THE BOTTOM LINE:
Within a still powerful uptrend, the S&P 500 and the Dow have reached potential 'natural' resistance areas at the top end of their broad weekly uptrend channels and the S&P 500, S&P 100 and Dow 30 have hit some repeated highs in the same area as seen on the daily charts. A look at the individual index charts and indicators is below.
With the Nasdaq, there are some suggestions that prices are traveling up a 'line' of resistance also, but this is not to say that it won't continue to just work its way higher. But where this market stops and starts to slip or fall back, nobody knows. My focus today will be on the technical assessment of each index in my major commentaries section below.
MY WEDNESDAY TRADER'S CORNER COLUMN:
I'll be back with my Trader's Corner article next week; minus the technical (as in computer) problems I had last week.
MARKET NEWS and INFLUENCES:
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
The low end of the aforementioned uptrend channel and implying near support is at 1368, as noted at the topmost green up arrow on the daily chart below. 1361 is support implied by the prior downswing low. 1327 in SPX is noted as a support well under current levels, at a prior low and representing a 38% retracement of the July-October advance.
The S&P could be forming a top or just marking time as the Nasdaq stocks get more of a play here. Given how 'overbought' the market is and the duration of this move without much of a break, anytime that there are repeated highs made in more or less the exact same area and you are holding index calls, it has to be a warning to either lighten your positions and/or be watchful for a break, such as of the trendline noted (at 1368).
S&P 500 (SPX); WEEKLY CHART VIEW:
Also, note the tendency for tradable declines to get underway after tops made in the first quarter in the new year; i.e., March in both 2004 and 2005, but stretching out to May of this year. For the option trader these last few weeks of top formation didn't make see much upside progress, which would mean significant erosion of time premium value in long option positions.
THE S&P 100 (OEX) INDEX; DAILY CHART:
The same pause and formation of a minor 'line' of resistance at 647 is seen in the S&P 100 (OEX) Index. If there is a decisive upside penetration of 647 in OEX, the only implied technical resistance on the daily chart comes in at 660, at the top end of the OEX uptrend channel as seen below.
640 is near support suggested by the OEX up trendline and 635 is technical support implied by the prior (down) swing low. Major support is at 620 in my estimation. I am wondering about the significance of what is normally a bearish divergence of the RSI (Relative Strength Index) indicator; i.e., the RSI is trending lower, while prices have gone sideways.
In a strong trend like the present one, such a price/RSI divergence may not be signaling a top, but just be part of a minor correction before both prices and indicator flip up again. In a more two-sided trading range market this type bearish divergence alone, plus the minor top formation, might lead me to take out some puts, with a 'stop' or exit point just over the line of recent highs; i.e., just above 647.
SENTIMENT AND OVERBOUGHT CONDITIONS:
Bearish 'sentiment' had picked up or increased by the end of the week, but isn't extreme yet. The sideways move and slowing momentum is leading traders and investors to be more cautious and in such a situation we would typically see more covered call writing.
THE S&P 100 (OEX) INDEX; WEEKLY CHART CONSIDERATIONS:
When I look at the weekly OEX chart, more bullish longer-term possibilities become apparent; specifically given the strong rebound and upside acceleration off the low end of the broad weekly uptrend channel as seen below. If my projected upper channel line has significance, this chart construction implies considerable upside in the S&P 100.
If we start supposing this rally continues into March, the time of a more typical 'seasonal' top, a move well over 700 then seems quite possible, dampening expectations of much of a pullback in the near-term. This would also be the type of situation where the corrections ahead would be relatively shallow with market 'corrections' being more of a sideways drift than having prices drop much.
DOW 30 (INDU) AVERAGE; DAILY CHART:
There is very little difference present in the Dow 30 Industrials (INDU) chart pattern, relative to the S&P, at least on a daily chart basis. There is a possible top formation to be seen, which is also the likely 'cause' of the dip in my sentiment indicator to a more bearish outlook.
Near resistance is in the 12,200 area and if this price gets pierced in a renewed bullish run, which implies that INDU is going to continue to track higher within in its steep uptrend channel, then INDU could move up to the 12,400 area next.
The up trendline intersects currently at 12,065, implying the first technical support area. Next lower technical support is at the prior swing low at 11,965. Fairly major support should be found next around 11,800.
In this market, it wouldn't be surprising to see 11,800 or 12,400. The market is overbought and the RSI trending lower, unlike prices, so I would bank somewhat less on a next leg being up. There could be a sideways move rather than much of a decline as I'm starting to suspect. Hey, the holidays are ahead and the seasonal tendency tends to be for more good cheer for stocks than not.
WEEKLY DOW 30 (INDU) CHART VIEW:
The weekly Dow chart is gives some reason for bullish pause, in the same way as the S&P 500 weekly chart above: the broad uptrend channel seen on the weekly INDU chart suggests that prices may have reached some significant resistance and at least a temporary stopping point relative to the next few weeks. If so, prices should dip at some point, at least enough for an opportunity to play the downside and to get back in again into calls when any good-sized correction runs its course. So far, only the S&P 100 longer-term chart suggests to me still considerable clear sailing ahead to the upside of the NYSE-related market indexes.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) is in a 'wedge' type pattern that should be watched for the direction of trendline breakout. If there's a move in COMP to above 2405, then a move of 50 points higher or more looks possible. Conversely, a decisive downside penetration below the up trendline at 2350, suggests at least a test of the prior low at 2316 and possibly to as low as 2260. The more bullish chart interpretation is provided by the Weekly chart which follows the daily chart.
NASDAQ COMPOSITE (COMP) INDEX, WEEKLY CHART ASPECTS:
The Weekly chart of the Nasdaq Composite is bullish in its recent breakout above the prior 2383 high. There is plenty of upside potential implied by its broad uptrend channel, as highlighted on the weekly chart below. The upper end of the COMP uptrend channel intersects above 2550 currently. On the other hand, if COMP can't maintain itself above 2383, potential for a downside correction comes into play especially, as already noted, if the Index were to fall and stay below 2350 for a couple of days running.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) daily chart has the same kind of pattern as the Composite Index, where NDX has trendlines of significance on the upside and the downside. If 1767 is pierced on another advance, further upside potential looks to be to around 1810 or a bit higher.
Conversely, a decline below 1715, especially on a closing basis, would suggest the prior 1693 low may be tested by a further drop to that area. By 'tested' I mean it falls to this area to 'test' buying interest that was seen before. Whether the buyers come in again or stand aside is the test. 1650 is a potential downside target if the prior 1693 low gives way.
NASDAQ 100 (NDX): MONTHLY CHART CONSIDERATIONS:
Just as the Composite Weekly chart gave me some bullish interpretations, the monthly Nas 100 chart results in some pause about continuing to be bullish on a longer-term basis. This, given the fact that the monthly high to date is hitting resistance implied by the previously broken long-term up trendline. 1800 also looms as potential resistance implied by a 25% retracement of the 2000-2002 decline.
Both the shorter-term daily chart and the longest-term chart I look at, the monthly, suggest significant resistance may come into play in the 1800 area in NDX. The monthly chart suggests that the recent highs and bearish RSI divergence seen on the daily chart may mean that a top is at hand or near. The mixed picture and the extent of the run up to date with only a shallow correction so far, suggests that further upside potential may be limited. I'd be a buyer of NDX puts on a move into the low-1800 area.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
Above 43.4 it looks like the Nasdaq 100 tracking stock (QQQQ) has potential up to the 44.7 area. Conversely, a fall below trendline support at 42.3 may suggest a possible re-test of the prior 41.6 downswing low. Next lower support is in the $40 area in the Q's.
Volume recently is expanding or contracting consistent with the current uptrend and On Balance Volume (OBV) continues to be bullish, suggesting accumulation of the stock is continuing.
NASDAQ 100 TRACKING STOCK (QQQQ): WEEKLY CHART ASPECTS:
Looking at the weekly QQQQ chart suggests that considerable resistance or selling may come in on a move to the 44.50-44.75 area, as prices would finally be at the top end of the weekly chart uptrend channel.
Good Trading Success!
Please send any technical and Index-related questions to me at firstname.lastname@example.org 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.