THE BOTTOM LINE:
Well I did say in my midweek TRADER'S CORNER column this past Wednesday that it looked like the correction had run its course and the uptrend was intact, at least for now. If you didn't see this article, it was a look at the recent sharp but short-lived correction in terms where prices had gotten to in terms of the lower Bollinger Band; and, in what was being seen in the NYSE (Composite) index in terms of the 5 and 10-day TRIN (Arms Index), two indicators that I wrote about recently. To see this most recent (Wednesday) Trader's Corner column you may click here.
I have a newfound respect for the Bollinger Bands (BB's) in that the lower band exactly pinpointed the recent bottom in the S&P 500 (SPX). There also is a tendency for upcoming (upside) reversals to be forecast when intraday lows in the major indexes spike under the lower BB. There's sometimes the same tendency to suggest a downside reversal when there are intraday spikes above the upper Bolli Band, as noted on the SPX daily chart below:
As far as the 5 and 10-day TRIN, as shown with the New York Composite Index (NYA) chart next, this indicator is registering bullish on a 5-day basis and neutral now on a 10-day time frame.
There is something else to be said in regards to the NYA chart pattern, which is that there is now a significant 'line' of resistance that's being hit with the return of the Index to the area of the previously broken 2006-2007 up trendline; this is also highlighted on my next chart:
I consider the New York Composite Index (NYA) to be the true leader of this market advance, more even then the S&P. Given the potentially tough technical resistance suggested by the chart pattern as I've highlighted above, I don't want to get too carried away by bullishness here.
Bullishness is part of the 'problem' so to speak in that my Sentiment indicator registered 2.1 on Friday, which is simply that the CBOE equities call volume was 2.1 times the total day's put volume in equity options. This degree of bullishness is often a signal of a top occurring within 1 to 5 trading days. Not always, but it works this way more often than not. Stay tuned on that!
Also helping me to rein in my bullish enthusiasm is the simple observation that the star index, the S&P 500 (SPX), could be forming a major top. We won't know until SPX gets well above and beyond the 1530 area. The Index did close the week at 1532 which is bullish. But SPX also is overbought on a longer-term basis. And, there's the question here as to whether, with this much recent bullishness, there is going to be a whole new up 'leg' from here. It can happen of course, but I'm cautious about big commitments at this juncture, either long or short.
I consider the overall New York Composite Index (NYA) to be the true leader of this market advance, more even then the S&P. I don't want to get too carried away by bullishness here. Bullishness is part of the 'problem' so to speak in that my Sentiment indicator registered 2.1 on Friday, which is simply that the CBOE equities call volume was 2.1 times the total equities put volume. This degree of bullishness is often a signal of a top occurring within 1 to 5 trading days. Not always, but it works this way more often than not. Stay tuned on that!
As to trading on the short side, it may be tempting, but there's no clear cut indication that the Indexes won't power on up from here, especially with the way that tech stocks caught fire at week's end.
I would sum up this way: the recent sharp pullback was a good trade to take on the long side in calls, shorting puts, etc. but I treat it as a trade. Back up at the all-time SPX highs as we are, I'm happy to take out at least most of what was made on the rebound and wait and see how it goes next with the market.
MARKET NEWS and INFLUENCES:
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** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
We're still looking at key resistance in the S&P 500 (SPX) at 1540. If the Index clears 1540, we could see a run to the 1560 area next.
If next week saw SPX backing off from 1540, as was seen on Friday, a pullback to the 1520 area could follow. 1490 is a key technical support, 1480 the next support and 1465 major support.
I like to see the indices get oversold in terms of the RSI to suggest that the chances for the next rally after that will be big. These rallies from mid-range readings are a little more suspect but then we can't bank either on the market doing the same thing all the time. Study history, as history USUALLY repeats itself, except for the fact that human activity IS also unpredictable at times.
S&P 100 (OEX), DAILY CHART:
The S&P 100 (OEX) might rally again to the trendline at 713, but has to clear the 706 prior high first of course. Recent strength is impressive and the chart remains bullish. Especially so since the last pullback held easily above the prior 684 (down) swing low.
A decisive upside penetration of the trendline would suggest a new up 'leg' but I don't rate this outcome likely.
697-700 is near support and the 686, 687 area is even more pivotal support as the area where the recent bottom formed.
The spike up into the 'overbought' extreme area, to above 1.9/2 in my call to put indicator is the indicator that made me the most cautious in staying in calls over the weekend.
By the way it's clear before the end of the trading day, how the option volume ratios are running. The CBOE posts a running total every hour.
While its possible we'll see another CLUSTER of such spikes in the extreme bullish territory in 'CPRATIO' as was the case last month, it's unusual to see such a 'double' cluster; but, we'll see what the market brings us ....
DOW 30 (INDU) AVERAGE; DAILY CHART:
Key resistance in the Dow 30 (INDU) is at the prior 13,692 high, but it looks like INDU can power through there and head up to resistance in the 13,800-13,815 area.
Close by technical support is apparent around 13,517, with the most key/pivotal support at the prior swing low at 13,251.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
A POWERFUL tech rally as reflected in the spike up in the Nasdaq Composite (COMP) Index, driven by stocks like Intel (INTC), make it look like COMP could go straight away to 2655 where I've marked resistance on the chart as suggested by the constructed trendline. 2626, at the prior high, still has to be cleared however.
There is also the possibility that prices fall back and 'fill in' the gap created between Thursday's high and close and Friday's opening and low.
Looking at the bullish scenario, I'd nevertheless take a bet on some Nas 100 (NDX) puts if COMP did get up to the 2655-2560 area.
Near COMP support is at 2580, then down at the trendline intersection around 2556.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 Index (NDX) reflecting tech stock strength has gone to new high for this move, which is quite bullish. I marked potential resistance at around 1955 and above there I would have a projection to the 1975 area.
Near support is at 1930, then at 1910. A close below 1900 at this juncture would suggest a reversal in the current bullish pattern.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
Price action is bullish in the Nas 100 tracking stock. QQQQ may have some resistance at 48.25, then around 48.60-48.65. Near support is at 47, then at 46.15. Only a close below the last intraday swing low (46.15) would begin to suggest a bearish pattern.
What's not to like? Well, to suggest a maximum bullish posture, volume would have been rising strongly, as was seen with prices on this last advance. 'Short-squeeze'? Stay tuned on much follow through there is ahead. If 48.25 is seen, I may look to short the stock for a trade. Then again I may lie down until the feeling passes!
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 Index (RUT) is bullish in its rebound so far but hasn't 'proved' itself so to speak. Ability to achieve a new up leg will come if RUT can pierce the old high at 856. Above 856, key resistance looks likely to come in around 867. I'd play the expected 825-870 range and take out some puts in the 865-870 area if reached.
Near support is at 838-840, then at the low end of the uptrend channel at 825. A close below 820 would turn the chart bearish in its pattern.
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.