THE BOTTOM LINE:
New weekly closing highs were seen in all the major indexes save the Russell 2000 (RUT), maintaining bullish charts in general. Currently the most bullish weekly charts are seen with the Nas 100 and the Dow. These charts look the most like they're in possible breakaway moves.
The big cap S&P 100 (OEX) and Nasdaq 100 (NDX), as well as the Dow 30 (INDU) have all have decisively cleared their prior intraday (mid-October) highs. The more broadly based S&P 500 (SPX) and Nasdaq Composite (COMP) indexes look to be struggling to clear the line of their prior intraday tops, reflecting a still somewhat overbought situation. This may result in only a limited further up leg in OEX, NDX and INDU and/or a choppy sideways trend ahead that further 'throws off' an overbought condition.
The Russell 2000 (RUT) is a special case in its struggle to gain traction not far above prior lows. Rut could be a harbinger for an overall choppy sideways market trend that goes on for awhile.
Regardless of some choppy sloppy trends, the long-term bull market is intact and points to higher prices for the intermediate to long term. If long calls in NDX, OEX or DJX, there may not be a whole lot more upside to be gained in the near-term; at least relative to the move that's already occurred off the late-October bottom. Next week's expiration may contribute to further volatility.
Speaking of the long-term trend, a look at the weekly SPX chart is of interest here.
CHART OF THE WEEK:
SPX broke out above its long-term down trendline in the week ending 10/9, so it's been a month now since that breakout. Somewhat predictably there was then a pullback to this prior line of resistance, where support developed. The subsequent rebound, as prior resistance 'became' new support, suggests to me that at least a 50% retracement (to 1120) of the late-2007 to early-2009 decline is in the offing and that 1225 is also a possible SPX target in the coming weeks.
The longer-term 8-week RSI recently pulled back to a more 'neutral' reading as the sideways trend in the past month threw off the prior overbought extreme associated with the major run up from the March lows.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) looks like it's consolidating just below 1100 prior to a push above its line of prior highs. The recent 3-day pattern looks like a bull flag consolidation but this pattern also implies that there should be a continued advance within the next 1-2 trading days. Further upside potential for SPX may be to resistance implied by the top end of its uptrend channel, currently intersecting in the 1140 area.
Pivotal technical support is at 1070, then down at the prior recent low in the 1030 area.
SPX got near, but not into or above, the 'overbought' RSI zone that it has so often hit in recent months. Every time that the index has gotten to such an overbought reading, a correction has followed although not always immediately. This indicator/price pattern suggests that after another rally, watch for an ensuing correction to follow.
Another indicator that does not make me wildly bullish at this juncture is what I'm see with my sentiment model. As suggested by the daily CBOE equities call to put volume ratio, trader's got quite bullish on this last run up. If all options traders were smart technical operators they might get more cautious as the market approaches prior highs, but it's never or rarely that way.
This tendency for traders to get more bullish the further along in a rally that we get is helpful for us. Just as occurred at the last bullish daily extremes (above 1.9) seen in my sentiment indicator, one more upswing should preface or 'set up' a next correction. I'd like to be out of remaining calls I hold prior to any such correction.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) Index has broken out above prior resistance at 509-e 510 and a further move higher should be in offing, perhaps again to the top end of OEX's uptrend channel, currently intersecting around 524. One more such upswing and I'll be looking for a next correction/pullback to set in.
Key near support is 496, at the low end of upside price gap that occurred over 11/6-11/9. Next pivotal support is in the area of the prior low at 479 extending to around 473, at the low end of the current uptrend channel.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) Average achieved a decisive upside penetration of it's prior top in the 10200 area and gotten the financial media talking heads in a bullish lather. INDU's chart action is impressive here and probably accounts for the upsurge in bullish sentiment recently. I suspect also that INDU is good for one more rally into expiration, perhaps to around 10470-10500; this, assuming INDU pierces its recent 10342 high. After any further surge higher I'd be looking to take profits in Dow Index (DJX) calls.
What was its line of resistance around 10200 should now be a first level of Dow support. Next support is the 'magic' 10000 level; further support then lies at 9840-9800; lastly, significant technical support/buying interest should be found in the area of the Average's prior (down) swing low at 9679.
The Dow did hit the lower end of what is usually INDU's overbought zone in terms of the 13-day RSI which I follow. One more shot up and the Dow will either be 'fully' overbought or will have an RSI reading that doesn't confirm a new price peak. In either case, I'd be looking for a pullback to occur thereafter. A number of key Dow stocks are approaching their prior highs, with the concomitant possibility of their making double tops, at least on an interim basis.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) appears to be consolidating prior to a challenge to resistance in the 2190-2200 area. I think there's good potential for another upswing that carries above 2200, possibly to as high as into the 2250-2300 price. Currently however I have to rate the chart as mixed until or unless COMP pierces the prior cluster of intraday highs that show tops at or just under 2190. The 100 biggest cap Nas stocks have been of course outperforming the Composite which includes the portion of tech stocks that are not bouncing back by having the latest and niftiest tech gadgets.
Key near resistance is at 2190-2200. Above that I can only clearly judge 2300, at the top end of COMP's broad uptrend channel, as a significant technical resistance based on the daily chart. Based on certain hourly chart projections, by the end of this coming week, the 2250 area is an area of suggested technical resistance.
Pivotal near support is at 2112, extending to 2100. The low end of the uptrend channel, currently intersecting around 2060, is a next technical support. The prior 2024 low should offer some major support/buying interest.
As noted with the S&P, bullish sentiment hit 'overbought' extremes on a couple of days recently but could get to a further more bullish 'extreme' before I'd start anticipating a next top.
NASDAQ 100 (NDX) DAILY CHART:
After the 'picture perfect' double low that developed recently, it was no-brainer to buy the heck out of the NDX calls. The upside chart gap that developed about mid-way in the most recent rally to date, a typical so-called 'measuring gap', gave further credence to the prior bullish double bottom low.
A double bottom (or double top) is thought to be 'confirmed' as a major trend change indication when the prior swing high (or low) is pierced, as is the case in NDX with its 1788 Close which clears its prior 1781 intraday high.
Resistance in next projected for the 1830 area, with a next upside key resistance at the top end of the uptrend channel, currently intersecting at 1882.
Pivotal support is at 1733, the low end of the aforementioned upside gap chart gap from 11/6-11/9. I've highlighted next lower support at 1695 as implied by the low end of NDX's broad uptrend channel. Major support/buying interest should be found in the area of the 1652 recent low.
I'd again note the past months' tendency for corrective pullbacks to set in after the RSI get near, to or above the overbought zone highlighted with the 13-day Relative Strength Index graph on the NDX chart. Moreover, one more rally such as to 1830-1840 or a bit higher, would fulfill a 'minimum' upside objective implied by the recent bull flag formation.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
There's not much more to say on the Nasdaq 100 chart pattern not already indicated for the underlying NDX index. The recent sideways 3-day move suggests an even more clear cut bull 'flag' pattern and a breakout above the top end of the flag would suggest a 'minimal' further advance to as high as 46, resistance implied by the top end of the Q's broad uptrend channel.
The On Balance Volume (OBV) indicator has surged with the recent rally even as the daily volume trend has been declining. With QQQQ, I've found that a rising OBV is a better ancillary indicator for continued price strength than an expanding (daily) volume trend. Normally, rising daily trading volume tends to 'confirm' a bullish move for a stock. QQQQ is a different animal so to speak and has some differences from a 'normal' stock (of a company).
Near QQQQ resistance: 44.2
Next overhead resistance: 45.0
Major resistance begins: 46.0
Near QQQQ support: 42.6
Next support: 41.35
Major support begins: 40.6
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) is not finding the favor that the big cap tech or S&P indexes are enjoying. RUT normally tracks Nasdaq more closely that has been the case recently. After failure of RUT to piece its 55-day moving average and make it above 595-600 resistance, RUT saw renewed selling late in the week.
To date no 'major' top is indicated as long as RUT doesn't pierce its prior 552 low. The Index could now be settling into a 553-625 trading range for the balance of this year. Time will tell on this. Meanwhile, key support begins around 572 and extends to the prior 553 low.
Pivotal near resistance is 594-597, extending to 600. Next resistance, as implied by a rebound to the previously broken up early-Sept/early-Oct up trendline, comes in around 610. Major resistance can be anticipated in the 625 area.
GOOD TRADING SUCCESS!
NOTES ON MY TRADING GUIDELINES AND SUGGESTIONS
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 (i.e., the put/call ratio). In my indicator a LOW reading is bullish 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 tend to 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.