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Index Wrap

BACKING OFF FROM RESISTANCE

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THE BOTTOM LINE: The major indices have gone from support back up to technical resistance areas and have backed off from there. The S&P 500 (SPX) reached a limiting trendline, the S&P 100 stopped at 596, which will be a significant double top if it can't get higher at some point and the Dow 30 (INDU) just paused; but, will hit the top end of a well-defined uptrend channel around 11500.

In the Nasdaq, the Composite (COMP) has also made a minor double top in the 2375 area and the Nas 100 stopped just shy of its prior high (which was just under its peak before that) and the Russell 2000 (RUT) has paused, in a still-strong uptrend however but it is also nearing possible resistance implied by the top end of its uptrend channel.

It was unusual to see SPX near unchanged and INDU up slightly on Friday, but with COMP down 19+ points. Oil prices were doing another of their sky shots, which doesn't seem to have spooked the market in a major way. The market seems to have taken this latest oil price spike in stride so far, as the situation stems from at least some temporary supply disruptions.

Also, it appears it would take a period of $75 dollar oil (or higher) before there would be possible ripple effects with consumer spending and an appreciable slowing of the economy. The mother of all UP trend channels has been seen in the nearest crude contract chart as I've shown from time to time:

Resistance in the nearby crude futures contract looks to be up in the $80 area, with near support at $70 and major support around $62 currently.

If you need reminding of why the S&P and Dow were not also off on Friday along with Nasdaq, it's because the Nasdaq market doesn't have THESE stocks in it:

The CBOE Oil Index (OIX) is pulling the S&P and Dow up along with it. As money managers get over-weighted in oil stocks and keep buying them up, these companies' stocks assume an even heavier 'weight' in the capitalization weighted S&P. In the arithmetic Dow average (INDU), just the rising price of the Dow oil stocks keeps the INDU average going up.

Look for possible resistance to come into play in the 639-641 area in OIX, as implied by the upper trend channel boundary.

Regarding the construction of the price channel above. As I noted in my Trader's Corner on Wednesday, 3 rising lows (or more) allow drawing an up trendline. To construct an upper trend channel line then only involves drawing an upper parallel touching the high of a SINGLE peak to make the implied upper trend channel line.

More specifics on my outlook will follow on the daily charts of the major indexes below.

MARKET NEWS and INFLUENCES:
Closing index prices, a recap of market influences like company news and government releases, are covered in the e-mailed and online Option Investor Newsletter, in the 'Market Wrap' section.

MY WEDNESDAY 'TRADER'S CORNER' ARTICLES:
This mid-week article, besides explaining technical analysis principles and indicators relevant to current/recent market action, also serves as an adjunct or companion piece to this weekend Index Trader outlook by providing a brief midweek update on my market outlook.

This past Wednesday's Trader's Corner discussed the topic of how the index or market that is 'leading' a trend in the overall market will tend to be the one where its chart patterns and such things as trendlines, moving averages and the like, will best show support/resistance and trend reversals.

This past week's (4/19/06) 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.

TYPO: 'Lewder' there should be 'leader' as in "following the 'leader'" and the indicated link to my 4/15 Index Trader doesn't take you there, but the substance of the article is a-ok.

** SUBSCRIBER MAIL **
Please send any technical and Index-related questions to me at Click here to email Leigh Stevens support@optioninvestor.com with 'Leigh Stevens' in the subject line; not only for answer, but also for possible use in my coming week's Trader's Corner article. Your emails are appreciated and where I learn what YOU are thinking or wondering about. Yes!

** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **

S&P 500 (SPX); DAILY CHART:
There was a short-lived but strong and tradable rally after buying interest showed up repeatedly in the 1281-1283 area in the S&P 500 (SPX). Resistance now appears to have shown up around 1320, at the trendline connecting the rally highs of recent months, as noted at the red down arrow. Above this trendline resistance around 1320, I estimate further selling interest coming in not much higher, at 1325-1330.

Near support is at 1300, then at 1290-1289 and at 1283-1281 after that. Judging by the hourly chart pattern and its recent short-term overbought (not shown), I anticipate a sideways to lower drift in the near term, but likely not dipping much or long below 1300. Only a close under 1300, not reversed the next day, would suggest a possible retest of the low-1280 area.

S&P 100 (OEX) INDEX; DAILY CHART:
The S&P 100 (OEX) was a 'follower' of the broader 500 or SPX as it did not go to a new high and is in fact showing a double top currently which is the significant part of its pattern right now.

A retreat to under 590 would cause this potential double top to take on more meaning and make the recent 596 peak important technically. The resistance de jour so to speak!

I indicated last week potential back up to 595-597. Yes indeedy! Now what? Watch the recent high. A decisive upside penetration of 596 would suggest a move to the psychologically important 600 area. I don't see much further upside than that for awhile.

Now that the upside pull relating to possible April expiration influences is behind us, OEX may have reached at least an interim top, at its prior high, especially since bullish sentiment leaped to what I consider an 'overbought' peak.

DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 Average (INDU) could get up to the 11500 area, but I estimate that as a maximum upside target for the current move.
Near support is in the 11250-11200 area, with major support down in the 11100 area.

If you are in DJX May calls, I would have a profit objective to the aforementioned 11500 area if that was reached; DJX puts also have potential for a trade if this area was seen. As far as call protection with an exiting stop, a close under 11200 would suggest that there might be another 200 point downside risk.

NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
As I suggested in my 'bottom line' comments above, the minor double top in the Nasdaq Composite (COMP) Index should be noted. I always pay attention to any sharp pullbacks once a prior high is reached. Above 2375 I the top end of the uptrend channel I've outlined suggests to me that the major next resistance is at 2396-2400.

Near support is suggested at the Friday low at 2333 low, which is equal to the 21-day average and is also important technically since there were some prior highs in this area. A 'line' of prior highs, once exceeded, often 'becomes' support on later pullbacks.
However, key or pivotal (main) support is at 2300 in my estimation. Next support is in the 2280 area.

NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) remains bullish in its pattern of higher reaction or pullback lows. However, NDX also has to date a pattern of lower rally peaks, so has not fully made a bullish chart pattern yet by a breakout advance to a new high.

Trading swings are getting shorter. The last good trade in my estimation was when NDX made a low just above its up trendline in the low 1660 area. It has been 'fully' oversold before that also. The subsequent two-week advance carried some 90 points higher.

I have no current trade suggestion since I mostly like to buy calls or puts when there is a more clear cut pattern (e.g., a low at the aforementioned up trendline), along with an overbought or oversold extreme such as was seen at the 1750 peak.

NASDAQ 100 TRACKING STOCK (QQQQ); DAILY & HOURLY CHARTS:
Nothing much new with the Q's. Selling interest on rallies in the Nas 100 tracking stock (QQQQ) approaching 43 still is marking its pivotal/key overhead resistance. That resistance extends up to 43.2-43.30 at the prior highs.

42-41.75 remains pivotal near support. If 41.75 was pierced it would suggest downside potential to the 41-40.85 area. 40.2 is major support implied by the low end of the multi-month trading range. QQQQ remains within its 40.2-43 trading range over months now, making this sideways pattern the key overall chart aspect.

I don't have a strong conviction or opinion as whether the NDX tracking stock breaks down below 41 again; or, can close above 42.75.

Daily trading volume jumped on Friday's decline, which adds a minor bearish note with this indicator. The On Balance Volume turned down the day prior (Thursday), so gave an early warning on the weakness that followed.

Good Trading Success!

NOTES ON MY TRADING GUIDELINES AND SUGGESTIONS
CHART MARKINGS:
1. Technical support/areas of likely buying interest are highlighted with green up arrows.
2. Resistance/areas of likely selling interest: red down arrows.
[Gray up/down arrows: support/resistance levels that got pierced]
I WRITE ABOUT:
3. Index price areas where I have a bullish bias or interest in buying index calls (or selling puts or other bullish strategies).
4. Price levels where I suggest buying index puts (or, adopting other bearish option strategies).

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.

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