Sure as Winter follows Spring, bullish sentiment or conviction 'follows' the market. When the S&P 500 (SPX) got down to a low of 1364 back on March 14th, my sentiment indicator reached an extreme level of bearish conviction the day BEFORE. Now, with SPX closing at 1484 and change on Friday, fully 120 points higher(a 9 percent rise), Friday saw my sentiment indicator reach for the first time in months a level that I associate with an 'extreme' in bullishness; as measured by the daily volume of equities (excluding index options volume) calls traded relative to puts on the CBOE.
Just as the level of bearishness back on March 13th suggested that the major indices were at or near a bottom (within 5 trading days), Friday's reading suggests that the market could be at or near at least an interim top; however, I would note that tops, as usual, are more 'tricky' than bottoms in that we can get these kind of 1-day extremes a second, even third, time before the market comes down.
On a PRICE basis, SPX at least has reached and slightly exceeded my 1480 price target but could reach 1492, or even 1500, before coming down. In terms of the S&P 100 (OEX), the first strong resistance may not come before 692 and basis the Dow 30 (INDU), I have one long-held target for 13,000 but the Average as of Friday was less than 40 points shy of that.
Early in the month, on the 4th, I had the following comments and chart in my Wednesday TRADER'S CORNER article:
4/4/07: "The Dow daily chart is bullish in its pattern: there was the strong first up 'leg' followed by the fairly nominal pullback to the area of the 21-day moving average, followed by another surge higher which could be a second up leg. If this is a second up leg and IF the TWO legs or two price swings have symmetry or are equal in their price swing (a so-called 'measured move' objective which we see a lot in stocks and the indexes), then an objective to at least the 13,000 area is suggested and "X" marks the targeted objective below."
THIS CHART REFLECTS THE CLOSE *AS OF 4/4* THAT ACCOMPANIED THE ABOVE COMMENTS:
So much for my 13,000 target in the Dow. Sometimes it is this 'easy' in terms of two equal (point) moves.
Also, back in that (4/4) article, I noted a Head & Shoulder's (H&S) bottom that could be seen on the INDU hourly chart and this hourly Dow chart with that pattern outlined below is updated through Friday. The chart markings illustrate a slightly higher target on the Dow IF the 'minimum' upside objective was reached as implied by the H&S bottom. These objectives/targets work out sometimes, sometimes not, but an index or stock VERY OFTEN works significantly higher after the H&S triple bottom forms; i.e., the left shoulder, head and right shoulder:
A possible 'minimum' upside objective to around 13,200 is implied by the aforementioned H&S bottom in the hourly Dow chart; such a forecast is based on a possible further run equal to the price distance from the bottom of the 'Head' to the 'neckline' as ADDED to the neckline level at the point where that line was pierced. Got that? Look at the chart. I find it best not to get too carried away with these kind of price objectives in terms of trading STRATEGY; e.g., hold DJX calls no matter what until 13,200 is seen! No, no, no. But, these kinds of things can give an idea on a technical basis anyway, of possible further upside potential.
The major indices are also 'overbought' on a short and intermediate-term basis, by the most common measure I use, that of the 21-hour and 13-day Relative Strength Index (RSI) indicators; however, extremes are not yet seen on a weekly chart basis by applying an 8-week RSI.
Based on what I see to date, I'm going to take profits on calls after SPX reached my 1480 objective, given the increased risk I face for a correction. I'm willing to leave money 'on the table' so to speak as I know quite well that this market can work still higher. On the other hand I consider that the 'easy' money, again 'so to speak', has been made. The rest of the battle of the bulls and the bears will carry more stress as to the outcome than I want to take on. And mostly, I don't want the COMPANY that all the recent call buyers are providing me. No thanks. When most traders 'finally' get real bullish AFTER a 120 point rise in the S&P 500, I'm outta there!
Last but not least, the NASDAQ Composite (COMP) has the possibility of forming a double top relative to its late-February high and the Nas 100 (NDX) backed off considerably by the end of the day on Friday after making a new high by some margin. Although the Nasdaq is lagging the S&P of course, even lagging indexes can be the one(s) that 'signal' a market peak or that the market is running into strong resistance again relative to a prior significant top. The Russell 2000 (RUT) had been struggling to break out to new high also after getting back to its previously broken up trendline, which I also find bears watching for clues as to what the overall market is capable of doing next.
MARKET NEWS and INFLUENCES:
** SUBSCRIBER MAIL **
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) achieved a decisive upside penetration of the old 1460 high at the beginning of the week and then in a perfect book end move ran up again strongly at week's end and more than achieved my 1480 upside objective. Further upside 'resistance' can only be guessed at but one next possible target could be to the 1492 area; at least in that area, SPX is as 'overbought' in terms of being at 3 percent above the 21-day moving average; just as it was 'oversold' back at the last low (1364). Based on the idea that 'as above, so below' and vice versa I bumped my upper moving average envelope line up to the same 3 percent as the lower envelope. The envelope lines with the S&P give us at least a sense of the price level where the index is getting extended on the upside.
A move to the next 100 level increment, at 1500, might also be a next target for the S&P given the tendency for stocks or indexes to reach or try to get to the even 10, 100 and 1000 (Dow) increments. I think that 1500 would offer strong psychological resistance.
NNear support is at 1460 or what was prior resistance; the next key support is at the 21-day moving average at 1445. I would view any close below the pivotal 21-day average as suggesting a further correction to follow, assuming this close was more than a 1-day affair.
With this latest move, the 13-day RSI had definitely gotten well into its 'overbought' zone. Of course in a bull market such extremes can be seen again and again for some time. This type indicator more provides a note of caution about taking out new long positions or overstaying in calls for example.
S&P 100 (OEX), DAILY CHART:
I talked about the significance for me of my sentiment indicator shown below the S&P 100 (EX) price chart. Go up to my initial 'bottom line' commentary for more on that. Price and pattern wise, the prior 'line' of resistance at 670 was decisively penetrated. A next move up to around 692 would put the index back to its prior rate of price change on time basis; achieving this former 'momentum trajectory' so to speak is often quite significant and can mark a place where the index will again slow down or fall back from. Stay tuned on that! Look for resistance at this trendline, intersecting at 692 currently. The 700 level also represents a price target as the next 100 increment.
6670, a prior resistance that was hit over and over back in Jan-Feb, is likely near support. Technically, as is often said, support once broken tends to 'become' resistance later on and vice versa: resistance, once pierced, tends to become support later on. 660-661, at the center moving average is a key or pivotal next (lower) technical support in my view.
DOW 30 (INDU) AVERAGE; DAILY CHART:
I don't have a lot more to say about the potential further upside potential in the Dow 30 (NDU) than I've said in my initial ('bottom line') comments. INDU is now at my upper envelope line and at an overbought reading in the RSI, so further upside, without a period of at least a sideways to lower pullback, is a gift.
NNear technical support should be found at 12,790-12,800 with next support around 12,725. A close below 12,555 or the current 21-day moving average, would be near-term bearish but which I view as unlikely currently.
The asdaq Composite (COMP) could be stalled at its prior high and is a situation to be watched. If COMP clears 2530, a next target could be to 2550 but I don't have higher targets than this currently. Above 2550, there's a possible next objective to 2570-2575 however.
NNear support is 2490-2500, at 2480, and finally at 2467 at the moving average. 2450 is must hold support to maintain a bullish chart.
The asdaq 100 Index (NDX) fell back from its intraday highs on apparent profit taking after running 'stops' above 1850. If NDX can climb above the old high around 1850 and stay there, a next target is to the 1867-1870 area. While NDX could eventually reach 1900, I don't rate the chances high, at least without a pullback/consolidation first; but I've been wrong before.
NNear support is in the 1830-1820 zone, then in the 1805-1800 area. Pivotal chart support, especially on a closing basis, is at the prior (down) swing low at 1788.
Resistance in the Nasdaq 100 tracking stock (QQQQ) is at the prior 45.55 intraday high; if this high is cleared, a next objective is to 46. Near support is at 44.70, then at the 21-day average around 44.4.
On Balance Volume (OBV) has been in a steady uptrend which supports a bullish chart, but all hinges next on the Q's clearing its prior high.
RUSSELL 2000 (RUT) DAILY CHART:
The chart of the Russell 2000 Index (RUT) is mixed in its pattern. RUT is having an apparent difficulty clearing the old 830 high;'double resistance' is implied by this prior high AND resistance implied by the previously broken up trendline. If resistance around 830 is cleared, 840 is a 'measured move' objective where the two up legs would be approximately equal.
Near support is at 815, then in the low-800 area. A close under the prior swing low at 791 would be bearish.
Good Trading Success!
** SUBSCRIBER MAIL **
NOTES ON MY TRADING GUIDELINES AND SUGGESTIONS
TTrading 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. br>