THE BOTTOM LINE: The market is poised here between further weakness and a possible regrouping. The S&P 500 (SPX) has gone through a nominal pullback from the highs and is holding at and mostly above its 21-day moving average at 1263; it got to a 1261 low the other day but selling pressures moderated over Thursday and Friday when the Index dipped to this pivotal trading average as will be seen on the daily SPX chart further on.
Some bullish potential ahead, in a contrarian sense, is suggested by my sentiment indicator, due to a significant increase in the level of put activity in the early part of this past week; this aspect and the key near-term resistances will be discussed further on as part of my major index commentaries.
In terms of the weekly chart shown next, the longer-range S&P uptrend remains intact. Not a great trading market for index option players, at least those looking for a more prolonged price swing here. Buying the S&P and Dow stock index option calls was good for a nice move when prices fell back to the weekly support (up) trendline but one couldn't overstay in them and keep profits for long.
Given that the indexes haven't gotten much above recent longer term oversold readings, as suggested by the 13-week SPX RSI indicator seen above, the probability of success appears to lie more with buying calls on pullbacks versus put purchases on rallies, at least in terms of more of a 'trend' trade; e.g., a move occurring over 2-3 weeks (or more) versus over 2-3 days.
The lagging Nasdaq market is holding a key prior weekly low in terms of the Composite and the 13-week Relative Strength Index (RSI) is not far above its recent oversold extreme per the weekly COMP chart below. The oversold extreme suggested by the RSI that's still close at hand, coupled with the fact that the prior low hasn't been pierced to date, gives some benefit of the doubt to a near-term bullish trading bias as long as the low-2000 area continues to hold up.
Of course since the last top, the best and 'easiest' (and quickest) profits have been in holding Nasdaq 100 index puts and buying puts on rallies. Downside momentum is slowing however, which is typical of oversold markets. Rallies on the let up of bearish news is the other tendency or characteristic of oversold markets, so we shouldn't be surprised about this possibility.
The probabilities of success in further Nasdaq index put plays decreases with the possibility of a double bottom in the Nasdaq Composite, especially when accompanied by an oversold extreme like we're seeing on the weekly RSI above.
MARKET NEWS and INFLUENCES:
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) remains in a bullish pattern relative to the trend since the June low. The intermediate trend is neutral (as in a trading range) to bullish. If there is a decisive downside penetration of 1260, downside potential back to key support in the 1240 area.
Near resistance is in the 1280 area, with the 'pivotal' resistance being 1290; a close in SPX above 1290, with subsequent support showing up in this area, would suggest upside potential back up to a re-test of the prior high (of early May) around 1326.
SPX may be in a sideways drift but I give some benefit of the doubt to potential for another rally ahead. If forced to chose would buy calls and set my exit point not far under any possible entry in the 1260 area; e.g., 1255. Conversely, I would cover or exit puts bought in the 1290 area.
Even more that the broader S&P 500, the S&P 100 (OEX) is maintaining a bullish trend; since the OEX bottom in the 560 area, there has been an advancing trend, with its pattern of higher relative highs and reaction lows. The 593-595 area is the key resistance showing up however.
Of concern to a bullish case is that OEX has not been able to retrace more than 2/3rds of its May-June decline, which leaves an element of doubt about whether OEX might not have rebounded to as high as it's going to and to the top end of a new trading range.
583-580 is the key near support zone. A close below 580 would suggest potential back down to 572. Major support is in the 565 area.
The build up in bearish sentiment as measured by my indicator early last week was a definite shift to a more bearish outlook. I would rather bet against (contrary opinion) this and for it.
It was tempting if not warranted to exit calls when OEX couldn't gain traction above 590 for several days running. Neutral is a 'position' too. Since the market trends only a fraction of the time, there are going to be periods when the next move is sideways and the next significant price swing is uncertain.
If I don't trade opposite the view at the extreme lows or highs in this indicator, I at least tend not to trade in the same direction; e.g., here to assume the S&P was going to take another dive. Sometimes this works against me of course, but less so than being part of the crowd.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 Industrials (INDU) retraced 66% of the prior decline by its move up to 11335 and this becomes the key resistance in my view. 11,050-11,000 is the key or the pivotal support zone; as long as 11000 is not pierced, especially on a closing basis, I have a bullish bias.
INDU could be moving into a trading range also, especially since the bulk of highs since mid-May have occurred in the 11,250 to 11,280 area; with the one exception of the 1-day spurt to just over 11300.
A view of the chart pattern as still being in a broad trading range would suggest possible (ultimate) downside potential back to 10,700 again.
I'm watching 11,000 as the pivotal support area; if there is a consolidation going on prior to another push up toward 11,300, INDU should hold 11000. This wouldn't be so however if INDU is going to stay stuck in its prior broad trading range.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
Not much change in the price and little change from last week in the technical outlook for the Nasdaq Composite (COMP). Not surprising as the Index drifted sideways to only slightly lower in the past week. Very weak stocks or indexes sometimes won't retrace more or much more than a quarter or 25 percent of the prior move which has what has been seen to date, relative to the early-May to mid-July decline.
2050 remains the key near support. The down trendline seen on the chart below now intersects around 2085, suggesting near resistance in this area. 2100-2105 is the key or pivotal resistance. A close in COMP over 2100, especially if not reversed in next day(s), would suggest a possible next upside target to the 2150 area.
Conversely, a close below 2050 would suggest a decline back to the low-2100 area again. Given how oversold so many Nasdaq stocks are, I find it hard to imagine COMP closing below 2110-2100 and continuing lower, but (if so) it would suggest a next downside target to the 1970 area.
There's little change from last week in my technical view of the Nasdaq 100 (NDX) Index. The dominant trend and chart pattern is bearish. Pivotal resistance is in the 1525 area; 1523 is equal to a weak 25% retracement of the prior decline. A close over 1525 and not reversed the next day, would suggest upside potential to 1565, possible ultimately to as high as 1590 again.
Close by support and buying interest has been showing up in the 1475 area. Key or pivotal support is at 1450. A close under 1450, not reversed in the next session, suggests downside potential to as low as 1400.
37.40 is key technical resistance in the Nasdaq 100 tracking stock (QQQQ); next resistance is 38; then at 38.40.
36.25 has developed as a 'line' of near support; i.e., repeated lows at the same price. Key or pivotal support is at 35.5. Below 35.5, my next maximum downside target would be to around 34.50.
I still own some of the stock bought around the July low and consider it relatively low risk as recent price and volume action suggests that QQQQ may be bottoming. But if the stock falls under its recent 35.5 low, especially on a closing basis, I will exit.
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.