THE BOTTOM LINE : One of the reasons that I took up technical analysis when I was early to trading on the Street of Dreams, was that it seemed to best deal with what IS, not with what should or ought to be happening according to current supply/demand analysis. With the backdrop of a potential long-term 800 double bottom in SPX albeit in a very disabled economy that continues downhill, the S&P and Nasdaq retraced 62-66% of the last upswing, found price support in the area of their 21-day moving averages (after NDX 'filled in' a prior price gap) and after a second bullish reading in my sentiment indicator the major indexes seem ready to rally again.
I'm not betting the ranch on this one, but based on what the charts are showing there is enough buying coming in to suggest that the first 'leg' up can or will be followed by a second up leg; enough of a second leg for example to propel the S&P 500 (SPX) up to the 1000 area next. If there is a decisive downside penetration of 800 in SPX and especially a weekly close below 800, then our leading index loses its bullish potential technically. But, so far there is this potential for a double bottom and I find it useful to keep the weekly SPX chart formation in mind.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:Key near resistance in the S&P 500 (SPX) remains the low-900 area, at 917-918 specifically. Pivotal or game changing resistance is at the prior highs around 1000-1007. The pullback into Friday found buying interest develop in the area of the 21-day moving average which is a bullish plus.
The watch is at the 900 level on a daily closing basis; this past week saw only one day, Monday, with a close above this level. Two consecutive days above 900 would suggest better upside momentum was developing.
860 is near support, with pivotal technical support at 800. Next support comes in at the prior 741 low.
I've kept the wedge pattern trendlines on my daily SPX chart as they also give reference points on potential support levels, especially the top trendline. Given the bullish 'breakout' move above resistance implied by the upper trendline, this line becomes potential support if stock prices collapse ahead.
S&P 100 (OEX) INDEX; DAILY CHART
Not a lot that is changed with the S&P 100 (OEX) chart, as it rebounded a bit from the area of its 21-day moving average, like the other major indices. Key support remains 395-400. Next and also a pivotal support is at 350-360.
Overhead resistance is in the 450 area, then at 480, extending to 495-500.
Along with the charts, which are showing some bullish potential, my sentiment ('contrary opinion') indicator got to a bullish reading on Friday. This supports a still-bullish bias I have.
I think that OEX could make it up to the 480-500 price zone. A close below 400, not reversed (back to the upside) the next day, would suggest that bearish momentum had resumed however.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 Average (INDU) held key nearby chart support in the 8500 area this past week. As long as successive reaction or pullback lows make the 'stairstep' pattern of higher relative lows, I assume that prices can or will continue higher; if this pattern gets broken then it's a different story of course.
The key near resistance in INDU is in the 9000 area; above 9000, next resistance begins substantially higher, around 9500 and extending up to the 9650 area.
Near support is noted on my INDU chart at 8000, which is an area of potential support implied by the previously broken down trendline. Next support and very pivotal support in terms of keeping bullish possibilities alive is in the 7500 area.
I exited most of my Dow Index (DJX) calls bought in the 75 area, on this past Monday's strong move above 88 (Dow 8800). Not because I don't think INDU can't go higher than the 9000 area already seen, but because I usually have 'preset' trade objectives that I adhere to, especially in a counter-trend trade in a skittish market like this one.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite Index (COMP) rebounded from the exact level of its 21-day moving average; as if it (the average) had 'eyes' so to speak. COMP got more oversold, more 'overdone' on the downside, than the S&P and it's acting like it wants to go higher.
You can see good technical performance in that the pullback after the initial 'false' or premature low-volume upside breakout of COMP above the down trendline, where the subsequent decline started finding support at what had been a resistance trendline.
Key resistance is 1600, then at the prior rally high up near the 1800 area.
The primary support levels are what I discussed last week, at 1400, then down in the 1300 area, which puts prices back at the aforementioned trendline. Major support is at 1200-1160.
NASDAQ 100 (NDX) DAILY CHART:
There's not much more to say about the chart/technical action in the Nasdaq 100 (NDX) than already discussed with the Composite. Only the levels are different; the pattern is the same and shows some still-bullish potential. I mentioned in my initial 'bottom line' commentary how the NDX's filling in or finding support at its prior upside price gap area was also a bullish aspect to the chart.
Resistance is in the 1250 area, then isn't seen on the charts before the prior (up) swing high at 1383.
Technical support is in the 1100-1090 area; then at 1000. A close below 1000 in NDX not reversed (back above 1000) the next day would suggest renewed downside momentum.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
The Nasdaq 100 QQQQ tracking stock got up to above 30 on its last rally suggesting the first or near resistance level at 30.5; next resistance is in the 31.8-32.0 area, with fairly major resistance coming in at 34.
Volume levels aren’t showing us much here, although there's a slight tendency for volume expansion on the rallies and contraction on pullbacks, consistent with bullish price action.
Technical support is at 28.5, at 26.8, with the pivotal support at the low for the move to date, at 25.0.
I said last week that "a close above 30 not reversed the next day, is bullish for a move to 32." Well, the Q's did see two consecutive days above 30, so stay tuned (just don't hold your breath) for 32!
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) reversed in the area of resistance implied by its down trendline as can be seen on its daily chart below. However, I've noted first resistance at the recent intraday high in the 490 area, which would start to put RUT above its bearish trendline.
Next resistance is up in the 550 area; if reached, this would put the index finally back above its 55-day moving average and the (average) 'length' I tend to follow for RUT.
Key near support continues to look like the low-400 area, then down at the prior 371 low.
I'll say again that the low and mid-cap stocks are not getting as much play with the 'individual' investor out of the market.
1. Technical support or areas of likely buying interest and highlighted with green up arrows.
2. Resistance or areas of likely selling interest and notated by the use of red down arrows.
I WRITE ABOUT:
3. Index price areas where I have a bullish bias or interest in buying index calls, selling puts or other bullish strategies.
4. Price levels where I suggest buying index puts or adopting other bearish option strategies.
5. Bullish or Bearish trader sentiment and display the graph of a CBOE daily call to put volume ratio for equities only (CPRATIO) with the S&P 100 (OEX) chart. However, this indicator pertains to the market as a whole, not just OEX. I divide calls BY puts rather than the reverse (the put/call ratio). In my indicator a LOW reading is bearish and a HIGH reading bearish, consistent with other overbought/oversold indicators.
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 favor At The Money (ATM), In The Money (ITM) or only slightly Out of The Money (OTM) strike prices so that premium levels are not as cheap as would otherwise be the case, which helps in not overtrading an account. Exit or stop points, as well as projected profitable index price targets, are based on my technical analysis of the underlying indexes.