THE BOTTOM LINE:
Just like the Energizer bunny that keeps going and going the stock market kept chugging higher this past week. While I was doubtful of how much upside remained, it's all also true a trend in motion tends to stay in motion until a stronger countervailing force intervenes. However its also true that when the market gets to an 'overbought' extreme (by conventional technical indicators) and prices get so far extended above the 21-day moving averages, then on a risk to reward basis remaining in Index calls doesn't often have a great further risk to reward outlook; i.e., the reward potential in still further gains doesn't exceed the (point) risk in even a moderate downside correction.
Of course I was judging all this from having a cost basis well under current levels; with me it was in OEX calls bought back in the 630 area. I like to get in before a trend reversal is well recognized.
I obviously can't pick a top as accurately as assess the risk in a correction. Nevertheless, I'll have some things to say in my major index commentaries about the further upside potential of the indexes.
Last week I discussed a 'minimum' Dow 30 (INDU) target I had based on an hourly Head & Shoulder's (H&S) bottom pattern and the subsequent upside 'breakout' in INDU. I'll update this chart again here. With the Dow last week closing at 12,962, I decided to update my approximate upside objective of 13,200 in the Dow. Zeroing in on a precise target for the Dow, I have it noted below at 13,175, versus the high to date of 13,148; this target was/is very close to being reached. Also not far away and even closer to being breached, is the steep up trendline as seen in the hourly chart below:
The above is not to say that the Dow can't and won't go to say 14,000 before coming down. The best thing that the market has still going for it in terms of going higher is that my sentiment indicator is not showing a bullish extreme in terms of the level of call volume relative to puts.
MARKET NEWS and INFLUENCES:
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** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
After the S&P 500 (SPX) exceeded my original 1480 target I estimated last week a next higher objective in SPX to around 1492, with a further move possible to 1500 "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." Well, we're almost there, knocking on the door of 1500 in a run, run, runaway bull move!
Near support is now at my previous target and what I thought might offer resistance, at 1480. Next support is at 1460. A close below 1460 would suggest a possible deeper correction such as back to the 1440 area.
I'm done for the time being at guessing at further upside objectives, especially above 1500. Anything above 1500 is a 'gift' to the bulls. The S&P will go until it stops, whether that's 1505 or 1510 or higher. Hey, slowing economic growth slam-dunk NO problem! The Fed will HAVE to ease!!
With this last spurt higher the 13-day RSI is still further into its 'overbought' zone. As I said last week, in a "bull market such extremes can be seen again and again for some time." And how! And I would say again that this indicator provides a note of caution about taking out new long positions or overstaying in calls. As to being in calls, have a stop or exit point, as part of a game plan for how much risk you are going to assume or how far lower (on a correction) you'll stick with calls.
S&P 100 (OEX), DAILY CHART:
A key dynamic in keeping this market going is seen in my sentiment indicator shown below the S&P 100 (OEX) price chart, which continues to show a rather moderate bullish outlook; traders are not going overboard in call activity. This market is being driven by public and hedge fund managers who must participate in chasing stocks higher; they can't afford to be 'left behind' in the standings race.
Very often you get key or telling chart aspects from just 1-2 of the major indexes. It's nearly impossible to measure 'resistance' on the Dow or SPX charts. But you can see possible upcoming resistance on the S&P 100 (OEX) chart and Russell 2000 (RUT) charts, as OEX appears to be headed back to a test of potential resistance at a previously broken up trendline; RUT is already there and appears to have stalled, as will be seen in the section on RUT.
Bullish/up trendlines rise and where last week the aforementioned OEX resistance came in at 692, this week it is pegged at 695 as seen below at the red down arrow. By the time this index makes a significant top, this trendline could intersect at 700, a key benchmark number at the next even-100 level.
OEX near support is at 680, then at 670. I would take a close below 670, not reversed (back to the upside) the next day, as a bearish indication; next support then is 656-657.
As I write this, I am back in and near my old haunts on the Street of Dreams. New York does always in fact feel a little more 'dreamlike' each time I re-visit, but it's always exciting too. It's like what they say about grandchildren I suppose, you're glad to go home when you're done with the excitement.
DOW 30 (INDU) AVERAGE; DAILY CHART:
As I noted on the hourly chart of the Dow 30 (INDU), my objective has nearly been reached at 13,175. I'd allow for the possibility of course that the even-13,200 level is seen as an intraday or even closing high, as well as the potential for INDU to reach still higher levels of course; I hear talk of 14,000 but I'm skeptical at least on this leg up.
At whatever price level, the time is coming when market participants will re-visit the possibility that the market is overextended and stock price levels too high relative to the risks of a slowing economy and slowing earnings. At that point will come a cap on prices, but probably not an immediate price break, which usually takes a while to set up.
Near technical support should be found at 12,900, with next lower support around 12,867 at least early in the week; 12,796-12,800 is the key technical support, as the 'line' of former resistance; a close below this area for longer than a day would be bearish. Major support begins in the 12,600 area.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) has pierced it's prior high by some margin, removing of course the possibility I noted last week of possible formation of a double top. A close under the prior high in the 2530 area, would penetrate support implied by the prior high and more importantly, pierce the up trendline dating from the late-March lows. Next lower support is at 2490-2500.
A move to the 2585 to 2600 area will hit a prior weekly chart up trendline (not shown) that could offer a near-term cap on the COMP rally. As to possible major resistance, it's hard to point to any major historical or prior resistance short of 2875.
Near support is 2490-2500, at 2480, and finally at 2467 at the moving average. 2450 looks like must hold support to maintain a bullish chart.
NASDAQ 100 (NDX) DAILY CHART:
The chart of the Nasdaq 100 Index (NDX) is bullish in its pattern in the extreme. By 'extreme' I mean one thing: that the 'arc' of the index's vertical ascent is near to vertical. Such near vertical rising arcs almost always end with sharp corrections. The aforementioned psychological note is offered at no added charge! I'm a big student of market (and mob) psychology and could have ended up as a psychologist if I had opted for a major in the study of human behavior rather than political science (preparing for law). Trading is more interesting!
The market tends to go from one extreme to another, as it's a characteristic human phenomenon to drive things to extremes and back again. I can't point to any particular resistance suggested by the daily chart: 2000 to 2050 is major resistance implied by weekly chart trend channels (not shown).
Near support is at 1885, then at 1854-1860 and finally in the 1850 area, which is pivotal support; a close below 1850 would suggest a test of support another 30 points lower (around 1825-1820).
It's very interesting to see how the previously broken up trendline in the Russell 2000 Index (RUT) is offering some apparently stubborn resistance; at least the rally is much slowed as the highs hug but don't exceed that line, as seen on the RUT chart below. The Index did get above resistance implied by the prior high at 830 on a closing basis but is struggling to stay above that level.
Currently a close above 837 is needed to suggest that RUT was breaking out into the clear so to speak; clearing resistance that is. If that happened I would set 850 as a next target.
Near support is at 815-820, with major support in the low-800 area on down to 791. Only a close below 791 would suggest that the short to intermediate uptrend had reversed.
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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.