THE BOTTOM LINE:
On the subject of 'believing' or not believing the staying power of this market, an aspect of this multiweek/multimonth rally in terms of sentiment, has been the absence of excessive or heavy bullishness by traders. This in contrast to institutional money managers who don't dare to NOT keep committing more money to stocks in a rally that keeps putting the market higher each month.
On Thursday however there was enough call volume relative to puts to reach a 'bearish' reading in my call/put indicator; that is, on a contrary-opinion basis, the level of bullishness was high enough to suggest that the rally might be in danger of topping out. Stay tuned on that!
Now I figure the only other 'contrary' indicator is if I, and other 'contrarians' throw in the towel and get wildly bullish. Such an occurrence would be a sell signal for sure!
My view of last week of slowing momentum changed with the renewed positive (upside) momentum as seen in the ADX indicator I've applied to the Dow chart below. Tuesday's low in the S&P 500 came near to the low end of its uptrend channel and it was up from there. The S&P 100 (OEX) had fallen out of its uptrend channel on the downturn of late-November, but by week's end it was back into its bullish channel, although just barely. Not so the Dow, which could see resistance coming in at its previously broken up trendline.
The Nasdaq Composite (COMP) and the Nas 100 (NDX) turned up from the low end of its uptrend channel, in bullish technical action that mirrored SPX. The key test for COMP and NDX now is to take out THEIR old highs. Index traders will be looking at the potential for double tops if COMP reverses at its prior relative high for the current move as it did on Friday. Stay tuned on this!
MY WEDNESDAY TRADER'S CORNER COLUMN:
MARKET NEWS and INFLUENCES:
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
If we were to measure it from the high end of the uptrend price channel, technical resistance comes in next around 1450 in SPX. Support implied by the low end of the channel is at 1408 currently. Support suggested at the recent downswing low is 1378; the uptrend is intact as long as this prior low is not penetrated on a closing basis.
If you haven't looked at the long-term charts recently, the prior all-time (2000) SPX high is not so far away now at 1552.
SPX is back into its 'overbought' zone for the umpteenth time it seems. I pay attention to this mostly as a reminder that a shock to the economy or the market will generally led to a sharper reaction than when the indices have a more oversold to 'neutral' reading according to these type indicators.
THE S&P 100 (OEX) INDEX; DAILY CHART:
The S&P 100 (OEX) ran up into week's end and finally got (barely) back into its uptrend channel or above resistance implied by the previously broken up trendline as seen in the chart below. If OEX can work higher from here, the only implied resistance is up around 680 at the upper trend channel boundary. Main technical support is at 640, although the 21-day moving average has been acting as near support and is currently at 652.
The possibility of OEX 'building' a top based on the sideways trend into the week before last appeared resolved once the Index broke out above the 'line' of resistance showing at 655. 655 is now an area to watch for buying interest on any pullbacks early in the week. It wouldn't be surprising to see some weakness early in the coming week given a short-term overbought reading on some of the hourly indicators (not shown).
Looking at some long-term retracement considerations, OEX would retrace a fibonacci 62% of its 2000-2002 decline at 669 and 2/3rds or 66% of it at 689.
It appeared that many option players were finally going WITH the trend, judging by my call/put reading of Thursday, as the ratio registered a 1-day 'overbought/bullish extreme' reading that day. It will be interesting to see how this plays out ahead. The last correction, although limited price-wise, but somewhat extended time-wise, followed by 3 days the last (upside) extreme in my sentiment indicator.
DOW 30 (INDU) AVERAGE; DAILY CHART:
Near technical resistance in the Dow 30 Industrials (INDU), looks to be around 12,500, then at 12,580-12,600, with major resistance at 12,800 judging by the top end of the uptrend channel (not shown). I've marked, at the red down arrow, 12,500 as a key near-term resistance and will be watching this area closly in the week ahead, especially early on.
Near support is at 12,250-12,300. Pivotal technical support is at 12,075-12,100, with a close under here suggesting a possible retest of the 12,000-11,970 area.
The upward or positive momentum resumed from early in the past week according to the Directional Movement Index or DMI, an indicator that I've been using recently as a statistical gauge of the trend. When the ADX line is heading up or down, the instrument in question is defined as 'trending'.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) is bullish in its pattern, along with all the other major indices for that matter. The only difference with the Composite is that the Friday selling that came in and turned COMP back from 2468, was also the area of the recent (11/24) intraday high. If the prior high is cleared it would appear to be clear sailing ahead for the Composite, with no technical resistance apparent before the top end of its uptrend channel around 2550.
Immediate support is at 2420, then at the prior downswing low at 2390; the 2350 to 2315 zone is major support.
The Nasdaq 100 (NDX) stall around its late-week high is noteworthy technically since the Index stopped short of piercing its late-November high at 1824. Given the jump in bullish sentiment, we have to consider the possibility of a double top. If the prior high is pierced, there's no apparent resistance in my view until/unless NDX got to the top end of its uptrend channel in the 1900 area.
1783 is near support, with next support at 1760 at the prior low. A close below 1760, not reversed the next day, would suggest that a double top was in place; next support would then be suggested for the 1693 area, at the early-November downswing low.
The prior Nasdaq 100 tracking stock (QQQQ) high at 44.8 has yet to be cleared and is the area to watch on a rally. A daily close above this prior intraday high would suggest that the Q's could move up toward or to the top end of the uptrend channel, which intersects in the 46.35-46.5 area depending on this being early or late in the coming week.
Near support is 43.5, then 43.25; a close below here suggesting a possible re-test of the prior 41.6 low.
The volume trend and the money flow index (MFI) remain consistent with a bullish (price) chart.
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.