THE BOTTOM LINE: Needless to say, no sign has been seen of topping action and bullish sentiment is still not extreme, so why not higher. It's a guess on where this run will run of steam, but the weekly charts especially suggest that the major indexes may be coming up to at least interim resistance. This will be seen on the charts. Meanwhile, I'm mostly watching this market, having exited lower down and not liking to get back in given the length of this run without much of a correction.
In this kind of market move, exiting calls at lower levels such as SPX at 1335 and OEX around 612 which were 'minimum' upside targets I had, doesn't seem like much of a 'victory' with SPX closing the past week at 1365 and OEX at 633; although a very good profit was to be had as measured from entry levels near the 3rd low that formed in the S&P indices, which made for a fairly obvious Head & Shoulder's Bottom in the S&P indexes; i.e., in the 1230 area in SPX and 565 in OEX. In these extraordinary moves I usually end up wondering if I shouldn't have adopted more of a 'trend following' approach, trying to stay in index options as long as a trend continues, versus tending toward pre-set targets and objectives. Even though the aforementioned approach garners the most profits over the majority of market cycles.
Of course, one can get back INTO an index that just keeps traveling up. But, I find, as do many option traders, that the farther up from the bottom we are and the more 'extended' a move becomes, the harder it is to buy back into the market. Us sophisticated trader types can think we are more savvy than the rank and file investors who don't think as much (or at all) about market 'timing' issues.
Power moves like the one we've been in tends to find me out of the market in terms of holding on to positions through a weekend, even overnight as I see the risks of a shakeout growing. There is no sign of a pause yet however and, very importantly as I said, bullish sentiment is still well under the 'danger' zone.
Waiting for a place to short this market or for a pullback to buy back into it, always seems like a fantasy in these rare instances where the market never looks it's going to stop going up. Those who went 'full speed ahead' and stayed in this move or kept buying ANY dips along the way, are the trading heroes at the moment. Such heroes are also relatively scarce, which is part of the dynamic of the stock market as observed by Charles Dow over a century ago, when he noticed that when 'everyone' got bullish the market move was nearing its conclusion.
Of the major indexes, the S&P 500 (SPX) around its weekly close at 1365, is at the upper end of the first uptrend channel I've constructed (seen below), but there's also a wider channel that can also be charted that suggests potential resistance won't be seen until around SPX 1390; after this coming week, the upper channel line intersects at 1400 and this looks like a possible target now in the S&P 500 which is the dominant index in this (market) cycle. The weekly charts should be paid close attention to in this rally into ever higher ground for this current move (from the late-2002 low). I have to keep my comments brief this week due to an impending trip.
MY WEDNESDAY TRADER'S CORNER COLUMN:
My most recent Trader's Corner (10/11/06) article described a method from trading advisor John Person for computing levels of support and resistance based on 'pivot' points. There are daily, weekly and monthly 'support' and 'resistance' points that can be calculated from these pivots, as was shown on the daily S&P 100 (OEX) chart in my past week's column. By Friday, OEX was above the first level suggested for weekly and monthly resistance for the week just ended and may be on its way to test still higher levels of projected resistance for the month of October.
To read or review this article and the aforementioned OEX chart, check your 10/11 OI Daily (e-mailed) market letter, or click here to go to the relevant web page.
MARKET NEWS and INFLUENCES:
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
Support is down in the 1327-1336 area. My put suggestion to probe the short side in the 1360-1362 area was a bust for a 5-point stop. Next time I want to short this market I will lie down until the feeling goes away.
A next resistance point suggested by the upper end of the narrower weekly channel is at 2555 currently. Major resistance looks to be at 2700. My ideas on support are seen above with the daily chart.
The suggestion on possible Nasdaq 100 (NDX) 'resistance' is bumped up to the 1740 area for the near-term. Near support is at 1675, then at 1660, and finally at 1623. A close under the last (1623) downswing low would reverse the short-term trend to down.
$42.75, on up to 43.00 is next resistance seen potentially with the daily chart. 41.20-41.25 is near support, with next support coming in at 40.60. 39.8 is support implied by the prior (down) swing low.
We're still not seeing the volume expansion I would expect in a runaway bull move like this. That and the approach to the upper boundary of the uptrend channel would normally suggest taking profits on QQQQ if bought as a trade. However, basis the weekly channel that prices are traversing, I don't see significant technical resistance before about $44.
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.