THE BOTTOM LINE:
In terms of the major trend, that's a somewhat mixed bag. The S&P 500 (SPX) has fallen under its '07 Q1 low; the index is not yet below the cluster of SPX lows of June-July '06. On balance, I'd call the SPX major trend down and bearish, which is also true of the S&P 100 (OEX) and the Nasdaq Composite. All are oversold on a longer-term basis, which is why they may not go down much further, at least for a while. There is a point where MORE bearish news will just keep a lid on rallies but the same news may not drive the market much lower necessarily.
The Dow 30 (INDU) is a special case, as it often is, since INDU had not yet fallen under its Q1 '07 closing lows, so can't be said yet to have reversed its long-term uptrend. Moreover to date, like the Nasdaq 100 (NDX), INDU has remained within its long-term weekly uptrend channel: INDU on a weekly closing basis and NDX in terms of its weekly bar (HLC) chart.
As I wrote last week, "Many traders appeared to be looking for a resumption of the prior bull trend, where I was viewing the most recent rally as an 'oversold' rebound only that was unlikely to go very far (38 to 50 percent retracements) before selling pressures came in again."
This view, of a countertrend move only and not likely to carry far, was pretty much how things have unfolded. We may go into a kind of 'attrition' phase or a mostly sideways move that will wear out the bulls and the bears. It certainly could frustrate index options traders who are in long puts or calls.
MARKET NEWS and INFLUENCES:
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) remains bearish in its pattern as long as the index continues in its pattern of successively lower rally highs. A bullish plus would be an ability to stay consistently above its 21-day moving average, then to breakout above its upper trend channel line, but most important would be a decisive upside penetration of the prior 1396 rally high. This will be tough to do given the current bearish climate and there was more discouraging news on the economy and consumer sentiment this past week.
Initial resistance, early in the coming week, is around 1375, with pivotal resistance at the prior high at 1396. Assuming there is a move above 1400, the 1426 area may be a showstopper to a rally, at the fibonacci 62% retracement level (of the Dec-Jan decline).
Near support is anticipated around 1317, at the prior recent low, then with the significant January spike low at 1270.
My outlook is pretty much as I said last week when I wrote that I have no trading suggestions. I'd rather buy puts on rallies than be holding calls at this juncture, but am not keen to be to be long any options in what may be a choppy and, on balance, sideways low-volatility trend ahead.
S&P 100 (OEX) INDEX; DAILY CHART:
The S&P 100 (OEX) Index chart pattern is close to identical to the bearish short to intermediate-term trend picture presented by the S&P 500. Immediate OEX overhead resistance is at 633, then at the prior recent 648 high. The key or pivotal resistance zone looks like 648-653. A close above this zone, could lead to a rally to the 672-676 area, but that's the most I could see reached on the upside currently. That much of an advance would probably be tough for the bulls to pull off even.
Near support is at 610, with lower important technical support coming in around 595-600.
It looks like we could be in a period ahead where the bulls can't push stocks up much and the bears can't take the market down overly much either. The Oil Stock sector index (OIX) bounced (again) off its long-term up trendline in late-January and buoyancy in big oil is providing some key support to OEX here also.
My sentiment indicator is mostly neutral recently. We got the 'oversold' rebound promised by the last reading of 'extreme' bearishness and my sentiment model doesn't tell us a lot here. You know we're in a bear market when there are several 'bullish' contrarian readings; i.e., showing a high level of bearish conviction. This indicator can have long periods with a tendency to get oversold (or overbought) and stay that way.
I covered OEX puts 3 weeks back when it didn't look like the index was going to get pushed much lower and when there was a cluster of 'CPRATIO' readings at and below 1.1, which is where I start looking for a future rally to develop.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The most recent rally in the Dow 30 (INDU) also stopped short of its prior (12706) high which maintains a bearish chart pattern. Near resistance is 12573, at the upper trend channel boundary, with the next resistance in the 12706-12767 zone. The 12960-13000 area is likely to offer major resistance currently.
Near support is at 12070, as implied by the recent intraday low, with major support anticipated at 1163, at the January low.
I doubt that there is potential ahead for the Dow to break out above its declining trend channel, but if it does, a rally to or near 13000 is possible. I'm not going to bet on the upside here. Buying calls on another shot down that re-tested (or close to it) its prior low would be a possible speculative play to consider. I would consider a trade where INDU is near an upper extreme, probably near 13000, or a lower extreme, which would be at least to 11800 or below, or back to or near the Dow's prior low as mentioned.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
All the major index patterns remain bearish and of course the Nasdaq Composite (COMP) Index is no exception. Tech has fallen out of favor, which is characteristic of bear markets as more defensive stocks get favored for what accumulation there is. You can determine the weak stocks or indexes by the ones that don't even retrace a sort of prototypical 'minimal' 38% of the previous decline.
Near resistance is in anticipated in the 2400 area, then around 2450-2470 next, extending up to 2500. Major resistance I would peg at 2600 currently.
Near support is 2450-2455, with pivotal support in the 2200 area. A close below 2200 would represent a bearish acceleration of downside momentum.
NASDAQ 100 (NDX) DAILY CHART:
I'm starting to feel like a broken record and to be saying the same or similar things over and over, but sometimes the major indexes do get closely into in lock step with each other, especially in strong advancing or declining trends.
The Nasdaq 100 (NDX) Index continues to look weak and rallies have been quick to stall. This overall bearish pattern would be reversed, at least initially, by a move back above 1860-1866. Next resistance could then be expected at 1920 to around 1930-1933, at the upper trend channel boundary as currently anticipated and drawn. The 2000 level begins a major resistance overhang with a lot of stock for sale.
Near support is at 1720-1715, with next support implied by the prior low at 1693. A close below 1700, not reversed (back to the upside) the next day, would suggest further downside potential, such as to 1657-1650.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
Volume has expanded in QQQQ on the declines and contracted on balance on rallies, consistent with a declining/bearish trend. Near resistance, at the most recent highs, is in the 44.85 area. Pivotal resistance is at 46 at the late-January/early-February highs, which represented an exact fibonacci 38% retracement of the December-January decline. Above 46, resistance is anticipated in the 47.0-47.3 area and which is the highest upside potential I see currently for QQQQ.
Support levels are at 42.15, then at 41.6. The 42 level is a significant technical support, as suggested by the intersection in this area of the stock's long-term weekly chart up trendline (not shown here). A weekly close below 42.0 would suggest that the Q's could end up falling to as low as 40 next.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 Index (RUT) remains within a broad downtrend price channel as
I've highlighted on the RUT daily chart below.
The principal support levels are around 680, then at 650. I'd anticipate major support to be in the 635 area and would be a buyer of RUT calls in this area if reached. I'd be looking to buy RUT puts on a move up to 760-765, with an exit point at 770.
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.