THE BOTTOM LINE:
With the current sideways trend especially apparent on daily and hourly charts, it's hard to say whether the major indexes are building an interim top or consolidating prior to another push higher. Upside progress has slowed but all but the Russell 2000 (RUT) did manage to make new weekly highs. Tough going if your long index calls as we make money that way when the market is running not sidestepping. The indexes have been basically locked in a narrow trading range for some 14 trading days now.
We'll be looking for signs of a breakout, or breakdown. Even an apparent upside breakout is tricky as it could occur and be more propelled by running stops, especially in the futures and then drop back again. From a technical vantage point the rally failures owe much to the fact the market is now rather overbought and traders are quite bullish.
Without new money coming in, such as in the new year, those who are bullish have already committed a lot of ready cash. What's to take stocks higher? Probably more of the same; e.g., earnings are gradually improving, or at least not getting worse and the Fed is keeping rates low for the foreseeable future.
The Dow Transports (TRAN) finally 'confirmed' the Dow 30 (INDU) in a new closing weekly high for the current move; I can't hardly call INDU, the Dow Industrials any more. I suppose this group of stocks are leaders in their 'industries', but I always think of steel and the like as industrial companies. Times change and so has Dow Jones the company, now part of Murdoch-land. I'm glad I worked for them when they were fat dumb and happy ... and we had generous expense accounts!
Summing up, bottom line like: itâ€™s somewhat of a toss up ahead as to whether the market goes up, down or continue sideways. The major indexes don't seem to want to go down but we shouldn't get complacent as stocks often get hit when we think the Street of Dreams is a one way highway. A prolonged sideways move will eventually 'throw off' an overbought condition. Stay tuned!
As I've looked at the daily charts again and again, the main discernable pattern is that all but INDU and RUT are more or less in the middle of their well-defined uptrend channels; RUT is at the low end and INDU at the high end. Monster cap is deemed safe, small to mid-cap ain't, not yet anyway.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
Oh boring, we still have this line of resistance going in the 1112-1113 area in the S&P 500 (SPX) index. Next resistance other than that implied by the TOP end of the uptrend channel at 1162 is probably around 1138-1140 in the early part of the coming week. A breakout move is probably any close over 1115 to 1120. On such a close I'd also like to see if there's much follow through the next day and if volume picked up significantly.
I thought (last week) that there would be some lower lows and there were, slightly, but prices of course snapped back above the 1100 level again. There's been no test of the 50-day moving average and that's the one I've been watching lately. I've looked at the 21-day average a lot in the past and here's some 'homework': if you don't keep it on your charts take at look how recent SPX lows came right TO the 21-day average and then rebounded. It (this average) is 'working' again maybe.
Key near support as far as most participants, especially the big institutional players are concerned and they are more or less driving this market, is at the 50-day average currently intersecting at 1078. Major support probably is to be found at the low end of SPX's uptrend price channel at 1042 currently and extends to the prior (down) swing low at 1029.
Bullish sentiment still having occasional bullish spikes into what I consider the bullish danger zone, but caution also rules enough in the current environment that the 5-day average of my CPRATIO is not staying the 'overbought' zone. It would likely take a strong breakout move and then another run to the upside to get traders throwing caution to the wind again as far as picking up their action on the call side.
S&P 100 (OEX) INDEX; DAILY CHART
518-520 looks like the breakout point in the S&P 100 OEX Index in the coming week; this on a Closing basis of course as nothing counts as much as the moment-of-truth close. Above 520 there's nothing but air as far as any discernable technical resistance. Maybe at 530, then up at the top end of OEX's uptrend channel, currently intersecting around 534.
Support has been coming in around 505 and defines the low end of the current trading range. Obviously, 500 is a key key level. If pierced, we're looking at next support around 483 to 479.
As this current bull market has not gotten fully oversold in ages in terms of the 13-day RSI I focus on, where rallies have begun is in what I've highlighted as a 'neutral zone' and we're not there yet, but more sideways, or lower, and we will be. It's worth keeping a day to day eye on the RSI ('length' setting at 13) for a dip into the 50 to 45 zone or a bit lower. It's hard to say what such a reading will mean in terms of price levels but this 'neutral' range for this indicator has been a helpful guide back into calls in recent months, with good ultimate results. Sometime in the future this strategy won't work but that's why we have or should have preset exit points that won't break the bank.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) Average has been running into resistance or selling interest when it's traded recently in the 10500 area. It probably is more accurate to say that buyers have backed off so far in this area of INDU. I don't think that sellers/potential sellers have been in the driver's seat at least those investing versus trading. I've projected 10630 as a next technical resistance, as implied by the top end of INDU's current uptrend channel.
Support has been developing in the 10220 to 10200 area. I'd note again, as with the S&P that recent lows have been just above or at, in the case of Fridays 10312 low, the 21-day moving average. When the 21-day average starts 'acting' as or defining where an index is finding support, it maintains a bullish picture. It will be worth watching the 21-day average for instances where any of the major indexes start trading under it.
Below 10200, a significant next support that's going to watched by key market participants is at the 50-day moving average, currently intersecting at 10040. Of course any move to this near the psychologically important 10000 level is going to be supported by buying the current environment. Something new would have to happen to cause prices to fall below 10K in my estimation. If we want to talk about major major support however, it starts in the area of the last swing low at 9679 and extends to the 9600 area at the low end of INDU's broad uptrend channel and of course a LONG way from 10500.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
I was looking for a sell off in the Nasdaq Composite (COMP) and it happened early this past week as COMP fell to as low as 2114 and dipped under its 50-day average; unlike the S&P and Dow. However, the telling event was that the index rebounded back above this key average that day and the next. A bullish sign in that at least COMP wasn't going to go into the tank and it stayed above the low end of its uptrend channel which intersected then around 2100 as anticipated. Well, I thought the index might reach 2100; it got close at 2114.
I've noted next anticipated resistance at around 2255, then up at the top end of its uptrend channel, currently intersecting around 2330. COMP no longer has the 'double top' possibility as this is the third run to the 2190-2200 area. A triple top? Actually, tops like this are more often just establishing the high end of a trading range OR is simple a high that remains to be exceeded.
It appears that COMP is establishing where support lies. Overhead resistance is more troublesome currently. Repeating from last week: "A Close above 2200 that was maintained the next day would put COMP back on a bullish track in terms of its chart." This is the breakout point for the Composite.
In terms of my bullish/bearish sentiment indicator, as noted with the S&P, there have been spikes into what is defined as bullish excess or perhaps unwarranted bullishness; by unwarranted, simply to say not necessarily supported by current business conditions. Oh well, there's always tomorrow on the Street of Dreams! What's that song from the musical that repeats again and again that "tomorrow" refrain. Annie?
NASDAQ 100 (NDX) DAILY CHART:
Now, unlike the Composite, the Nasdaq 100 (NDX) index does have a potential double top going but the possible island top that I speculated on last week in my weekly Trader's Corner column as a top of the 'island' variety is no longer a valid interpretation. Usually tops of that variety won't see another run up to its prior high. In a better show of bullish buying interest than the broader Composite, the Nas 100 HELD its 50-day moving average and reversed back to the upside prior to even touching that level.
As I wrote last week: "Absent a fall below technical support at the NDX lower up trendline, now intersecting around 1722, the index still maintains an overall bullish trend." This is indicated now even more by the sharp rebound occurring after the early-week sell off. Support is noted around 2113, at the low end of NDX's uptrend channel and which also equals (within a point) this past Monday's intraday low.
The pivotal resistance is in the 1814 area (my application also distorts those '4's) and a close above recent highs would be bullish. Judging by the way the Friday rally fell apart, we could be seeing a 1815 to 1750 trading range for a bit longer. However, if a renewed advance clears 1814, next resistance is pegged around 1850, then well above this at the top end of the channel in the 1917 area.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
A big volume spike accompanied the Nas 100 (QQQQ) tracking stock's run up to its prior 44.6 high. It appears that was both overexcited bulls who anticipated a bullish breakout and then disappointed liquidation when QQQQ fell back to the 44 area again.
The pivotal resistance remains at 44.6, prior recent highs begins at 44-44.1, with even more pivotal resistance apparent at the prior recent highs at 44.6-44.7. Even if this area was pierced, there's still significant technical resistance that I see at 45.0 and just above 45.
Key support is in the 42.9-43.0 area still, same as noted last week, only this time that area was successfully 'tested'. I also commented last week that ..."prices may chop around in a mostly sideways direction for the next few trading days."
Now, my crystal ball has turned cloudy! Does the Nas 100 break out at some point in the coming week and have another runup; OR, not and the stock drops back to 43 again or a bit lower? I don't have a strong take on the technical prospects except that on the face of it, absent a break out in the direction of the still dominant trend, prices head sideways to lower again; e.g., maybe more choppy price action a while longer.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) is definitely the weaker index but this sector, smaller companies, are having an even tougher time borrowing money for ongoing operations or to expand.
As if it (the index) was 'watching' the trendline, Monday's sell off dipped well under the line but closed ABOVE it. How about that for the value-added for trendlines? Who would have thought it on Monday, especially with the trendline origin back so many months prior! Going with the trendline theme, key near support is suggested at 585; with next support coming in a possible re-test of the prior 553 low.
Overhead resistance is at 605, but RUT looks like it can break out above this area. The current most pivotal resistance is at the prior two tops in the 625 area. A close above 625, not reversed the next day, would reaffirm RUT's long-term UP trend. A couple of more closes or this coming week's close above its 55-day moving average would be a bullish plus also.
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.