THE BOTTOM LINE: As I said last week, there was no indication of topping or reversal type action from the week before and bullish sentiment was not extreme. That is still the case with sentiment. Bullish 'sentiment' reached a high point at the beginning of this past week, and while it was showing a more bullish outlook by option traders than seen previously, it was still not the bullish extreme typically associated with a significant (i.e., tradable) top. Consequently, I have no suggestion to exit index calls yet, especially since I exited this strong trend early. But again, risk to reward considerations from this point on in calls is not ideal or particularly favorable.
It's STILL a guess on where this rally will run of steam, although weekly chart channels suggest that the major indexes may be hitting some (at least) interim resistance. There are some disquieting signs in some key market sector 'bellwethers', which I'll show. Meanwhile, I'm mostly watching this market, and not liking to get back into calls given the length of this run without much of a correction.
MY WEDNESDAY TRADER'S CORNER COLUMN:
My most recent Trader's Corner article was written the week before last (10/11/06). This article described a 'pivot point' computation method from trading advisor John Person that projects 2-3 levels of support and resistance for the next day, week or month. The S&P 100 (OEX) chart that was shown in this Trader's Corner article with the October monthly 'resistance' points as calculated from the prior month's (September) price range:
Monthly resistance point 2 (R2) was reached in this past week by OEX at 635.95; call it 636. If this recent high turns out to be a turning point in the market it will be not only be very interesting but suggest that I start calculating at least the two main pivot point support and resistance levels and make mention of them weekly. A still-higher third monthly 'resistance' point (R3) is calculated for 647.2 in OEX.
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
Technical support should be found first at 1343-1340; then, at the last downswing low at 1327.
This market is at an overbought extreme; nothing new there, but there is nevertheless buying interest and willing buyers still coming in. 'It's the Fed stupid' coins the phrase as to what is driving this PROLONGED rally. Before this, we were still in a Fed-engineered slowing by its power to raise interest rates. This market has had quite a run for this 'leg', of over 120 points without more than short-lived pullbacks of 20-30 points.
SPX has now broken into its broadest uptrend channel with the weekly close of this past week taking prices above 1366 and the lower and lighter upper channel line. Next implied resistance at the upper end of the broader channel is at 1392 this week. There might be a weekly high around 1400, but a weekly Close over 1392 is needed to create a bullish upside penetration of the uptrend channel line.
THE S&P 100 (OEX) INDEX; DAILY CHART:
Nearby technical resistance is still apparent in the 640-642 area, based on the upper channel line seen on the S&P 100 (OEX) chart below. Prices of course may just keep following this steep line and rate of price 'ascent' higher.
Near support is at 628-629, with important trendline support at 622-621 and key support implied by the last downswing low at 607.
SENTIMENT AND OVERBOUGHT CONDITIONS:
This market is quite overbought at this juncture as judged by the 13-week RSI, here representing a quarter of a year (52/13 = 4). Coming into March '04 (not shown), OEX got more overbought than this but the Index traveled from 385 to 572, a distance of 187 points, in 7 months. By comparison, this rally from the low end of the weekly channel to this past week's high has advanced 78 points over just 4 months.
DOW 30 (INDU) AVERAGE; DAILY CHART:
Near technical support is at 11,900, then at 11,800. The prior downswing low at 11,653 is an important support; if this level was pierced, it would constitute a near-term trend reversal.
Resistance implied now by the weekly chart uptrend channel is now up at 12,075. If the below channel is 'accurate', INDU could be about to top out, or pause in the 12,075-12,100 area, maybe for a week or two and then come down more substantially.
11,800 is technical support implied by the steep uptrend line, as noted at the green arrow.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
Near support is 2300, then at 2224, which is most critical at the last downswing low; a close under this prior low would reverse the short-term trend lower.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) reached the top end of the uptrend channel drawn on the daily chart below, with prices backing off after that but only in a more or less sideways drift. Another run at this upper trendline (to the red down arrow) would carry NDX up to the 1755-1760 area.
Support implied by the low end of the aforementioned uptrend channel (at the green up arrow) is at 1680. The near and intermediate-term trends are bullish/up as long as the prior 1623 low is not pierced, especially on a closing basis.
1663 is intermediate-term support at the weekly up trendline.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
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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.