Option Investor
Index Wrap

BEARS ENJOY 'THEIR' WEEK

HAVING TROUBLE PRINTING?
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NASDAQ 100 (NDX) DAILY CHART:

Per my comments of last week, some support/buying interest developed in the 1800 area in the Nasdaq 100 (NDX) Index and the level represents the important 66% retracement level of the mid-March to early-June advance. However, if NDX next closes below 1800, it could signal a next decline back to 1750, then perhaps to a re-test of the March lows in the 1669-1673 area.

I suggested last week to take profits on puts in the 1800 to 1775 area. On Friday NDX got to 1801, so it was a hair's breadth from this objective. I don't think there's any big hurry to exit the short side of this market, but in the 1800 to 1750 area, it gets tempting after how far the decline has carried in the past month.

This market segment has held up relatively well and has the potential for at least a few Q2 earnings positives for some big tech companies. I figure that earnings simply in line with lowered estimates could bring in some short covering and bargain hunting buying in relief that it wasn't worst.

Near resistance is at 1863-1875, next in the 1900 area, then at 1925. A close above 1900 would be a bullish plus, above 1925 more so, assuming the index can thereafter hold mostly above its key 21-day average.

NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQQ) at its most recent low held minor support implied by the low end of its mid-April chart gap, but the stock may still be headed down to test potential support around 43.7. Next lower support could come at 43.3. Major support is substantially lower still, at 41.

Near resistance is in the 45.7-46 area, then at 46.7, with next key technical resistance at 47.35. As with the major indexes, a close above what I consider as pivotal QQQQ resistance at the 21-day average, would be at least a short-term bullish reversal or break of what has been strong downside momentum.

There's not a lot in the QQQQ volume pattern that's noteworthy, just that volume has tended to expand on the declines, consistent with a downtrend. A break of the prior lows might bring a volume climax. We did see a major such jump in volume at the January-February lows and then again at the March bottom. We haven't yet seen the same kind of volume 'climax' pattern, one that could reinforce the idea of a possible turnaround in the bearish trend.

RUSSELL 2000 (RUT) DAILY CHART:

The Russell 2000 Index (RUT) continued its fall along with the other major stock indexes, kind of putting the nail in the coffin to the significant small cap stocks advance dating from the March RUT low.

The index is nearing its prior lows in the 650 to 644 area. Support could develop prior to re-testing those lows of course, such as in the 660 area, but I can't see much incentive for most would be buyers absent some 'proof' of a support floor.

Resistance now comes in at 692, then in the 700 area, and lastly, at 720-724. I can't see any reason for bottom fishing in this index; unlike say the SPX, which is in the area of a major prior low, there is even less to base any such speculation on. Well, there's 'gambling', but its more fun to go to Las Vegas!

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.

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