THE BOTTOM LINE:
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I'm sure the continued lateral trend seems like more of the same and not showing future direction, but this pattern is telling us something. The longer the current sideways move goes on, the more upside, or downside, potential I would envision. However, I don't see the same odds for decline as for further upside and I rate it much more likely that there will be another up leg.
WD Gann used to talk about 'price' and 'time' being equal or that measurements horizontally on the time scale would often be equal to vertical movement on the price scale. A more exact measuring process would have me using specialized (e.g., Gann Trader) software such that the time and price scales have equal measurements; i.e., 1 'unit' of time is the same distance as 1 'unit' of price.
CHART OF THE WEEK:
While an exact projection, using a grid overlay on the S&P 500 (SPX) chart below is a useful exercise and to simply count the number of squares that prices have gone sideways and project the same number of squares to the upside and downside for when an upside or downside breakout occurs. I rate an eventual move to 1200 or higher as having a significantly greater probability for SPX than a corresponding downside move, such as to the 1000 area.
A reason to rate the upside potential as greater is simply that the prior trend has been strongly UP and a sideways consolidation after a prior advance favors an eventual further upside move. The assumption is that a breakout will be to the upside, in the same direction of the dominant trend. Moreover, it is often th
e case that the LONGER the sideways consolidation, the greater is the upside (or downside) potential once there's a move above or below any such narrow sideways trading range.
Whatever the 'odds' suggest, follow the direction of the breakout, up or down, is the rule of thumb. I don't see the market breaking to the downside much, but if there was a decisive downside penetration of the low end of the rectangle seen below (at 1083), I wouldn't disregard its bearish implications.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
I covered some S&P 500 (SPX) index targets in my initial 'bottom line' comments involving either an upside or downside breakout above/below its recent multiweek narrow trading range.
This index like the overall market looks most like it is marking time before a next move higher. The same leveling off of prices could be viewed as a sign of a top formation. I think it's a pause in the major trend, not the formation of a top before an eventual downside reversal. Stay tuned for when the S&P moves out of this non-trending period; not untypical of December.
Bullish sentiment has moderated some over the past 2 weeks, as the 5-day average of my CPRATIO has been traveling just below the 'high' bullish level of 1.7. There's substantial bullishness, but it isn't what I would consider 'excessive' or extreme. A more or less neutral reading for where the market is currently which is in a consolidation mode as in 'consolidating' after the last up swing.
S&P 100 (OEX) INDEX; DAILY CHART
518-520 remains the key resistance, with the pivotal near support still at 504-505. I see more upside possibilities than downside. The chart pattern doesn't look like an index that wants to come down.
What would change this picture of still-bullish expectations? A close below the 50-day moving average (502.6 currently) or below 500 would, assuming this was more than a 1-day affair. A next key support area then lies at 487, extending to the prior 479 low.
Resuming the bullish outlook and bullish chart would be a close over 520 and some further upside follow through. Given such a breakout above resistance, there's upside potential to the 540 to 550 area in my estimation.
Support has been coming in around 505 and defines the low end of the current trading range. 500 is a key benchmark level and if pierced, next support looks like 483 to 479.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) Average 'breakout' point is at 10500 and the low end of its recent price range in the 10225 area is the 'breakdown' point so to speak. (Next support is in the 10100 area.) Upside or downside, a breakout of the recent trading range should see follow through. Prices still seem more 'buoyant' on the upside but it's been a lot of back and forth too. That the recent 'correction' is more sideways than down is, I predominately take as bullish.
The pattern of a strong advance, followed by a strictly sideways move, especially over a few week period, yields a chart that has the appearance of a pause in a bullish trend and that higher prices lie ahead. A decisive upside penetration of 10500 could be good for a further couple hundred point gain, or up to the upper end of the bullish price channel again.
The recent sideways trend is of course lousy for those holding Index calls or those who bought puts thinking that INDU was at a significant top. For those who strategized a range bound market, the outcome is good. A big help is to rely on those 'overbought' Relative Strength Index readings. In a strong advance, corrections from an overbought condition tend to be either shallow or the corrective move is more sideways than significantly lower.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
More of the same sideways drift for the Composite but it keeps popping back up to challenge prior highs, which is bullish. There more of tendency to go UP, than down.
Near support comes in around 2150, extending to the 2120 to 2114 area. Resistance/selling interest has been coming in on moves to and just over 2200. A close above 2200 that builds from there (after which support/buying interest is seen on pullbacks TO this area) would resume the bullish chart pattern. There's upside potential to the 2350-2400 over time; 'Santa Claus rally' to the rescue later this month?
This recent 4 week 'stall' wasn't or isn't surprising given that the market has come a long way and was registering 'overbought' on momentum-type indicators; e.g., the RSI. Stocks got to be 'fairly' valued according to current perceptions of earnings potential ahead. More evidence of business and individual tech purchases looks needed to kick off a next leg up.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) pattern is no longer that of a potential double top, rather it's resolved into a line of resistance or selling interest defining the top end of a narrow trading range. This chart formation looks to be a consolidation (of the prior advance) and that after this pause, which also should 'throw off' NDX's overbought condition, I anticipate a resumption of the major (up) trend.
If there's a move that takes out recent highs in the low-1800 area with support found in the same area on pullback, I see potential for a move toward or to the upper end of the highlighted uptrend channel; e.g., to 1950 or perhaps to 2000.
Assuming prices fall more than recent trade and there's a break below near support in the 1755-1755 area, there's no prior apparent support before the previous 1652 low. It's possible that 1600 could be seen again but it's a less likely outcome than an upside surprise. Watch 1750 as a pivotal support.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
A narrow trading range, a continued sideways drift on low volume doesn't give the bulls much to crow, ah, moo about. The key resistance remains at the 'line' of prior highs coming in around 44.8. The pivotal downside support is in the 43 area.
Given an upside breakout, there is potential for an eventual move to the 47.5-48.0 area.
If prices fell below 43 on some volume, there's potential for a decline back to the low to mid-40 dollar area. The prior 40.6 low would be an important benchmark in that case.
Based on this past week's lackluster volume trend, it looks like those bullish on the Nas 100 are cautious and are waiting for some spark that would or could get buyers back in. Technically, a decisive upside penetration of 44.8 would help the cause.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) is in a sideways drift and narrow 580-605 trading range. A first breakout point is a move above 605 and the bulls should hope for a CLOSE above this level and some follow through the following day.
A corresponding 'breakdown' point on a closing basis looks like 580, but intraday, a move below the prior 568 low. Next lower support is at the early-November low of 553. Like the other indexes, I assess more potential for an eventual upside breakout than for another down leg, assuming Nasdaq can lead the way.
There is some technical resistance at 605, but even more pivotal resistance at the 625 double top. If there is a strong move in the Nasdaq and S&P ahead, the Russell has the potential to break out above 625 with a possible objective to the 680 area, perhaps to 700 over time.
The worst downside case that I see is to the low-500 area, but I don't look for that so much as the prior 553 should be supported if prices get into that area again.
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.