THE BOTTOM LINE:
Short to intermediate-term momentum has shifted from up to sideways in the Dow and the S&P indices and sideways to lower in the Nasdaq, which is especially apparent in the Nasdaq big-cap index, the Nas 100 (NDX). The fact that NDX is flagging here and the Nasdaq Composite has been holding up relatively well, suggests that they're buying the dogs and cats and not the elephants. Bullish is when NDX leads.
I view this slowing (upside) momentum has a prelude to another strong up leg down the road. It would be typical in fact to see a rally (July-August) followed by a pullback and then a second, perhaps stronger upswing later on, which is seasonally prevalent in the mid-Sept to October period.
I anticipate more of a sideways to lower trend ahead for the major indexes, followed by another strong advance; this more in 2-3 weeks or beyond rather than in a 2-3 day time frame. It's my time to exit outright plays dependent on a market advance at a rate that is faster than the erosion of time premiums.
One key indicator that I use to suggest major bottoms is a 10-day average of Advancing volume for both the Nasdaq and the NYSE. When this average contracts to certain key levels and then turns UP, accompanied by an 'oversold' RSI and at least 1 day of high bearish 'sentiment', this combination of indicators will suggest substantial rally potential ahead. My key volume indicator for Nasdaq is now, after many months, in a position to generate a bullish signal at some point ahead. I'll show these 3 key factors in my first chart.
A continued sideways to lower move creates the possibility that all three of my key indicators could get in synch and generate another buy 'signal' like seen in March. We're not there yet however, but for the first time since March, buying has slowed enough to suggest bullish forces contracting to a point that has in the past suggested another buying surge to follow. As the movement ahead may not be sharply lower, I'd rather wait to buy calls than be in puts now.
When ALL three of the above indicators (as highlighted back in March) reach lower extremes, that confluence of my 3 key technical indicators will suggest strong potential ahead for another sustained rally.
FUNDAMENTAL MARKET NEWS and INFLUENCES:
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) trend, after this past week's action, now can be seen to be in more of an obvious trading range or sideways trend, between 1300 on the upside and 1260 on the downside.
It's still the same outlook I spoke of last week: a close above 1300 for two or more days running is needed to suggest that SPX was headed still higher. Conversely, a close under 1260 for more than a day suggests that 1240 could get 'tested' as the low end of a broader trading range.
Resistance above the key 1300 level is anticipated at 1320, representing a 50 percent retracement of the May-July decline; more broadly, I would peg next resistance at 1320-1330.
S&P 100 (OEX) INDEX; DAILY CHART:
The S&P 100 (OEX) daily chart is of course mirroring its big brother/big sister S&P 500 (SPX) index in tracing out a trading range and showing faltering upside momentum. Momentum can be sideways and has this third possibility. The big question is how long this will go on? Sooner or later the odds favor a breakout above or below this congestion or this trading range market. The sideways trend may extend well into Sept.
Key near resistance is at 600, then in the 608-610 area. Above 610, next resistance should come in around 620. Major resistance begins at 640.
Key support is at 580, and then should be found around 570. I wrote last week that a rally that carried back to 600 (to 610) might struggle to achieve much headway after that. So far this prediction seems to be in tune with the unfolding trend. Stay tuned for how much 'struggle' for the bulls is ahead. Seems that support in the 580 area could be re-tested again.
I don't think that a next rally will take off without a bit more fear of the downside risk in a slowing economy. In other words, I would anticipate a dip in my market sentiment indicator before this market is in a position to take off again.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) chart pattern has the most pronounced sideways pattern. INDU has been in basically in a 11730 to 11290 price range since mid-July.
I anticipated last week that INDU was headed to the 11700 area but also thought that the Average could make it through this key resistance. However, resistance/selling interest at 11700-11730, at a prior key 'breakdown' point, is proving to be trouble for the bulls. With this past week's action, there's more and continued evidence of a sideways trading range pattern.
Key resistance remains at 11730, extending up to 11800. Tough resistance then lies at 12000.
Near support is still the same at highlighted below, at 11290-11300. A close below 11290 not reversed back to the upside the next day would be bearish and suggest a downside break of the current trading range.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
Key support in the Nasdaq Composite (COMP) is at 2350 and this area may continue to define the low end of a trading range, with 2470 being the top end. A close below 2350 that continued into subsequent days, would turn the trend from neutral to bearish on a near to intermediate-term basis. (I consider 'near-term' to be 2-3 days and 'intermediate-term' as 2-3 weeks or more.)
I was more bullish last week than I am after the struggle to move higher seen this past week. Resistance above 2450, extending to 2500 doesn't look to be tested for a while.
While the 2350 area looks like it should be decent chart support, there is then some distance to go to reach major support in the 2300 to 2250 area.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 Index (NDX) spent last week continuing to break down or reverse trend in terms of its chart. The rally failure in the 1970 area appears more clearly now to define at least a short-term top. This past week finally saw a key support reached, at the top end of the prior trading range in the 1865 area.
A line of prior tops, once decisively penetrated to the upside, is seen to be a key technical support on subsequent pullbacks. This because sellers who kept exiting in this area, reversed position and bought on the upside breakout or once the index cleared this multiweek resistance. Potential buyers will then tend to support the market at the prior 'breakout' point, figuring this will work again; i.e., be the new support.
I can repeat what I said last time in that Nasdaq 100 (NDX) chart remains bullish as long as the 'line' of prior highs in the 1865-1870 area is not pierced. Next support below 1865-1870 isn't apparent on the chart until 1800.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQQ) appears to be headed toward technical support in the 45.8 area. Assuming that this anticipated support is pierced, there is then a long fall to expected support in the 44.0 area.
Key near resistance is at 47.25, then at 48.3-48.35; with major resistance begins at 49.0. The sharp break below the 21-day average is bearish for the near-term and a decisive downside penetration of support in the 45.75-45.8 area would be bearish on a intermediate-term basis and suggest more weakness into September.
As long as the aforementioned key support holds up in QQQQ around 45.75 the chart is neutral in its pattern. Assuming that the Q's hold this technical support, the stock will have some buying appeal even if there's some more backing and filling. If selling tips the stock well lower again, I'd be a buyer in the 44 area.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) is holding near the top of its broad price range and this reflects stronger buying interest than in the straight Nasdaq indexes currently. There is however the fact that RUT has traced out a possible double top. The longer that the prior highs in the 763 area are not penetrated, the more significant is this potential top pattern. So, there's no question as to the KEY or pivotal resistance (at 763). Major resistance is then in the 800 area.
RUT has support in the 720 area and this was shown again this past week. Next support is at 700.
I'm not in this index myself, but puts are the tempting play if I was to trade RUT options, looking for a retest of the 700 area again at a minimum. At least the overhead risk point is well defined, since any breakout above the prior double high should be the exit point.
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.