THE BOTTOM LINE:
My carry over to a Sunday update, from my usual Saturday, was due to a travel day from smoky Northern California, where I was in and around Big Sur. My coastal haunts were not as fun this summer as friends were driven from their homes. Glad to say that they all got back to their homes, only with a lot of clean up involved. Here on the Rocky Mountain shores I'm blessed to be where there are no fires (except in the mountains), no tornados, floods, no humidity or hurricanes!
I would note also that I think my Thursday 'Trader's Corner' (TC) article is worth visiting (& short) if you didn't see it already. The online link to it is available by clicking here.
Back to market basics and some things I was struck by and discussed in the aforementioned TC piece is that bearish sentiment finally built up enough on Friday to suggest the possibility that a tradable bottom is at hand or near. My call to put volume ration reading for all CBOE equities was at a level that I consider bullish in a contrary opinion sense.
The S&P 500 (SPX) came within a hair's breadth of equaling its July 2006 weekly closing low: SPX closed at 1239 (intraday low equaled 1225), versus the 1236 weekly low Close (1228 intraday low). Moreover, the intraday low on Friday, at 1225, equaled SPX's June and July '06 lows.
Further notes on some of the other technicals are that the S&P 100 (OEX) exactly equaled its 2006 weekly closing low at 567. The Dow 30 (INDU) was showing signs of support at 11000, although major support could be closer to 10700. INDU is VERY oversold now on a long-term basis as measured on a 13-week week basis; the S&P is also, but when measured on a shorter-term 8-week basis.
Last but not least, the magnitude of this decline occurred because the energy
stocks were (finally) also correcting and coming down. The CBOE Oil stock Index
(OIX) has now retraced fully half of its last run up (from the week ending 1/25
to the week ending 5/23). It could retrace more of that prior advance of course,
but in a strong market or strong market sector, there is not often more than a
fibonacci 50% retracement.
The Nasdaq hardly needs help, as the relatively strong Nas 100 (NDX) Index has managed so far to close above a level that represents its 2/3rds or 66% retracement of its March-June advance which will be apparent in the NDX individual index commentary below.
MARKET NEWS and INFLUENCES:
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) Index still has a bearish chart and nothing has changed in that regard. However, there's the best potential seen yet for a possible interim bottom given that SPX bounced a bit after finally reaching minor technical support implied by the down trendline and significant chart support suggested by a prior 'line' of lows going back to June-July 2006.
Rounding out the potential for a reversal here is the extreme oversold suggested by the 21-day Relative Strength Index (RSI). An index or stock being at a same or similar low RSI level that has previously been associated with a bottom is never enough to suggest reversal potential. Being extremely 'oversold' AND with the potential for support and buying coming in at a prior important low IS worth paying attention to.
Near resistance in SPX is at 1277, then at 1290-1292; key resistance at the 21-day average now stands at 1299. Near SPX support we can assume lies at the 1225 intraday low made on Friday. Next support is probably at 1200, mostly due to the psychological importance of such a round 100 number; going back on the chart to late-2005, support was seen that year in the 1173-1170 area.
S&P 100 (OEX) INDEX; DAILY CHART:
The S&P 100 (OEX) Index didn't actually trade at 660 key support but got quite close this past week. There is the possibility that OEX is at or near at least a short-term or interim bottom. I talked about the extreme oversold condition seen with the SPX above. In terms of what I usually display with the OEX chart, an 'oversold' condition is seen in its chart below, given the Friday extreme in my sentiment indicator.
This most recent Friday 'CPRATIO' extreme low, unlike a prior expiration-Friday instance of it, could be assumed this time to be more purely driven by a collective bearish trader outlook. When put volume gets nearly equal to call volume, such a 1-day occurrence has a good track record in suggesting a tradable bottom is close at hand. Relying on such sentiment extremes is trickier after lengthily periods of forceful declines. However, unlike bullishness at tops, bearish sentiment extremes don't always go on and on.
Near support is in the 560 area, the low end of a downtrend channel and also the area of June 2006 lows. 542-543 is major support suggested by a significant double bottom low of March and October 2005. Near resistance is at 585, then at 591 to 595. 591 is a key resistance implied by the 21-day average.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) still looks like it may be headed toward the low end of its (highlighted) downtrend price channel around 10700, which was also support seen at its 2006 bottom. This technical target, however neat or 'ideal' it may seem in chart terms, is only one possibility for the NEAR-TERM. Besides being very oversold, the 21-day RSI is starting to trend higher and sets up a potentially bullish price/RSI divergence. Stay tuned on the rally potential implied by this divergence!
Near support is at 11000 to 10960, with major support in the 10700 area. Near resistance remains 11400-11435, then at 11500, with 11638 resistance implied by the 21-day average.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) Index has been finding support in the 2250 to 2200 price zone and appears to be resisting a further decline, so is showing better relative strength than the S&P and Dow. On the other hand COMP hasn't been able to rally much, but could if the S&P has a bounce.
Major support remains at 2155-2169. Key initial resistance first lies in the 23.2 area, at the intersection of the down trendline, with even more pivotal resistance at the 21-day average at 2350. A close above the 23.25 to 23.5 zone would be bullish and suggest potential to get back up to the 2410 area, perhaps higher.
COMP is also fully oversold now, as measured with the 13-day RSI. It has the potential to rally, is resisting a further decline, but it remains to be seen if this 'potential' will translate into a tradable rally.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) Index on Friday retraced a bit more than 66%, but rebounded above this implied support by the close. I suggested taking profits on puts in the 1800 to 1775 area and put holders had another chance at the end of the week when NDX got to a low of 1784. As long as the index can maintain closes above 1800 I see potential for a rally, such as back to the 1900 area and higher; e.g., to around 1950.
Near resistance to be overcome to would suggest bullish near-term potential is at 1857, then at the 21-day average, which stood at 1889 at the Friday close. I've highlighted a bullish price/RSI divergence: as prices have drifted lower the RSI has drifted up. The difficulty is in knowing WHEN any such rally implied by this divergence will develop. The index could have a good-sized bounce when the S&P stops acting as an overall drag on the market. When it does, tech seems ready to rebound some.
I estimate support below 1800 to be at 1775, then in the 1760 to 1750 zone. Major support is down in the 1670 area, where NDX bottomed in early-March.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQQ) has seen support develop in the 44.25 to 43.7 area recently. Key resistance looks to be initially at the down trendline intersecting currently around 45.8, then at the 21-day average at 46.47.
If they can't take it down or down much more, they could take the stock up in the coming week. Conversely, a close below prior (down) swing lows at 43.7 and at 43.3 would suggest that QQQQ was headed to a retest of major lows in the 41 area.
The distinct rise in daily trading volume seen on Thursday and Friday on the QQQQ chart above could be part of a minor selling climax. I take the rise in volume bullishly in that it reinforces the idea that, on a closing basis, the Q's have been 'basing' over the past week. For a stronger bullish indication, I'd rather see a huge volume jump like at the March bottom at 41, but the same volume pattern may not repeat, at least just yet.
RUSSELL 2000 (RUT) DAILY CHART:
I'm not exactly sure what to make out of the Russell 2000 Index (RUT) pattern, but recent days formation of a minor bear 'flag' per the light blue lines drawn on the chart below, suggest potential for RUT to drop next to the low-640 area. If this is going to happen, it should happen soon.
On the other hand, a close above 680 would be a near-term bullish development, especially if the index stayed above 680 for a second day.
Near support is in the 660 area, then at 643-640. Near resistance is at 682-684 and is next anticipated in the 700 area, with fairly major resistance at 720.
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.