THE BOTTOM LINE:
On the other hand, the market could have built a top already, which is more suggested by Nasdaq than the S&P, although the S&P and Dow could be forming 'rectangle-tops'. It just doesn't FEEL like a major top has been made yet, even though some key and widely followed stocks have made apparent tops; e.g., General Electric (GE), Intel Corp. (INTC) and in tech/internet, Google (GOOG) and Apple (AAPL).
I will not make too many grand predictions here and concentrate on just looking at the individual charts of the main indexes below. Besides, I've been down with the Flu heading into this weekend and am only just barely functioning on Sunday afternoon.
MARKET NEWS and INFLUENCES:
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
Well, the S&P 500 (SPX) Index didn't achieve a decisive upside penetration above its prior high and only got marginally higher at 1435 but the Index appears to be consolidating and may still be poised to break out above the line of prior highs at 1432-1435. If so and assuming support develops at prior resistance (1432-1435), a next upside target is to the 1460-1465 area, or around the high end of its uptrend channel as highlighted on the daily chart below.
If prices start falling further in the early going in the coming week, SPX may see a 10-15 point pullback, such as back to near support at 1420-1421 or to the 1415 area. Significant technical support should be found in the area of prior lows at 1404-1405.
It's still the case that the S&P 100 (OEX) would achieve an upside breakout on a further advance through prior highs; these highs have expanded just slightly, from 666 to 667. OEX hasn't been able to maintain a level above its previous high close at 666, which is also the prior intraday high back in December, but the Index was only trading marginally under this level at the end of this past week. OEX looks like it could go higher, wants to go higher, but renewed buying interest hasn't been enough to pull it up yet.
If there is a decisive upside penetration of 666-667 and if support/buying interest then is seen on pullbacks to it, a new up 'leg' is suggested, with ultimate upside potential to the 680 area.
Near support is anticipated at 660-659, then around the prior lows in the 655-654 area.
Not much to say about the sentiment reading seen on the OEX chart above. These readings are reflecting more of a bullish outlook than not, but so what else is new? My indicator is not reflecting a bullish 'extreme' as I define it. It's likely there is more covered call writing going on, which tends to keep the call activity somewhat high relative to daily equities put volume. Our last sentiment extreme was on the 'bearish' end of the indicator and that turned out to be a good indicator for at least a quick 10+ point rally in OEX. After the run up seen already and given how far the market advanced already, I'll take a further 10 point rally in calls anytime!
DOW 30 (INDU) AVERAGE; DAILY CHART:
We still haven't seen a decisive upside penetration in the Dow (INDU) above 12,600; this is needed, especially some closes at and above 12,600, to suggest that INDU was in a new up leg with potential to the 12,800 area.
12,475-12,460 is near-term support, with key or pivotal technical support at 12,338, at the low end of the trading range of the past few weeks. The most bearish scenario I see at the moment is a retreat in the Dow back to the low end of its recent price range or the low end of the 'rectangle' pattern that has been traced out on the daily chart below. Ah, it looks like the 'easy' money was made already in DJX (Dow Index) calls in the powerful fall advance. Make hay when the sun shines! When it gets cloudy you don't have to trade.
The pattern outlined on the Nasdaq Composite (COMP) chart below, which is of similar lows but higher rally highs, is unusual. It looks a bit like a 'broadening top', but with that pattern we associate lower lows on the pullbacks, which is not the case here. Mostly the pattern is of a trading range market, just that the last rally expanded the upper end of the price range to the low-2500 area. So, are we locked in a 2500-2400 trading range in COMP.
Well, this last pullback quickly brought the Composite down to at least the middle of this price range seen in recent weeks. It wouldn't be surprising to see a further decline, perhaps after a rally to near-term resistance in the 2480 area. A close above 2480 would suggest a move back up to and possibly above 2500 again, and a close below 2443-2440, not reversed the next day, would suggest downside potential again to the 2400-2395 area.
NASDAQ 100 (NDX) DAILY CHART:
The formation outlined on the Nasdaq 100 (NDX) daily chart below more clearly suggests a broadening top; the pattern makes a 'reverse megaphone' shape from its formation of higher highs and lower lows. One key to the 'broadening' formation is whether an upside or downside breakout is made above or below the triangle shape. A move above 1850 suggests potential in NDX to 1900 and above; a drop, especially on a closing basis, below support suggested at 1730, indicates the possibility of downside potential to 1650 at some point ahead.
Near resistance is at 1824 and near support at 1772.
Near resistance is 4485, with pivotal or key technical resistance at 45.5. Near support is at 44.00, then 43.65; major support is suggested at 42.50.
The last big volume jump in the Q's was on Thursday sharp decline, suggesting that longs may be nervous or maybe it was a bunch of trader types that didn't want to ride the stock too far under 45.
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.