It was disappointing, at least to us holders of October index call options, that the recent rally failed shy of the old highs. But, the key technical consideration was that the decline held at and above the respective 21-day moving averages. And, that there was a good Friday rebound, especially in the S&P segment of the market.
I can't imagine that these recent price swings had anything to do with EXPIRATION!? Especially with OEX rebounding to near, but not above, 575 and NDX closing a tick shy of 1600!
Overall market prospects would look better if tech stocks were coming back stronger. However, price momentum and the trend remains up and the charts are bullish as long as the various major indices do not pierce or fall under their 21-day averages, especially on a closing basis.
If they do have such closes and there is no rebound the next day, I suggest exiting call positions. I don't like shorting or buying puts around the low end of the price channels, so would only wait and watch to see if the prior recent (down) swing lows get tested and hold at, near or above those prior lows. The charts follow as to specifics.
MIDWEEK INDEX TRADER UPDATES:
MARKET NEWS and INFLUENCES:
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
As I noted above, the S&P 500 (SPX) held above its 21-day moving average on this past week's dip, but rebounded at the end of the week. Given a more mixed economic picture and with a spike up in gold prices showing an increased level of anxiety, it will be important for SPX to challenge, and exceed, its prior peak at 1245, where I show the first and pivotal resistance in the daily chart below.
At 1252, the S&P would start to look somewhat 'extended' or at a minor extreme. Major current technical resistance is assumed to be at the upper trend channel line, around 1266.
1224, at the 21-day average, is pivotal near support, with the lower channel line at 1212 as key support, relative to this index remaining in an up trend. 1200 is very important prior support and where SPX would become 'overextended' on the downside, another way of saying 'oversold'.
The faltering rally creates a situation that keeps the index from getting to a high (overbought) extreme on the Relative Strength Index or RSI indicator. The uptrend that began with the rebound off its lower support trendline still looks intact.
S&P 100 (OEX) INDEX; DAILY CHART:
The S&P 100 (OEX) chart remains bullish in its pattern, with near resistance at 575, then at the prior highs around 577-578, which is also where my upper trading (moving average) envelope line is.
These 'bands' give an idea of the upper and lower ends of a likely trading range. Assuming a close over 1245, not reversed in the following day or days, a possible next target/objective is up around 585-586, at the upper end of the current uptrend channel.
567 is key support implied by the 21-day average. A close under this level and not reversed within 1-2 days, would suggest that OEX might be headed back down to the 560 area to re-test the lower end of the projected channel. Another fall to the 560 area and followed by a rebound, would give even better 'definition' to make a more technically 'valid' support/up trendline. Stay tuned on that!
I think OEX can re-test and exceed the prior highs around 577, crucial area; a cluster of highs there form a 'line' of resistance. This line of resistance around 577 becomes a key test for the bulls: buying power, versus selling interest.
My 'sentiment' indicator fell on the week-end rally, which is normally bullish but also likely distorted by the expiration. Not too many days recently when CBOE equity call volume is a million or million plus!
DOW 30 AVERAGE (INDU); DAILY CHART:
Near support in the Dow 30 (INDU) is around 10500, with even more key technical support at 10400, at the lower (up) trendline intersecting.
Near resistance has been at 10700 for some time; there was just one close over this level and a top was built after that over mid-July to early-August. The rally recently failed again at 10700.
Above 10700, I note below some further potential resistance around 10735, but even more major technical resistance looks to be around 10850, at the top end of the uptrend channel.
I think INDU will work higher, but it's important that the average not fall under 10500 beforehand. I will look to take profits on DJX calls if the Dow index gets to the 108 area.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
Last week's price dip saw Nasdaq Composite index (COMP) holding the low end of its uptrend channel at and just under 2150; a key area and also the level of the 21-day moving average. 2112, as noted by the green up arrow, is the next lower support implied by the prior low there.
On the upside, 2186, at the most recent rally high, is an important level to watch. Assuming a move back up to and above this level, 2220 then becomes the next key resistance point, at the 12-month high.
The COMP rebound remains less robust then seen in the S&P sector, which is more dominated by fund buying. Individual traders appear to have become a little 'gun shy' about buying tech given the recent shock to our economy.
It takes a recovery firing on all cylinders to get tech stocks really running. These sectors tend to lag the mainstream big-cap stocks, when earnings expectations get shaky.
NASDAQ 100 (NDX); DAILY CHART:
I still favor holding Nasdaq 100 (NDX) calls bought on the dip to the 1550 area, at the low end of NDX's uptrend channel. I'll also be ready to exit calls if the index can't stay above 1583 on a closing basis, at its 21-day moving average. You could give such positions more leeway by staying with calls as long as there was not close under the lower channel line at 1572.
The prior recent high at 1619 should be watched closely for future further resistance. Failure to pierce this level puts the near-term trend direction in doubt.
Assuming however that NDX can get back through 1619 and which looks possible, 1630 is key resistance at the prior 12-month high. Above 1630, I mark the next, and major, resistance at 1680 at the top end of the uptrend channel.
I said last time that I would hold Nasdaq 100 (Oct 1575) calls, unless there was a close below 1580. I'm raising my exit point a bit to make it a close under 1583.
'Closing' stops are risky of course when the market plunges (in terms of an option value becoming worthless), but the danger of this tends to be more acute when the index is at an overbought extreme; e.g., especially when the (13-day) RSI is above 70, but which is not the situation currently.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
39.9 - 40.1 remains the key technical resistance for the Nasdaq 100 (QQQQ) tracking stock. I peg major resistance currently as 41.3.
39.1 is near support; then, the prior low in the 38.25 area.
If the stock falls under 38.25, I would rather be short than buying any more. Such a close would set up an objective to 37.
As a related bullish aspect, it would have been more favorable to see volume surge on the recent rebound from the 39 area. I give the doubt to its upside potential as long as the prices don't start falling under the recent low.
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