Option Investor
Index Wrap

MARKET SHOWS RESILIENCE; TECH ROCKS!

HAVING TROUBLE PRINTING?
Printer friendly version

THE BOTTOM LINE:
While recent weekly highs ran into possible major resistance implied by the high end of broad uptrend channels in the major indexes and good-sized corrections followed, especially in the main stream Dow and S&P 500, even those downswings were relatively shallow and the tech-heavy Nasdaq rebounded fast. Both key Nasdaq indices quickly rallied back this past week to near the line of their prior highs; especially in the red-hot big cap Nas 100 (NDX). And, NDX has managed to close just above the upper end of its weekly bullish channel and could be headed into a new up leg.

Maybe the prior highs will get exceeded, at least in the Nasdaq. It takes quite a shifting of gears to view tech now as the favored play on the upside, but there it is. Both the Nasdaq Composite (COMP) and Nas 100 (NDX) held at their daily chart up trendlines and even the Russell 2000 (RUT) held it's internal up trendline as will be seen on its charts at bottom.

The Dow 30 (INDU) held the key area of support that I had calculated for around 13,400 and I covered DJX puts; actually INDU got down to 13407. I most always exit at or near pre-set objectives when they present themselves rather than taking a 'trend-following' approach and seeing where it goes. At 13,400, INDU was trading around 3 and a half percent below its 21-day moving average and the Dow rarely falls that far before there's a rebound.

I was recently writing also about weakness in the Dow Transportation Average (TRAN) and the fact that the Dow Industrials looked it had topped out in the 14000 area, with most of its (30) stocks struggling; however, XOM is not going to go down too much with $90 oil and then there's MSFT to pick up the slack and lead this last tech-related rally; INDU-component stocks VZ and PG also are up near their highs (hey, with all that grit in the air, they must be selling soap to China!).

The following indexes would pierce the upper end of their weekly bull trend channels if they closed the week at:
SPX: 1586
OEX: 730
INDU: 14250
COMP: 2845
NDX: 2190* [*With NDX's weekly close at 2194, this could be the start of a bullish chart breakout.]

More conclusive for a significant further NDX upside move would be for the index to clear 2200 and to continue higher from there. If so, there's even potential for another 200 points higher over time, to 2400. The first NDX leg up was from 1450 to 2050 for 600 points and if the second leg up, from 1807, were to equal the same (600 points), a target for the 2400 area is possible as a 'measured move' objective.

MARKET NEWS and INFLUENCES:
Closing index prices, as well as the recap of market influences such as earnings, company news, government reports and activities, are covered in the Option Investor 'Market Wrap' section.

** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **

S&P 500 (SPX); DAILY CHART:

The S&P 500 (SPX) Index chart had turned short-term bearish with its sharp retreat below 1540, but this was followed by a rapid rebound that is approaching 1540 again. What was a key support, at 1540 now becomes a key resistance area. A close above 1540, assuming no reversal back below it in the follow day or two, is bullish and suggests upside potential back up to the 1565 to 1576 area of prior highs.

I thought SPX might reach 1480-1475, but the index instead made a minor double bottom low at 1489-1490. 1500, then the 1490 area, are the key near supports.

I am not looking for a breakout to new highs in SPX. This recent rally seems too much of a tech-related affair for that. It's worth noting again that failure for the S&P 500 to get back above the 1553 level, on a weekly closing basis, means that SPX still has not achieved any long-lasting move above its 2000 peak, so the possibility of a major 2000-2007 double top still exists. Stay tuned on that!

THE S&P 100 (OEX) INDEX; DAILY CHART:

The S&P 100 (OEX) chart may have turned bearish with the break below 720, but maintained its bullish footing with the minor double bottom low made (Mon-Wed) in the 695 area.

695-700 remains key support. 690 is a next lower support, with major support at 669-672.

I was not anticipating OEX rebounding back above 708-710, but when it did this was bullish price action. Next key for the bulls ahead is if OEX can pierce 718-720 resistance, then keep going toward an even more pivotal re-test of 730-735.

MARKET 'SENTIMENT':
A sharp run up at the end of the past week in bullish sentiment, but not yet to an extreme. More tech fireworks ought to put it over the top.

The bulls seem to have no fear and no notice of the bearish economic backdrop; what, me worry about oil climbing toward $100 a barrel or record drops in housing sales?! I would say that the bulls are right in the sense that they needn't panic unless there is an actual significant drop in consumer sentiment and an actual cut back in retail sales, such as for the holidays. What, me put away the plastic?!

DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 (INDU) Average met my downside target for 13400; the only lower objective I had was to around 13300 which I kept writing as '14'300 and not noticing it; I need an editor!

The subsequent rally from the Monday low was led on Thursday-Friday by the move in Microsoft, Microsoft and Microsoft: I notice as I type this on Microsoft Word, the software keeps making the 'm' a capital letter; how do you suppose it knows?!

I noted on the chart at the red down arrow, the 21-day moving average (13906 currently) as a first resistance point. Tough resistance will probably continue to be found in the 14000 area, with major resistance back up at the record high around 14200.

I've pegged near support on the chart below as 13550 and would note again 13400 as the pivotal/key support.

NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:

I wrote last week that "my prior upside target for the Nasdaq Composite (COMP) Index at 2835 was met within 1 point." Maybe that target or higher will still be seen. The pullback of last week was shallow and the index reversed in the area of its up trendline, which maintained a bullish chart pattern; as did holding key near support I noted for 2700 (Monday's low: 2698).

My thought last week was that COMP was building a top. That might still be the case but if the current uptrend IS losing upside momentum, the bull is not going to lie down and surrender quietly!

I was thinking there would be at least a short-term rebound on Monday-Tuesday, but the follow through was into the end of the week. Not surprising however, once the trendline was shown to be intact and offering a rising level of support. Then, as I also noted last time, the move back above the 21-day moving average was bullish.

Where to next? A decisive upside move above the prior intraday high (2834), would suggest a bullish breakout with a next upside target to the 2900 area.

Near support remains 2700, then around 2650 after that. Watch for any close back below the 21-day average, which would suggest that upside momentum was again slipping, then for any break of the up trendline and the 2700 support below that.

NASDAQ 100 (NDX) DAILY CHART:

Here we go again as the Nasdaq 100 Index (NDX) is back up to the key 2200 resistance. The decline of last week was minimal: only back to the up trendline although Monday's low was a bit of a bearish head fake as sell stops were triggered.

Normally, you see this sideways pattern and it suggests that a top is building. But if that was the case, Monday's sell off would have led to more downside follow through. Tech rules. Tech rocks! That said, NDX still needs to close above 2205 and build some upside momentum and find support in the 2200 area on pullbacks. Stay tuned on that!

If there is a decisive upside penetration above 2200-2205 resistance, my next target is to the 2250 area. A long-range possibility is for an advance to as high as 2400, which is pretty far off currently. But, I try never to underestimate how much money people will throw at tech stocks once they get sexy again and have earnings to boot. Yes, the multiples get crazy, but there seems to be another set of criteria (e.g., growth velocity) applied to this sector.

I was looking for a rally by Monday-Tuesday, but didn't see the index rebounding right back to the line of prior highs and thought that overall, the path of least resistance would be down. That would be, how should I put it, WRONG! I was close on pegging the first key support for 2128 and the importance of near resistance at 2143 since the penetration of this level was decisive for more upside.

2120-2124 is near support, then 2093-2100. Major support begins in the 2050 area, extending down to 2000.

NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:

Opps, I didn't cover the NDX index tracking stock last week in my commentaries, only the underlying Nasdaq 100 Index. The pattern has the same bullish potential as NDX of course.

The key near QQQQ resistance is the line of recent highs at 54.25-54.27. If this level is pierced and it looks like it will be, it becomes a bullish breakout above the congestion seen for past weeks between 52.7 and 54.25; next 'resistance' then looks like 55.5, based on the tendency for slowing or arrested upside momentum around the upper (4%) envelope line.

First support is at 53, with the next lower support at 52.0. A close below 52.0 turns the chart bearish in its pattern.

RUSSELL 2000 (RUT) DAILY CHART:

Key technical support in the Russell 2000 Index (RUT) held up, especially when looked at on a closing basis. RUT stayed all but briefly above key support at 800. Drawing an internal 'best-fit' up trendline, connecting the MOST number of lows, you'll see on my RUT chart below that the index held its up trendline.

I could have used a line or close-only chart to show its technical support, but I think the point is clear enough. Four lows, the most number possible, are used to construct the trendline and there were no closes below this line. A close BELOW this trendline, at 802 currently, would turn the chart bearish or a close anytime below 800.

I didn't mark it on the daily chart below, but next resistance per my hourly charts (not shown) is around 833. The key or pivotal resistance area, from prior highs, is 852-856.

The chart pattern suggests looking for some further upside follow through in RUT, but I watch what happens at 830-833, if reached. If selling beats the index back down again from this area, it will look like a rally of this much may be all RUT can manage. Conversely, if the Index pierces this resistance and closes above 832-833, this will look positive for a continued move to around 850 or a bit higher, such as to a re-test of the prior tops noted on the chart. It will be tough I think for RUT to close above its prior highs; there was significant selling and too little buying interest that came in previously after many instances when the index traded above 850.

Good Trading Success!

NOTES ON MY TRADING GUIDELINES AND SUGGESTIONS
CHART MARKINGS:
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.

Index Wrap Archives