Hourly chart:
Not much change in the technical view of the S&P 100 (OEX), as the rally attempt was weak, not making it even yet to 567-569 resistance. I continue to anticipate the 555 area being more fully tested. Meaning the OEX will trade some more around 555, but basically hold the 550 area. I think buying interest is strong enough in this area so that 550 will be the low end of the trading range that OEX will remain in for some while yet.
I close above 567, then above 570 at some point, is needed to suggest that OEX was back on a bullish track.
It wouldn't be entirely surprising to see a brief decline to the 546 area, at the 62% retracement, which was followed by a strong rebound. This much of a fall is still within the bulls ballpark; or, in the bounds of a "normal" correction to an overall uptrend.
If a quick fall did develop to the 546 area, for the nimble trader it's a suggested spot to exit puts and buy calls. My objective at that point would be for at least a rebound back toward 570.
Last but not least is my sentiment indicator which I tend to show on the S&P 100 (OEX) chart as a key "indicator". Per my historical knowledge of this indicator, you tend not to have sustainable rallies when traders are getting more BULLISH on the declines. This view probably seems "contrary" to the logic that we should "buy low" - but who's to say what is "low".
This theory of CONTRARY OPINION; that is, when traders are overly bullish, that the market is not ready to go up yet and vise-versa; that when traders are overly bearish, it's time to map out some buying. Perverse, is human nature!
Dow 30 Average (INDU) - Daily chart:
10,350 would represent a 50 percent price retracement of the last rally, which the dashed gray level lines are attempting to highlight in the next chart. This takes the last rally as beginning in October in the 9,700 area and ending in early-March at 11,000.
Generally, when a stock or an index is struggling to mount any sustained rallies before it's reached a key retracement like one half, it's often the case this the item will complete this retracement. Significant value is given to being able to buy at the midpoint of the last advance.
As anticipated, the key and tough resistance point was as the index got close to the 10600 area where there was significant stock for sale. Not surprisingly, the rally stopped and reversed (per the red down arrow) exactly at the down trendline from the early-March highs.
The Dow seems poised to either hold a level around 10,350 or retreat to perhaps 10,200 as my "worst case" outlook currently. This area (10,200) would be a fibonacci 62% retracement and the maximum I think that we'll see on the downside. I still assess the trend in stocks as overall or long-term bullish.
I also note the tendency for good-sized rallies developing in the Dow when it gets down to the lower end of the 21-day slow stochastic.
Nasdaq Composite (COMP) Index - Daily chart:
The Nasdaq Composite (COMP) attempted to follow the S&P indices higher, but the rally failed in a similar fashion, at a prior low and the start of too much stock for sale for the existing buying interest to overcome. "Resistance" = "supply", or stock coming out for sale in the price area in question.
I continue to see the 1970 area as a natural support point, representing as it does a 50 percent, one-half, retracement of the largest prior continuous advance. Next support is at 1950.
While a further fall to the 1920 area, even 1900, can't be ruled out based on the chart pattern, COMP in the 1950 area still looks to be a good place to exit bearish option plays. Why hold out for the last bit. This market doesn't look dead yet. Stay tuned on that! It's certainly oversold now, at least short to intermediate-term and looking out a few weeks.
Nasdaq 100 (NDX) Index - Daily:
A demonstration occurred in the week past for the tendency for the 21-day moving average on INDEXES, to act as support or resistance. In this case, resistance, as highlighted below by the red down arrow at the average -
1500 remains key or 'pivotal" technical resistance, being the current intersection of the down trendline. Unless the Nasdaq 100 (NDX) can rebound to close above 1500, it looks like lower targets are in play.
Use of the moving average envelope lines over time generally has suggested to me in bearish trends (lower lows), the lower envelope line will be touched more than once in a correction.
One potential downside target is to around 1436. If reached, I suggest exiting puts and will then evaluate buying calls for the rebound that should follow a low of that degree.
Nasdaq 100 tracking Stock (QQQ) Daily chart:
QQQQ resistance continued to be found last week at the 200-day moving average. Near support looks to be 36, with a move below here setting up my next projected downside objective as 35.25. When trade at one cluster of prior lows doesn't result in a rally, its pretty common to look for a move to the next.
Absent a bullish turnaround like a sustained rally to and then from the 37 area, the chart pattern suggests lower prices ahead. As can be seen with the NDX chart above, this index is edging toward near-term oversold readings. But, it's not there yet. One more shot down, especially to new lows for the move, would put the underlying index in a fully oversold condition.
If short the stock, stay short, with a suggested stop point to exit the trade, set at 37.15. Cover short positions at 35.30.
On Balance Volume (OBV) continued lower into the end of last week and it provided some ancillary indication that the stock was not ready to rally yet.
Good Trading Success!