You have to consider that each index more or less is a separate trading vehicle, and gauge market action on the basis of what's being seen in that index or sector, as 'THE' market is not moving in lockstep.
Institutional money especially was heavily going into big cap stocks, especially as reflected in the Dow 30 Industrials (INDU) in Feb-March. Until, that is, INDU hit the top end of its uptrend channel and buyers backed off. This kind of 'technical' action is showing that there are limited or narrower, not broad based, investment themes that don't create one overall market trend.
Another aspect of the Dow is that at its recent high it got about as 'overbought' as it tends to get without a substantial correction happening next. A view of the weekly INDU suggesting a longer range overbought condition is suggested by the 8-week RSI:
Last week I talked about the short-term tops that formed in the indexes that had been leading; this was most noticeable to me in INDU as you'll see in the charts further on, especially in the hourly chart's rounding top. What the concurrence of the weekly INDU chart pattern suggests, besides the importance of holding at or above 11,000 for the bulls, is we need to be alert to the possibility that short-term tops turn into longer term ones.
In the most recent 'catch up' Nasdaq rally, the Composite is reflecting small to mid cap stocks, especially so with funds and individual investors. You can see this in the Russell 2000 Index (RUT) chart and the way now that the broad Nasdaq Composite (COMP) has joined the Dow and S&P 500 (SPX) at new highs for the current move. [But not so the big cap Nasdaq 100 (NDX), showing some doubt about the bigger companies.]
I probably haven't been featuring the RUT as much as it deserves, but it has had one of the most consistent and stronger uptrends.
There is no other index that has shown as much consistency as the Russell 2000. RUT's back and forth price swings have been only within a steadily higher trend since October and the Index has stayed within a well-defined uptrend channel. The Dow has also trended consistently higher, but RUT has been more consistent, with fewer periods of volatility and wide price swings.
Regarding the theme of key moving averages, like the 50-day above, 'acting' as a curving line of technical support, I noted the several instances above (at the green up arrows) where RUT pulled back to that average and then rebounded.
I'll move on to the other major indexes in the sections below. My overarching observation is that depending on the sector and market, there are still a lot of fits and starts, pauses, hesitations, etc., albeit still within overall uptrends.
This kind of market makes me more selective in trade entries and to study harder to better see when it's time to exit a trade.
MARKET NEWS and INFLUENCES:
MY WEDNESDAY 'TRADER'S CORNER' ARTICLES:
TYPO: My Wed. notation on the OEX hourly chart relating to the 'wedge' or pie shaped pattern that fell to an apex at the early-March low. I labeled the pattern a 'bearish' falling wedge, vs. correctly saying 'bullish'; i.e., rising wedges are usually bearish, falling wedges bullish, contrary to the way they point.
My Wed. Trader's Corner covered two different topics in relation to two Subscriber e-mails. One question related to the time frames I look at most in terms of moving averages and chart patterns as relative to entry and exit trading decisions.
The second topic was about the use of an indicator that I don't use much, the Direction Movement Index (DMI). However, the DMI can be useful in terms of determining in an 'objective' fashion whether a stock or index is trending or 'non-trending'; this in order to determine whether it's appropriate to use 'trend following' methods (e.g., moving average crossovers, etc.) to enter or exit that market.
This past week's (3/29/06) article can be found in your e-mailed Option Investor Daily Newsletter for Wednesday; or, it can be seen online at the Option Investor.com web site by clicking here.
S&P 500 (SPX); DAILY AND HOURLY CHARTS:
The S&P 500 (SPX) is locked into a tight price range but with recently faltering upside momentum, with another close right at the 21-day moving average on Friday. Key technical support is at the up trendline at 1290; noted on the chart below with the green up arrow. Pivotal overhead resistance is at 1315.
SPX needs to hold 1290 to maintain its overall bullish pattern of rising reaction or pullback lows and which has maintained an up trendline on the daily chart for past six month period. There is no near-term reversal of the uptrend however, unless there was a close under the last downswing low at 1268.
What you like to see in a strong bullish pattern is the index to stay above the line of prior highs, in this case in the 1295 area. Early price action in the coming week should tell the story on whether this recent slowing upside momentum is going to reverse, continue or accelerate.
1290 is key; if penetrated the next support is around 20 points lower or possibly back to a test of the prior lows in the 1270 area.
S&P 100 (OEX) INDEX; DAILY CHART:
OEX slipped Friday below its prior tops at 588. If OEX continues to slip below 588 it suggests that the index can go lower still. Key trendline support intersects at the daily chart up trendline around 585; this internal up trendline connects the most number of lows for the past 6 months.
578 is must hold support if 585 is pierced. I think that the odds favor that OEX (and SPX) will hold at or around the area of their dominant support trendlines however. However there's no reversal of the short to intermediate OEX uptrend unless the prior low at 578 is pieced decisively.
Bullish 'sentiment' shot up on Thursday. Hey, just before a weak day on Friday! I don't take it as a particularly bullish sign when this indicator jumps up before there is a retracement to more apparent or major support. This surge in bullish activity and outlook had at least something to do with the strong rebound on Thursday after OEX held its prior top in the 588 area.
DOW 30 (INDU) AVERAGE; DAILY AND HOURLY CHARTS:
The Dow 30 Average (INDU) continued this past week to retreat within the decline that started from when INDU reached the high end of its uptrend channel at its recent 11335 peak.
Short-term support may be found after Friday's decline to just above 11100, at the minor up trendline drawn on the chart below. INDU might hold around this 11015 area, but more significant technical support is at 11000, which is the area of current intersection of the dominant up trendline.
The prior INDU low is at 10923. Like SPX and OEX, a prior swing low like this plays a key role in terms of it being must hold support so as to not reverse the pattern of rising pullback lows and rising rally peaks. [Of course, holding a prior low and not sinking below it, sets up a double bottom, which then in turn suggests a favorable call buy entry.]
The declining trend in prices is of course also seen in the continued fall in the stochastic indicator above.
INDU is down near a fully short-term oversold. Stay tuned on whether the 11000 area will be seen. It seems too 'obvious' a target. As my trading mentor used to say, 'if it's obvious, it's obviously wrong'. Interesting take!
NASDAQ COMPOSITE (COMP) INDEX; DAILY AND HOURLY CHARTS:
The Nasdaq Composite (COMP) Index cleared its prior '06 high and now looks to have resistance around 2358. If it in turn works above this area, my next objective would be to around 2375-2380.
It's the smaller stocks that are driving the Composite. There is some more upside potential for sure, but this market is getting up toward overbought territory also. Has this recent bullish drive discounted a better trend in earnings? Stay tuned on that!
Immediate support in COMP now should be the prior 2333 high. Key or must hold support for the bulls is at 2300-2285, with emphasis on 2285 at the up trendline.
COMP HOURLY CHART:
I would anticipate increasing resistance or selling interest in NDX in the 2360 area if reached. Basis the hourly up trendline, near support is in the 2320 area.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) lags the Nasdaq Composite but NDX did of course clear its prior rally peaks in the 1700 area. 1700 should now be near support, extending down to 1685-1677 area, at the minor up trendline and at 1677, the level of the current 21-day average.
The Nas 100 was struggling to gain much upside traction but had a very strong mid-week advance. Not for nothing did bullish sentiment shoot up the next day!
It would not be surprising to see another dip to and maybe a bit under 1700 but NDX is mostly following the lead Composite Index; if COMP continues higher, a next near target for NDX is to 1723-1725, with ultimate potential back up to the '06 high in the 1760 area.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQQ) is seeming to falter again in the 42 area. Next resistance is 42.4, with major resistance at 43 to 43.3.
Key near technical support is at 41.25. As long as there is no retreat in the Q's below this area, the uptrend is well intact.
Daily trading volume numbers surged on the strong midweek rally. Not huge huge, but respectable. Volume is 'confirming' the bullish trend.
Good Trading Success!
GUIDE TO MY TRADING GUIDELINES AND SUGGESTIONS
Trading suggestions are based on Index levels, not a specific option (month and strike price) and entry price for that option. My outlook often focuses on the intermediate-term trend (next few weeks) rather than the next several days of the short-term trend.
Having at least 3-4 weeks to expiration tends to be my guideline for trade entry choice. I attempt to pick only what I consider to be 'high-potential' trades; e.g., a defined risk point would equal in points only 1/3 or less of the index price target.
I most often favor At (ATM), In (ITM) or only slightly Out of the Money (OTM)
strike prices in order not to 'overtrade' my account. Exit or 'stop' points, as
well as projected profitable index price targets, are based on my technical
analysis of the indexes.