THE BOTTOM LINE:
Not surprisingly the market got 'whippy', as in being whipsawed, after a sharp run up in bullish sentiment at the beginning of the week. My CBOE equities daily call to put volume ratio got up to a bearish 2.2 ratio; i.e., equities call volume on this past Monday was 2.2 times that of that day's (equities) put volume. This is of course only bearish in a contrarian sense: that when there's such heavy call volume relative to puts it becomes an indication that bullish conviction is so lopsided that the market is due to go the other way. It (the market) just seems to be perverse that way!
Another technical dynamic I noted with the leading S&P 500 Index (SPX) was comparing the weekly price chart to that of the 8-week Relative Strength Index (RSI); prices were way up from mid-December, whereas the RSI hasn't nearly 'confirmed' a new relative high in this indicator, as can be seen on my first chart below:
Now, such divergences can go on for a lengthily period of time, so they (these divergences) are not especially useful for 'timing' index option trades; such a situation almost always signifies that an advance has only got so long to go before AT LEAST a sideways time correction of some duration.
I would note again as I did last week, that the only technical 'resistances' I could speculate about in my charts is in the S&P 100 (OEX) and the Russell 2000 (RUT), assuming they return to their previously broken up trendlines; as will be seen with those charts below.
Moreover, it will be interesting to watch the Nasdaq Composite (COMP) Index which has been pulled higher by the overall market (especially the S&P and NYSE Composite Index), as to whether the prior high in COMP around 2530 will 'become' support on any further pullbacks; the Composite got down to 2533 on Thursday before rebounding on Friday. If COMP started dropping under it's prior (2531) high dating from late-February, it would offer a cautionary note for the continuation of the current rally. Prior highs that are exceeded in a strong trend will typically act as support on subsequent pullbacks; if not, (up) trend momentum may be slowing or weakening.
MARKET NEWS and INFLUENCES:
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S&P 500 (SPX); DAILY CHART:
For the first time several weeks the S&P 500 (SPX) closed lower on a week to week basis, although just slightly. SPX also held above near technical support implied by the 21-day moving average on this past week's pullback. This average so often serves as a trading 'benchmark'; ability to hold above the average tends to show still upward price momentum, whereas a close under this key average for more than a day usually sees the index correcting further.
There is no technical resistance overhead that can be pointed to absent the prior all-time top around 1553. If and when the index trades at a level equal to 3 percent or more above the centered (21-day) moving average as shown by the upper SPX (red) 'envelope' line below and intersecting at 1537 currently, it's a 'benchmark' for the rate of price increase to tend to at least slow its climb.
I mentioned last time that the 1510 area might bring in some selling, which is what was seen this past week; the 1520-1525 area is a next technical objective assuming there's a move to yet another new high. Near support is at 1488, at the 21-day average, then at 1477-1480, with 1460 as a pivotal technical support. 1440 would be a target if 1460 gave way.
Anticipated major resistance and a major upside objective is to the 700 area in the S&P 100 (OEX). Near resistance has developed at 692-694.
OEX close by support at the 21-day moving average is at 682. With this key trading average, I look at where the close ends up, given the tendency for dips below the average intraday. Next lower support is at 679, then at 674-675, with key support at 670 even.
The 21-average in OEX is my trading benchmark in the near term; if there's a close under it that is not reversed (back to the upside) the following trading day, such action suggests that the index is vulnerable to a further decline. This is the point where I start to look at the 38 and 50 percent retracement levels (of the 625 to 694 March-May advance) as possible pullback objectives.
DOW 30 (INDU) AVERAGE; DAILY CHART:
A small pullback in the Dow 30 (INDU) off the recent high, but not by much and the Average closed higher on the week unlike the S&P.
There's no way to really measure potential 'resistance' once into new high ground like this; near-term highs most often have just been minor pauses and temporary. Hard to know when that ends until we see it. Major resistance can be guessed at as being at the top end of the major weekly uptrend channel (not shown), which intersects currently around 13,900, more than 400 points above current levels.
Near support is at 13,215 then at 13,062-13,055, the area of the current intersection of the 21-day average; major support is in the 12,800 area. The chart and technical picture remains bullish until/unless INDU starts falling under the moving average or the centered line below (at the green up arrow) between the two moving average envelope lines.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) has formed a minor rounding top pattern, but no technical breakdown is implied unless there's a close under 2530. Next lower support is 2510. Near resistance is at 2580, then probably around 2600.
A bearish price/RSI divergence is apparent as prices went to a new high 'unconfirmed' by a similar new high in the Relative Strength Index (RSI) indicator. This divergence is not conclusive for even an interim top in a particular time frame but does provide a generalized and cautionary warning of a possible downside reversal ahead. It's also true, as with the other major indexes, that the rebound from the 21-day moving average seen this past on Thursday-Friday is maintaining a still-bullish outlook technically for Nasdaq.
NASDAQ 100 (NDX) DAILY CHART:
Substantial resistance and selling interest has occurred in the Nasdaq 100 Index
(NDX) above 1900, specifically in the 1900-1905 zone.
A near-term key to whether upside momentum and buying interest is faltering is whether there's a close of more than a single day below the 21-day average at the green up arrow or at 1870 currently. Important support technically is the prior (February) high in the 1850 area for reasons I explained in my initial commentary. A close below 1850 would suggest the NDX was vulnerable to perhaps another 30 to 40 point pullback over time.
As it is now, I anticipate that this index has some likelihood to trade sideways in the coming week, such as continuing to hold above 1880 or at worst to trade down to 1860 and hold support in that area. But 1850 is the key level in terms of NDX maintaining its intermediate uptrend.
The same pattern as NDX of course is seen in the Nasdaq 100 tracking stock (QQQQ) only the price levels are different. Key near resistance is at 46.95-47.0. A move above 47.0 could bring a next rally or price swing to 47.5.
Pivotal near support is at 46.0, with next support at 45.5, an important level as the prior high which would, in a still-strong uptrend be a significant support floor. 44.5 is the lowest downside potential I see for the Q's currently.
Interestingly, volume jumped sharply on Thursday's decline, suggesting a fair number of nervous investors wanting to exit stage left. One of the dynamics of this market and the economic cross currents or uncertainties out there is that individual investors are cautious. Well, it's been a heckava run without any major pullbacks yet. Expectations may go the other way and another rally set up. Stay tuned for what comes next! I'm watching this one from the sidelines.
RUSSELL 2000 (RUT) DAILY CHART:
Not much change here in the technical/chart picture for the Russell 2000 Index (RUT), as it has had a strong 'line' of resistance or selling interest coming in at 835. Major resistance I suspect lies at the previously broken up trendline currently intersecting around 846. RUT is the index that looks most like it could be building a top.
Close by support is at the trendline at 818. A close below 806-807 would suggest further weakness, such as eventual move back down to the 770 area again.
The RSI is in a downtrend and is unlikely to 'confirm' a new high for this move. RUT puts could be considered on a move up to the 840 area, with a close by exit point above entry; e.g., 843.
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.