THE BOTTOM LINE:
So 'bearish it could be bullish' is the confounding truth of the equities call to put indicator that I use as a Market 'sentiment' model. Extremes in this market outlook indicator, either bullish or bearish, have usually indicated significant trend REVERSALS ahead. I haven't found enough 'false' (i.e., early) signals in my sentiment model, due to it being overly influenced by expiration related activity, to make major expiration days an 'asterisk' for "CPRATIO" 1-day extremes.
There's not much change from my last week's commentary in that the chart patterns continue to be bearish only with accelerating downside momentum by week's end, especially and mostly with the NYSE-related S&P and Dow Indexes. A more 'neutral' picture presents itself with the Nasdaq, as index prices have resisted any sell offs as extreme as the Dow or S&P. Bullish value and earnings momentum players haven't wanted to give up on tech and there hasn't yet been major selling. Stay tuned for tech earnings reporting ahead (Jly)!
I thought that the Dow would hold the 12000 level this past week (WRONG!), even though the end of the week had quadruple or whatever witching day/options expiration. Judging just by the charts, it now looks like the S&P 500 (SPX) may test the 1300 area and the S&P 100 (OEX) retest its March 383 intraday low.
The Nasdaq chart patterns looks like they could break bigger to the downside at some point but there's nothing compelling yet in the charts that suggests that this market is going to crack too. 1900 looks like the area that needs to be held in Nasdaq 100 (NDX) to maintain a still bullish overall chart.
In terms of momentum type indicators, with certain 'extremes' thought to highlight 'overbought' or 'oversold' conditions, only the Dow is nearing an oversold 30 reading on the (13-day) Relative Strength Index (RSI). The Dow, in terms of the 8-week RSI, isn't quite yet as oversold either as has been typically seen at market bottoms since the beginning of 2003. Bottom fishing is moderately high risk but reward potential is also high; high risk, high gain potential.
MY "TRADER'S CORNER":
MARKET NEWS and INFLUENCES:
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
I thought last week that the S&P 500 (SPX) could be near an interim bottom, but it fell another 42 points. The next key chart test for the bulls is in any re-testing of prior lows, the next being 1313, followed by the March bottom that formed in the 1273 area; one intraday low spiked down to 1257.
Key nearby support is at 1313 and Friday's close put SPX quite close to that level; next support is 1273 to 1257.
Pivotal near resistance has moved down, from 1373 to 1330-1350. Next key resistance is at the 21-day average; at 1367 on Friday.
I wrote last week that ".... better (risk to reward) would be buying calls in the 1320 to 1300 area if such a trade presented itself; risk to 1295 if purchase was at SPX 1320, a stop at 1285 if at 1300-1305, with an upside objective back up to the 1370-1375 area." Yes, I nibbled on the dip under 1320.
S&P 100 (OEX) INDEX; DAILY CHART:
I wrote last week that "A retest of the March bottom in the 589 to 583 area doesn't seem likely to me, but some think it will happen and bears are thinking NEW lows. I say no, but stay tuned on that!" The Market 'TUNED' in on its trend and made such a re-test much closer in point terms, given Friday's 597 close!!
A cluster of prior lows suggests support at 588, extending down to 583. Major support is anticipated at 567-570. A rebound from the prior 2008 lows would set up a solid-looking bottom pattern. If the bullish Friday SENTIMENT reading is its usual predictor, a rally is not far off; e.g., 1-5 days.
Formation of a second low, equal to one of 3 or more months before, usually offers a quite favorable risk to reward in buying calls assuming the appropriate exit (risk) point is adhered to; e.g., setting a 'tight' stop at 580, closing or otherwise.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) continued to be the weakest of the major indexes and has now fallen to quite near its 11732 March low. I still figure INDU holds the area of its prior low(s). Or, if these lows get exceeded, not by much; e.g. a slightly lower short-lived low (of 1-2 days) occurs around 11600.
Initial overhead resistance ratchets down substantially (from 12300-12370) to the 12000 area, at prior support. A rebound back above 12000 suggests a 300-point rally potential or back at least to the beginnings of INDU resistance in the 12300 area.
Major support below the 2008 low at 11635 is not apparent on weekly charts (not shown) before 10700-10750, the lows from two years ago. It seems unlikely in an increasingly oversold market, that the Dow would eventually fall another 900 points below its low of this year but the economic slowdown continues. Yikes when we fill up with gas!!
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) Index fell further this past week and closed 48 points under its prior Friday Close, which had a 50-point gain. This continues the pattern of only a moderate to slight decline relative to the S&P or Dow. The COMP chart pattern is mixed, not clear cut bearish chart of the Dow, and S&P.
I evaluate the chart as having a more or less equal likelihood of a rally (from the 2400 area) of 70-80 points as for a further decline of 50 points, to the 2350 area. This index is not quite fully 'oversold' yet on a short, to intermediate to long-term basis.
Pivotal resistance has shifted down to 2475-2500, from 2550. Support should be seen on dips to and a bit under 2400; I continue to highlight what I think is a next lower and key price support zone at 2552-2387. A close under this zone sets up a potential test of earlier yearly lows around 2266.
My take on the 21-day moving average offering a pivotal test of resistance and the staying power of any rallies, rang true by the inability of highs seen Monday, Tuesday and again on Thursday to pierce the average on a closing basis by a very minor 9 points. A close above the 21-day average, if still intact after the next day's close, would be a bullish sign of renewed upside momentum.
NASDAQ 100 (NDX) DAILY CHART:
I'm still anticipating that possible decline to support around 1900 in the Nasdaq 100 (NDX) Index and this past week brought the index closer yet to this area. No rallies broke above resistance implied by the 21-day moving average this past week, making end of the week weakness unsurprising. Well, that and expiration!
I continue to still see key support at 1900, at the low end of a broad circular arc that formed a rounding (bottom) formation as noted at the topmost green arrow on the chart below. Next support is in the 1850 area. My outlook is still unchanged from last time in not anticipating a decline to below 1850, or beyond 1800, in terms of a maximum correction.
Near resistance is at 1960-1965, then at the 21-day average; at 1982 on Friday. A close over the 2000 area resistance would turn the chart solidly bullish again versus now with NDX losing upside momentum.
When I noted last week that..."If I look at the key tech biggies, at individual charts, it looks like they're still correcting; this may go on for a while." A good check on an index is studying key individual stock charts in it, especially an index of just 100 stocks. INDU is more clear-cut even, at just 30 stocks.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQQ) was unable to trade above its 21-day average this past week (at 47.78 on Friday) and this is a way of seeing declining or sideways momentum. Pivotal technical resistance is apparent in the 48.30 to the 48.95-49 area. A close above 49 that lasts more than a day would suggest renewed upside potential.
Near support is in the 47.0 area, with even more pivotal technical support around 46. Major support begins in the 44.0 area.
The chart still looks like a pattern where another down leg might develop, such as to the 46 area.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 Index (RUT), like the Nas 100 Index NDX, has seen a more limited sell off than the S&P. RUT is hanging 'tough' in that near support around 720 held up again this past week. Nevertheless, the index is vulnerable to falling back to the 700 area next and possibly to 680 again.
Pivotal near resistance is in the 740 area with next higher resistance at 760.
Below near support in RUT at 720, next technical support begins at 700 and extends down to 680.
The fibonacci 55-day moving average is a good benchmark for the index. Two consecutive closes under this average would suggest renewed downside momentum. A decline still looks like the path of least resistance.
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.