THE BOTTOM LINE: The market in terms of the S&P put in a strong rally this past week, continuing to rebound sharply from long-term support reached in the S&P 500 (SPX) at 1225 in the prior week. If SPX moves decisively above 1290 in the coming week, it will point to an increased possibility that the Index will retest its 1326 high. I may be thinking to buy puts in that area, if this happened. I like those 'defined' risk points, meaning you can exit just over the prior high at that point and the risk to reward is superb.
The Nasdaq Composite (COMP) and 100 (NDX) are being pulled higher by the strength in blue chips, after rebounding strongly off their bottoms. These stock groups fell farther on the downside at their bottoms of course. I'll be talking about the question of whether these key Nasdaq Indices will retrace even a 'minimal' 38 to 50% of the April to July decline. With the S&P it's a question of whether SPX will exceed a 2/3rds or 66% retracement, at 1290. If so it could go on to reach a complete (100%) retracement of its early-May to its mid-July decline, which is where a 1325 target comes in.
I wrote in my past Wednesday (7/26) Trader's Corner column on "Fibonacci Retracements as Support/Resistance", and looked at where recent lows were at the bottom of the first pullback of the first rally (one we're in now), relative to the Spring high. You can look at this and my midweek comments by clicking here.
MARKET NEWS and INFLUENCES:
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
In terms of prior highs, we also need to pay close attention to the prior topping action that occurred when SPX got into the 1280 to 1290 zone. If the Index clears 1290 and starts another rally from this area, a likely target is 1326, not necessarily right away.
Key resistance in the S&P 100 (OEX) has shifted upward to 590, representing the 66% or 2/3rds retracement of the sharp early-May to early-June decline. If OEX can stay above 590, a possible target is for a retest of the prior high just under 605 as you can see at the red down arrow on the next chart.
Conversely, key or pivotal support looks like 580; a greater than 1-day break of 580 would break and change the momentum of the current rally and suggest downside potential to the 570-572 area again.
I speculated last week on 'some likelihood for a 560-580 trading range...' Maybe that will become true, with the high end of a next trading range at 590 and with 560-565 being the low end.
However, if there a bullish breakout OEX move above 590 this action would suggest upside potential back to re-test the prior 604 peak, with potential then still higher after that; although the potential would also be for a double top.
A move above 590 is also the first technical suggestion of a possible change in the intermediate trend to up again; currently that trend is down.
SENTIMENT, as in trader 'sentiment' or opinion on market DIRECTION, expressed as a formula, continued to march higher to more bullish, along with prices during this past week. However, there is also a more slow and gradual buildup in sentiment, and this is more common in a rally that has still decent upside potential. Traders may be evidencing more 'caution'; i.e., bullish, but wary also, judging by the recent action of my sentiment model.
DOW 30 (INDU) AVERAGE; DAILY CHART:
After its strong run of this past week, the Dow 30 Industrials (INDU) is nearing some layers of resistance beginning around recent highs, on up to the 11260 area. 11333 and an easy remember, is also a possible key upside target. A move above this level would suggest eventual upside potential back up to the prior early-May INDU peak around 11670, in a retest of that top.
If INDU stops its advance in the low-11300 area, we could be looking at trade between an 11300 (maybe a brief touch near 11400), to 11000; a 300-400 point trading range well into August. As with the S&P, the Dow's rapid rebound is not that different so far, than its first rally that ended early in the month.
If selling develops around recent highs or a bit higher, watch for an opportunity for a bearish play. If INDU sails through the 11,300 area tacking on another 200-300 points is possible.
The Stochastics 'momentum' Model, on a 21-day basis, continues to reflect the strong advancing momentum or rate of price change that this indicator is built on; i.e., the Stochastics formula measures the current or most recent close against the relative highs and lows of the past X number of periods or 21-days in the case of the chart above. A move up to 11400 area would put this indicator in what we usually consider an 'overbought' condition.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) is struggling to get out of the basement after its sizable decline. You remember, the sell off that took the Index from the 2370 area to near 2000, a price swing of 15 percent!
Its very easy to see that 2100, the low end of a prior trading range and the 21-day moving average, suggests that COMP is now at a test of whether it can tack on a next up leg here. A couple of closes over 2100 is needed to be bullish enough to figure that a next up swing could carry to 2150, possibly to near 2200.
Key near support is at 2050, then at the prior lows at 2012. Based on what I see in the current chart pattern, the march is higher and COMP may be only about midway in a move, which suggest upside to the 2190 area again.
Resistance in the 1500 area did appear 'pivotal' this past week in the Nasdaq 100 (NDX). The second time through 1500 was a strongly bullish day, with the close Friday so near the intraday high (no 'shadow' in candlestick chart terms).
I'd rate the potential for a next move to be higher and to 1565 in terms of an area, perhaps to nearer 1600. I preface this on COMP managing to stay above 1470 in the next few days.
1450 is major support implied by recent lows on the daily chart, to 1400 suggested by the long-term weekly chart (not shown).
36.80 was breached and the higher resistance I spoke of last time at 37.15 is where the Nasdaq tracking stock went out this week. This reflecting and continuing the rebound in tech stocks.
We're not yet seen the 'spark' that would be implied by a volume surge, especially in conjunction with a volume day above 140 million shares.
35 should be next major support, if recent lows around 35.5-35.6 are pierced. Major resistance doesn't come into play potentially before the 39-dollar area is reached.
Please send any technical and Index-related questions to me at Click here to email Leigh Stevens email@example.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!
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.