THE BOTTOM LINE:
My point about 'significant' overhead resistance is that the major indices have retraced somewhere between 62 and 66% (of the mid-July to mid-Aug decline), which should be the moment of truth so to speak as to whether the market can get back up to its mid-July top. The point being that retracements that start to go over 2/3rds of the prior price swing have an increased likelihood of achieving a 100 percent retracement or back to their prior peaks in this case. Very telling in the terms of the charts is that current (as of Friday) levels are hovering just under the highs of early-Sept. I don't have any kind of solid conviction that these recent highs are going to get exceeded.
While the indexes are no longer showing anything near overbought oscillator readings, a mild bullish plus, I don't see what is going to drive prices a whole lot higher fundamentally. There is the expectation for Fed action to cut rates but there's also a significant lag time before it's clear that this will help the credit crunch. It's not really the RATE that borrowers have to pay but the fact that banks have way tightened up in lending.
Technically, and of course this is my primary basis for assessing future trend directions, there looks like there is a lot of stock available for sale on up from here. As always however, price action is the next determinant. Either prices can churn through the recent highs noted on the charts below or they can't. If I had to choose and I do as I attempt to give my best assessment of the trend ahead, I suspect prices won't get much higher unless there's this bigger rate cut. Just based on the chart patterns, the NYSE and Nasdaq indexes look like they may drift sideways to lower again. And, October is not typically a great month for stocks.
Lastly, and relating to technical indicators, because of somewhat anemic volume levels on this recent advance, the 5 and 10-day TRIN (Arms Index) remain in bearish territory. The NYSE Composite (NYA) has to pierce 9700 and stay more or less above this level to break out to the upside technically. I'll show the NYA daily chart with the 1,5 and 10-day TRIN charts first. Since the TRIN indicator is based on advance-decline figures relative to daily advancing versus declining volume for all NYSE stocks, the NYA chart is also one to pay attention to in assessing market strength, especially since it has led the market higher for so long now.
TRIN readings below 1 are considered bullish, above 1, bearish. Just like a golf score, lower is better (if you're bullish). I pay most attention to the 5 and 10-day figures when the market is working higher but TRIN doesn't match such bullish price action, suggesting that trading volume on up days is not expanding like it would if broad based buying was going on.
Tech is no longer playing the leader on this current retracement, and energy stocks are helping the S&P push higher as crude marched to $80 a barrel. Energy stocks have been strong and helping buoy the S&P, but these sectors don't seem to be entirely reflecting this most recent spike up in crude oil prices as a given going forward. Everyone knows that oil prices come down in the fall, don't they?
MARKET NEWS and INFLUENCES:
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) Index had a strong rebound this past week after dipping below support implied by the 21-day average. However, SPX hasn't achieved a decisive upside penetration yet of what looks to be significant resistance in the 1489-1496 zone. Above this area, the prior rally high at 1504 is the next important resistance point. If SPX starts trading above 1500 I can believe that it can challenge the prior top. However the July peak looks like it could represent a major double top as it matches the 1553 weekly high of 2000.
Near support is in the 1460 area, then at 1440.
There's no change in my view of last week that: "To regain a bullish footing, SPX needs to rebound back above 1495-1500, with 1480 becoming as a new support after that..."
S&P 100 (OEX), DAILY CHART:
The S&P 100 (OEX) continues to show resistance when the index gets up into or toward the 697-700 area. The rally of last week was impressive, but nothing has yet been 'proven' relating to a new leg up and a possible challenge to the prior (July) high. So far, what we're seeing owes a lot to short covering as a dynamic, since trading volumes are not all that impressive. The chart does turn more bullish in its pattern if 700 is pierced and the index advances from there.
I repeated again last week that I didn't want to stick around in S&P calls, but of course exactly sticking with them made money. At least I didn't trust myself to buy puts or selling calls, which I only will usually consider when the market is also at an overbought extreme. Not in a situation where I suspect that the indexes are in the middle of a possible range. And, I believe still that we could be in a 670-700 price range for the near-term or the balance of September. Stay tuned on that!
Near support is at 682-680, with pivotal technical support at 672-669.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) Average has rebounded to the area of its prior high and looks like it could pierce it (13,494) but I'm somewhat of a skeptic on this likelihood. If there is a close above the recent high that's not reversed in the following 1-2 days, the obvious next big technical hurtle is at the early-August peak around 13,700, which would also put INDU in an area of resistance also implied by my upper trading band. I think that would then be the best that the average could do.
As a related matter, the Dow Transportation Average (TRAN) closed for the week just above its long-term support up trendline intersecting at 4785; the weekly close was 4796. TRAN now bears watching closely for a possible early indication of a definite economic slowdown. The bullish uptrend in TRAN, and INDU, began with the upside reversal coming after the weekly low of 3/14/03.
Near support is at resistance is at 13,240, with pivotal or key support at the double bottom made around 13,027.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) Index remains in a mixed overall pattern, irrespective of last week's rebound. Near resistance is at 2612, where there is a minor hourly double top (not shown), a level that is also at resistance implied by the top end of the downside price 'GAP' made on the sharply lower opening of 9/7.
If 2612 near resistance can be overcome, COMP next needs to manage a new closing daily high above 2628; and finally, to pierce the prior intraday top at 2644 in order to suggest a renewed bullish up leg that could carry COMP back toward its 2725 mid-July peak.
Near support suggested by its 21-day average at 2562; pivotal near support then lies at 2537, with major support at 2500.
NASDAQ 100 (NDX) DAILY CHART:
Key near resistance in the Nasdaq 100 Index (NDX) is at 2006, where we've seen multiple hourly price peaks. If NDX can clear this level, it would be a position to challenge the 2032 high. That's my most bullish scenario near-term; that the Index reaches, but doesn't exceed, the recent 2032 intraday high. If this level is pierced however and assuming that prices hold up the next day especially, NDX is in a position to advance toward its 2060 summer peak.
Whether NDX begins to build on a further rally at and above the 2000 level or starts drifting lower below 2000, looks unclear to me. I would come out of calls in the 2030 area and not take a chance on it gaining a next 30 points. It's probably an even bet that if NDX gets to 2032 again it won't also regain 2060; I'd be a buyer of puts in that area if reached.
Very near support is at 1982, with more pivotal technical support seen around 1955 and with major support at 1900.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
The Nasdaq 100 Index stock (QQQQ) is of course tracking the underlying index exactly so the only thing to talk about here is the levels for the stock versus the index, except that we also have volume figures to look at. Like NDX, the last rally bullishly came from above support implied by the 21-day average; this key trading average currently stands at 48.06 and is a pivotal support. 48.73 is close by support.
Pivotal or key resistance is at 50.0. If the Q's manage to close above 50, it sets the stage for the stock to challenge its prior 50.66 high. Above the prior high, 51 looks like a possible upside objective.
I don't like owning a stock when volume is declining day-to-day while prices are rising as can be seen above, so I have to score myself as cautious about the staying power of this recent rally. Which is not to say QQQQ can't get back to $50 before prices ease back again. Stay tuned on that!
RUSSELL 2000 (RUT) DAILY CHART:
No change from my view of last on the Russell 2000 Index (RUT) as the 800-803 area looks to be the upper end of its likely trading range. A close above 800 is needed, with this level becoming subsequent support, to suggest a bullish upside breakout.
Showing its continued weakness relative to the other major indexes, RUT lagged in this past week's rebound. Nevertheless the Index did rise on the week of course, but I don't see strong potential to move above 790 at this juncture.
Near support is at 772, with next technical support at 760. Major support begins at 750, extending down to 743 to 736.
Good Trading Success!
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.