THE BOTTOM LINE:
So much for some indicators and patterns that LAST WEEK may have suggested a risk of a top. WRONG! No fear, push on higher!! I may warn to be wary of a top, but in this kind of runaway bull market, you also have to wait for a confirming 'breakdown' type pattern. My number one pattern and indicator to look at in respect to a faltering or reversing trend is to look at the Index (Lows and Closes) relative to the 21-day moving average. I wrote in my Wednesday TRADER'S CORNER column about how many times on this last move the S&P has turned back up on just getting NEAR to this key trading average and how the weaker Nasdaq has nevertheless avoided any TWO consecutive-day Close below it.
I also wrote in this same Trader's Corner article about an Indicator that was maintaining a very bullish reading, the Arms Index or TRIN. I will show the New York Composite Index (NYA) chart updated through Friday for the 1, 5 and 10-day TRIN. For information on how this indicator is constructed or in how to interpret this indicator, please go to your past Wednesday's Option Investor Daily (5/30) or look at on the OI web site by clicking here:
Here the NYA chart with the TRIN plotted under it; or, the "Arms Index", the term Dick Arms the inventor of it, would like to be used. And, wow, a real first with the NYSE Composite Index as it went over 10,000 for the first time ever; it only got up to the 7,000 area at the 2000 top!
The Arms Trading Index (TRading INdex is where "TRIN" comes from) indicator shown above remains in bullish territory although it's not as bullish as it was on a 5-day basis.
As to where this market may top out, it will go up to the point where it's finally perceived to be overpriced, investors get afraid again about some perceived bearish factor(s) ahead and they stop buying every leader or laggard that they can put money into. I've seen the 'usual' signs in a 'USUAL' market for toppy action; e.g., an overbought condition, high bullish sentiment, volatility spikes, apparent chart reversals patterns (at times) and none of it works for predicting or timing a countertrend trade so far at least.
As far as any measurable 'resistance' I can only point to 14,000 in the Dow, which is a long held technical objective or where INDU would finally hit the top end of its broad weekly uptrend channel. Hey, it's not so far away now!
A reversal pattern may be apparent when it occurs and/or piercing the 21-day average should be predictive, but ... meanwhile ... stay with bullish trading strategies or stand aside. Shorting this market is not something that I can predict will work in any certain time frame; even though we know that prices have to adjust at SOME point. Meanwhile, there seems to be no fear of a correction.
MARKET NEWS and INFLUENCES:
Closing index prices, as well as the recap of market influences such as earnings, company and other economic news, government reports and activities, etc. are covered in the Option Investor 'Market Wrap' section.
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** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
The world in the form of the media all crowed about the new all-time high in the S&P 500 (SPX) made this past week; on a closing basis that is, given a weekly Close above the old high (weekly) close of 1527. Yet to come is a move above the prior all-time high, a distinction lost on the media talking heads for the most part; yet to come is an ability for SPX to take out its peak (intraday) all-time 1553 high.
The Index may be getting a little 'tired' or running out of quite so many willing buyers in the 1540 to 1550 area. Support is apparent around 1515, then at 1500-1490. A close below 1490 would be bearish. 1460 is major support.
RSI hasn't been 'confirming' the new highs in price but, again, in a runaway trend like this, the common divergences that might signal a top in a less-powerful trend, don't tell us much at least not so far. What a power move and the bulls have the bears cowered.
S&P 100 (OEX), DAILY CHART:
The S&P 100 (OEX) met some resistance when it first returned to its previously broken up trendline, as noted at the first red down arrow on the daily chart below. With the move to another new high and a second return to that trendline, it remains to be seen if this will also mark any significant resistance. It's unusual, but not all so rare for prices to go up along a resistance trendline like this. What is rare is for a breakout move ABOVE it.
As an option trader, this is a useful piece of information, since it appears likely that further gains may be moderate. Stay tuned on this! Resistance implied by the trendline (second red down arrow) comes in around 708 in the early part of this coming week.
Near support is in the 695 area, then at 684-683 at the prior (down) swing low. A close below the 21-day moving average at 695 would be bearish, unless the Index reversed back above it (the average) the next day.
My indicator saw another run up to the beginning of the 'overbought' bullish extreme area on Friday. Hey, not surprising as traders get TIRED of waiting for a correction and figure that downside risk is ... well, who knows when this market will correct! The longer you see it going up, the more you feel foolish when you see traders buying EVERY dip and making money.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) paused week before last, then resumed its strong upward trend this past week going to yet another new high for the move. Where she stops no one knows, and I can't point to any technical resistance long-term anyway, before 14,000. Near resistance or selling interest may next come in around 13,800.
Near support is at 13,415-13,400, then down at the last swing low at 13,212. 13,442 is support implied by the 21-day moving average currently, with this average a key marker in terms of the near to intermediate trend direction. A close below the average, unless reversed the next day, would suggest that a more substantial correction then see in several months anyway, might be underway.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) had a heck of a run last week; not surprising that the 'under-exploited' lagging stocks would get a play at some point. We may see tougher going on making further such headway and I peg near resistance now around 2620 and under the high seen to date. Major resistance probably is in the 2650 area however.
Near support is at the prior 2600 high, then at 2565 and finally down in the 2530 area. A two consecutive day Close below 2565 would suggest that a move back down to the 2530 to 2510 area might lie ahead.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 Index (NDX) may be hitting some resistance around 1940, at the top end of the minor uptrend channel outlined on the daily chart below. Major resistance is estimated at 1965 currently.
Near support is at 1920, then at 1900-1890, and finally in the 1870 area. A close below 1900 would be near to intermediate-term bearish, especially so if there was a subsequent next trading day close below this level as well.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQQ) mirrors the Nas 100 chart of course. The levels with the Q's are: near resistance at 47.8, then probably up around 48.35.
Near support is anticipated at 46.7 to 46.5. A close below this area would be bearish if the stock didn't recover the next day. Next support is at 46 even, with major support at 45.0
Volume or trading activity is not going through the roof, but On Balance Volume or OBV has been consistently acting in a bullish fashion and 'confirming' this rally every step of the way.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 Index (RUT) finally got out of its rut and got ROLLING. The strong move higher this past week has put the Index back up the top of its uptrend channel, but also near this 'line' of resistance intersecting just under 860. I don't see a lot of further upside ahead for the RUT June calls, so some profit taking would be an ok cautionary move. Know when to hold em, when to fold em! Keep some, sell some, would be good. Don't buy more.
Near support is at 830, then in the 820-821 area, with next important support at 810.
Good Trading Success!
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NOTES ON MY TRADING GUIDELINES AND SUGGESTIONS
1. Technical support/areas of likely buying interest are highlighted with green up arrows.
2. Resistance/areas of likely selling interest: red down arrows.
[Gray up/down arrows: support/resistance levels that got pierced]
I WRITE ABOUT:
3. Index price areas where I have a bullish bias or interest in buying index calls (or selling puts or other bullish strategies).
4. Price levels where I suggest buying index puts (or, adopting other bearish option strategies).
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.