THE BOTTOM LINE:
Instead we appear to be getting a 'normal' corrective pullback, specifically back to the area of the 21-day moving averages in all cases with the major indices including the Russell 2000 (RUT). If the 21-day averages continue to contain the pullback, especially on a closing basis (or, if on a closing basis, best bullish case is if it's a 1-day affair only), then a relative shallow correction is indicated, with the next move back up toward the highs.
Minor 'breakdowns', suggesting a deeper correction are seen in decisive downside penetrations of the 21-day moving averages as seen on the charts showing the individual stock indexes below.
Conversely, 'breakout' points would be a move above 1438-1439, then 1860, in SPX; to above 657, then 670, in OEX; to above 12,511, then 12,800, in INDU; to above the prior downside gap area of 2471-2492 in COMP; to above the 1807-1820 gap in NDX; to above the 44.5-44.76 gap area in QQQQ; and, to above 811, then 820, in RUT.
I was absent from my usual TRADER'S CORNER space in Wednesday's Option Investor Daily Newsletter due to some technical problems with my data feed. Move from the Ocean to the mountains and different stuff happens! More likely, it was just one of those technical gremlins.
MARKET NEWS and INFLUENCES:
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** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
The chart remains bullish in its rebound pattern even though no further headway was seen above 1438-1439. As noted in my initial ('bottom line') comments, I have the most confidence in the staying power of this recent rally if the pullback from the last high at 1439 holds at or above the 21-day average at 1407... as noted on the green up arrow on the S&P 500 (SPX) chart below. So far all that has happened so to speak is that SPX gave back the price gain covered on the surge above the 21-day average, after which the S&P stocks again rallied on Friday.
A move above near resistance at 1439 is needed now to suggest the prior top made in the 1460 area will be re-tested. I've kept my upper trading band or moving average envelope line at what it has been for some time, at 2% (above the center moving average). A move above that upper (2%) red line suggests the start of a somewhat 'extended' advance relative to past action.
Near support is 1407, then in the 1400-1395 area and finally at the recent downswing low at 1364; although it also should be noted that support implied by the lowest recent CLOSE was at 1374.
The rally did not cause the RSI to immediately move back to its upper 'overbought' extreme so we have to assume that the SAME high level of bullish confidence and buying interest that was seen for so many weeks prior to the recent correction has not come back full bore. A sharp correction like the one seen in late-Feb would typically shake up such a 1-sided market outlook and a healthy fear of bearish influences regarding stocks and the economy comes back into play also.
S&P 100 (OEX), DAILY CHART:
The S&P 100 (OEX) has near resistance at the recent high around 657; then, pivotal resistance comes at the prior 'line' of tops around 670. Above 670, 680-685 looks to be major resistance.
644 is still near support as seen in the rebound from Friday's low at the 21-day average; next technical support is at 630-631, then at the prior low at 625 (the prior recent low CLOSE implies support at 630 however).
MARKET 'SENTIMENT' AND NOTES ON TRADING STRATEGY:
The price action to date kept me in most of my OEX calls bought on the dip below 630. I was tempted to bail out of most of them after the third and especially fourth day when OEX failed to exceed highs forming a 'line' (of resistance) around 655-657. However, I'm still in 2/3rds of what I had, planning to exit another third if SPX starts falling under much under Friday's low. I'm still thinking 670 will be seen again and remain positioned accordingly. Stay tuned on that outcome!
DOW 30 (INDU) AVERAGE; DAILY CHART:
Near resistance in the Dow 30 (INDU) is at the prior recent high at 12,511, with next resistance around 12,600 and major resistance around 200 more points higher, in the 12,800 area.
Near support in INDU is at 12,270; next lower support looks to be 12,200-12,180; a close below 12180 not reversed the next day would suggest a more bearish outlook than I'm seeing currently. Major support right now is probably at the prior low Close at 12,050 or the intraday low at 11,939; below these levels, a still lower objective could be 11,835, at the lower trading envelope line. The (moving average) envelope lines do give some idea as to where prices could fall to if the prior lows are pierced.
2400 is the key or pivotal area for support in the Nasdaq Composite (COMP). A drop below 2400 suggests a further decline of 50 points, to 2350. Major support begins around 2350-2339 and extends to 2300.
The recent high at 2460 is near resistance; pivotal overhead resistance above this recent top then starts at the low and high end of the chart 'gap' made on the recent break and those levels are noted below: 2471 is the low end of the gap and 2492 is the upper end, where it (the gap) would be completely 'filled in'. If the gap got filled in and COMP failed to make further headway after that, there's a bearish implication with such action suggesting that the recent rally might have run of steam.
As noted with the Nas Composite, the overhead gap area in the Nasdaq 100 Index (NDX) is a key area to watch if a rally now gets going again after the pullback to near support in the 1760 area. It is interesting to note how the rally stopped right AT the beginning of the gap created on the late-Feb market break; i.e., at 1807. The NDX chart gap as you can see below extends up to 1820.
Pivotal support was reached on Thursday and Friday of this past week in the area of NDX's 21-day moving average. On both days there was a substantial intraday rally off those lows. A close under 1760, especially one not reversed the next day, would be bearish and suggest that a next level of support at 1745 could be seen or a bit lower, say around 1734. Significant or major support should be found in the 1712 area, extending to 1700-1695.
I'm bullish if NDX holds above 1760. In that case, I think 1820 at least could be seen again at some point ahead but not weeks away. The bulls have to seize the day from here; otherwise the market likely starts to drift sideways to lower.
Key near support, especially on a closing basis, in the Nasdaq 100 tracking stock (QQQQ) is at 43.28 at the 21-day average as noted on the chart below. If the Q's can rally from the area of recent lows or from the area where it closed on Thursday-Friday, then the stock could rebound again to the 44.5 area; and maybe this time 'fill in' the chart gap by a move to 44.76 or higher. The ultimate test for a continued bullish trend is for QQQQ to reach and exceed the prior high at 45.55, but that may be very tough resistance in the coming 3-4 weeks.
Below, 43.28, support should be found at 43.0, then at 42.6. Major support is assumed to lie in the 42.1-42.0 area, extending down to 41.75.
Volume has tended to expand on the rallies, which supports a bullish outlook on balance. And speaking of it, On Balance Volume (OBV) has been drifting lower, suggesting some liquidation on the recent decline. Traders/investors are not rushing back into the stock after the sharp break put some fear of the market back into them.
Maybe a time to buy; I'd rather trade against the prevailing view or against hesitation if I have a nearby risk point especially. Here, my nearby QQQQ sell stop exit point is just under 43. Against, that amount of risk, assuming I can buy (or did buy) around 43.25-43.3, upside potential is probably to 44.75 or higher. I like trades like this in the Q's. BETTER was the $3 downside potential (a harder pick) as in late-February or a $2 upside from the double bottom low (an easier pick) of early to mid-March, but I'll take what I can get; that is, as long as I have a 3-4 to 1 reward to risk potential!
RUSSELL 2000 (RUT) DAILY CHART:
Near support in the Russell 2000 Index (RUT) is at 795-790, then at 780-776; however, potential for a next rally in the Index is most favorable if RUT holds at or above its near support. Pivotal near resistance is at the prior 811 high; 820 is resistance implied by the previously broken up trendline. 830, at the prior top, would offer the key test for possibility of a new up leg.
I've found that resistance at these previously broken up trendlines, especially longstanding such trendlines as in the RUT chart, can be pretty tough areas of selling pressure. As far as the upside potential in a re-test of the prior 830 high or in going beyond the prior high (in a new up leg), watch the 820 level if reached.
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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.