THE BOTTOM LINE: Last week I said that it was nearing the time when the Nasdaq and the NYSE stocks would stop diverging. I also suggested that the S&P 500 (SPX) had potential to as high at 1327. The close was 1325.7. OK as predictions go. I also thought there was potential in the S&P 100 (OEX) to get up to as high as 605 next and it ended Friday at 603. But what NEXT?
This most recent was a powerful rally and blue chip strength finally help ignite the tech-heavy Nasdaq indices. The S&P had to get even stronger and start pulling up Nasdaq OR the S&P Indices top out, finally unable to keep climbing in the face of such a weak Nasdaq. Happily for the bulls, 2300 in the Nas Composite (COMP) turned out to the super strong support that it looked like it should be.
I underestimated the Dow's further upside potential for the week, thinking it could reach 11500. 11,577 was the Friday close. I am raising what I think technical resistance could be on the DOW to 11660-11700.
The S&P 500 (SPX) could reach the 1335-1340 area before topping out again for a while. The most bullish chart event was the breakout of a converging triangle evident on the S&P 500 (SPX) chart. This kind of explosive up move through upper resistance suggests that this accelerating move can carry some distance yet. But from the low end of their uptrend channels, the distance to a likely top end is nearing.
What overhead resistance that could be expected, anticipated or watched out for, you'll see in my commentaries with the individual charts on the major indices below.
MEA CULPA -
MARKET NEWS and INFLUENCES:
MY WEDNESDAY 'TRADER'S CORNER' ARTICLES:
This past week's (5/3/06) article speculated on a bullish pattern that could be construed on the S&P 100 (OEX) although it was the type (reverse Head & Shoulder's) seen mostly at bottoms, not during a still high-level price consolidation. I also described 'wedge' patterns, both bullish and bearish.
My last Trader's Corner column can be seen in the Option Investor Daily Newsletter for this past Wednesday (5/3) or can be seen online by clicking here.
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
When both top and bottom trendlines narrow in and both have the same approximate 'slope' (are symmetrical), what you CAN predict is a strong move on a decisive upside or downside penetration of either trendline, exactly what happened in SPX. A strong move in a now quite bullish looking chart, ending a prior period of some weeks of basically a sideways move.
I thought the Index might get to the 1320 area, possibly to 1325-1327 which was a next higher price target, and the Index blasted up to this area in a surprise (weekly) finish. Taking the narrowest uptrend channel projection, a next technical resistance is suggested around 1340. My projections of major resistance now extends up to the 1362-1365 area.
I peg key support as being at 1300-1305, with near support around 1315 currently.
What we're seeing for the past few weeks is still more or less a broad sideways or lateral trend if you don't get too focused on the nominal new highs and look at where most trading has occurred. Marking time.
S&P 100 (OEX) INDEX; DAILY CHART:
As I said last week, a move above 598 would suggest that the Index had potential to 605 and OEX is nearly there. I peg minor technical resistance now around 607 at the top end of the narrower price channel bordered by the blue dashed lines. If this channel were constructed in the same manner as the Dow chart, the upper parallel line would intersect an earlier top giving a broader uptrend channel with 615 as the upper boundary.
Interesting that the pattern that looked like a Head and Shoulder's bottom (also written about in my Wednesday 5/3 Trader's Corner), just not in it's usual 'place' of the index being in a prior decline of some to many weeks. Nevertheless this pattern ended up doing its predictive thing as it suggested that a breakout (above the 597-598 'neckline') would result in a strong advance after that.
Given how overbought OEX is getting, further near-term upside potential may be limited to what I think will be some resistance coming in around 607. Near support is at 596, then at 592-590.
The one-day bullish reading in my sentiment indicator was enough to convince me that this market was headed higher. I also suggested that if 605 was seen, I would take at least partial profits on long calls. This is probably a little early to get out, but then I usually am quick to exit after a strong run.
DOW 30 (INDU) AVERAGE; DAILY CHART:
I didn't have any projected targets in the Dow 30 Average (INDU) target above the 11500 area last week. WRONG! Instead we saw a solid upside acceleration of the prior strong advance, causing me to expand my projected uptrend channel as seen on the chart below.
I see near resistance as likely around 11665, extending to the 11700 area over time. 11723 (Jan. 2000) was the prior all-time closing peak. Hard to believe that the Dow is NOT going to take a run at that! The Dow Transportation Index (TRANS) has been at new all-time highs for over a year now. For comparison to the Dow's small selection of stocks (30), the S&P 500 would have to go 200 points higher to approach it's all-time peak.
Near INDU support is around 11400; pivotal next support is in the 11300 area, with major support just under 11200.
INDU has gotten to overbought extreme. This is not to say 'sell' or anything, but might be read as 'don't buy'; buying into an overbought market runs the risk of a sharp shakeout if there was some bearish news or just a lot of traders deciding to take some profits at the same time.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
Major support showed up at 2300 in the Nasdaq Composite (COMP), which is where it looked consistent with a trendline that could be connected from the midweek (Wed) low to 2 of 3 Oct. lows. The main technical consideration was the strong rebound that began around the prior lows in the 2300 area.
Resistance now comes in fairly quickly overhead, at the minor down trendline intersecting around 2345. COMP should be able to get above this area. The tough resistance looks like it comes in with selling interest around 2360, then at the prior 2375 high. The bulk of stock charts on the Nasdaq side are only slightly encouraging, but a rally has been ignited.
Now the question become whether Nasdaq also will break out above the high end of its recent range. I'm moderately bullish when I look at long-term weekly COMP charts. (Mild compared to the SPX trend, which is so powerful on long-term charts.)
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) rebounded nicely after touching its Oct. - Mch. up trendline. 1680 is main support and the chart has turned bullish after being more neutral in its short to intermediate-term outlook. Resistance begins to happen and we may see what engine there is for tech, if NDX gets above 1740, especially to 1745, at the minor down trendline noted on the chart.
Bulls will want to see (assuming this rally has legs, which it likely has for now) a reversal of NDX's pattern of making LOWER rally highs on each succeeding advance. This could be called hard to get 'traction'. A close above 1750, then 1761, is needed to suggest that NDX can start a new leg higher like the Dow and S&P, particularly the 500.
NDX has only a moderately bullish long-term weekly chart, but it has been consolidating near the top end of a narrow price channel for weeks, which is bullish, but more so if there was a breakout above this channel. If the Index crosses above 1782 in the next few weeks, it could be then on a run to 2000. I'll show some analysis of long-term weekly charts (very interesting to explore every so often) in my Wednesday Trader's Corner article.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY & HOURLY CHARTS:
Key overhead technical resistance is at 42.75, with a Close above 43 suggesting that the NDX tracking stock (QQQQ) was on its way to new highs in the 43.6-44.0 area.
The Q's stopped falling and reversed after the stock held recent support. Clearing the 21-day average, QQQQ looks headed higher still. Near support is at 41.7, then at 41.3.
Low volume, low enthusiasm. Most of the action is on the S&P side. I like being long the stock as a long term portfolio type holding, but trading it is liking watching paint dry sometimes!
Happy Trails & Good Trading Success!
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NOTES ON 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.