THE BOTTOM LINE:

I anticipate a pullback (followed by another rally) although window dressing buying may keep the market steady to higher for a bit longer. Using the S&P 500 (SPX) daily chart, I outlined the pattern I think is unfolding in my first chart below. Per this chart, the most recent run up sure feels like a Wave 3 type power move; e.g., the middle/second rally of three, a strong and prolonged advance that seems immune to selling pressure.

SPX and the Nasdaq Composite (COMP) have probably started corrections, but more time is needed to confirm this view. The last pullback in this current upswing (dating from the 2/5 low) was only a few days, but carried far enough to look like a correction. This next downdraft probably won't be deep either, especially if we're still in the Q1 'window dressing' period.

The odds of a pullback that is enough for traders to call it a correction would relieve a current overbought situation. Certainly it is the case that the indexes are struggling some around technical resistances I will go over in the individual index charts further on.

The very broad picture continues to be bullish and in weekly chart terms SPX is trending higher within a broad uptrend channel (not shown) that intersects currently at 1300 on the upside and around 1110 on the downside. COMP prices do not bump against potential major resistance implied by the top end of its weekly uptrend channel before 2600 currently; key support at the low end of the COMP weekly channel is 2200.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The S&P 500 (SPX) got above key resistance at 1150 which then suggested staying power for its current advance. Expiration Friday may have brought in some selling pressure that won't be around in the coming week, but no one should rule out some further weakness, even if managers are still 'dressing up' their portfolios for another week or so.

An uptrend channel has been traced out as I have drawn below. Implied resistance at the top end of this channel comes in at 1180 currently. A key near technical support is 1140, an area that should find buying interest. Next support is around 1100.

The market is overbought as I've been saying but this has also been the less frequent case of a market getting 'overbought' by conventional momentum indicator measures, but which 'just keeps on going' per that crazy bunny. If there is going to be a 'power' move, it's usually the second rally after a correction has completed itself; as seen into the 2/5 bottom.

MARKET SENTIMENT:

Extremes in bullish expectations started tapering off on recent profit taking and expiration related selling. A key thing with the sentiment model seen above, is that high extremes in this indicator tends to forecast minor to intermediate pullbacks that may be a day, or as much as 5 days, away.

Bullish extremes as bearish omens are especially true when such occurrences are accompanied by a high RSI and a price pattern that suggests a move that is substantially 'extended'. Sentiment models tend to be leading indicators. If a next correction falls within this 'norm', such a pullback has begun. Stay tuned!

S&P 100 (OEX) INDEX; DAILY CHART

The chart looked quite bullish when the S&P 100 (OEX) pierced its prior highs at 530-531, although OEX fell back to this area on expiration Friday; the index is not clear of its prior high yet. Traders will likely chalk this up to expiration related selling. Unwinding was probably a dominant influence but whatever triggers selling in a sharply overbought market is usually not an 'accident', as in expecting this is always to usually a fluke occurrence.

We can let buyers and sellers sort out this little struggle around current levels. If support around 530 is seen ahead it would suggest that the prior high had become a support base for a next move higher such as to the 540 area. Major resistance begins above 560.

OEX slippage much below 530 would set up a possible test of minor trendline support around 520; with next support beginning at 510. A pullback to the 520-521 area that saw stocks buoyed again would suggest potential for a second rally attempt.

DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow (INDU) Average hit and then has backed off from resistance implied by (an extension of) its previously broken up trendline; noted as the 'intermediate up trendline' on the INDU daily chart below.

Near resistance at the (lower) trendline is 10800. If prices fall away from this line of resistance it would not be surprising both in terms of this trendline and from a bottoms up look at the 30 individual stock charts (more have seen some setbacks) as well as suggested by the RSI overbought extremes hit recently.

Near support is at 10640-10570, with pivotal technical support then coming in around 10500.

Key near resistance is in the 10800 area. A decisive upside penetration of 10800 would suggest a possible next INDU price target to around 11000. I think it, don't expect it.

NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:

The Nasdaq Composite (COMP) reached and exceeded briefly, resistance implied by the previously broken up trendline traced out by the lows made over the past year; this trendline was intact until the sharp sell off of late-January. Somehow a stock, commodity, bond, oil prices, etc., after a break below an up trendline in a prolonged prior climb, often struggle to get back to/above this previous rate of price ascent.

Key near resistance is at 2400; it becomes the must-overcome level to suggest continued buying interest will fuel a continuation of the rally that had its last spurt higher on NDX's leap above 2300, which is now a key support. 2500 is not out of the question for this index, especially after a correction has 'thrown off' at least some of its overbought condition. Next resistance looks like 2450.

NASDAQ 100 (NDX) DAILY CHART:

I was still somewhat bullish last week on the Nasdaq 100 (NDX) but did not anticipate headway above 1960. NDX got to 1950 and then slipped from weekly highs on expiration Friday.

The recent minor pullback, considering it started at what I consider a key line of resistance, may be the start of a further dip ahead. Window dressing buying in tech may keep a floor under NDX for another week; I am a little doubtful. The correction when it comes will be at least a sideways march of the indexes for a while; probably not only sideways but lower too.

I noted NDX resistance, at least above immediate overhead resistance at 1950, at 1965 and again in the 1980 area.

Near support is at 1905; then at 1890, extending to 1860

I thought last week that "further upside progress would be limited". From the prior week's Close (at 1924), this past Friday brought a weekly close at 1932. There was a greater price move intraday of course, but an 8 point price swing on a week over week basis in NDX wasn't going to add much to the trading coffers. Upside momentum has slowed and I anticipate some more downside ahead, especially after the window dressing rest of March.

NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:

The Nasdaq 100 (NDX) chart is bullish and quite strongly bullish going forward especially if QQQQ stays above its recent up trendline, currently suggesting support in the 47 area. Even more pivotal in terms of chart considerations is for bullish holders of the stock or options is be wary of a close below prior highs in the 46.6 area; more than a single day would be bearish. 45.8 is a next support.

I made a chart note below projecting resistance at 48.5, which would mark a return to the Q's previously broken up trendline as highlighted on the chart.

This past Friday's price action constituted a key reversal in technical terms in that the stock went to a new high, followed by a Close below the prior day's low; actually, lower than the prior TWO day's lows, making for a 2-day reversal. Not a big deal, 1-day or two but it was showing some force for change! Monday-Tuesday should tell us if this reversal was due to expiration or the bulls running down a bit.

Daily volume has been rising some over recent days, which is almost a 'contrary indicator' in that QQQQ, unlike company stocks, tends toward reversing the old adage that "volume expands in the direction of the trend".

RUSSELL 2000 (RUT) DAILY CHART:

The Russell 2000 (RUT) had a very bullish chart formation during the period when RUT blasted back up into its previous uptrend channel and hit 687. However, IF the index was going to then have the possibility for a run for the top end of that channel, currently at 708, RUT needed to say above 680 and it closed below that on Friday. The Friday 673 close takes the index back to just over its minor and steep up trendline intersecting at 670 currently.

Whether RUT bucks an overbought situation for much longer does not seem most likely to me, but followers of this market segment including me, will be acutely watching the early trade in the week ahead. I anticipate some further weakness but it may be minor. Expect some continued buying of the Russell 2000 stocks with the window dressing and the seasonal tendency for strength in small to mid-cap stocks in Q1.

Immediate overhead resistance is 680, extending to 687 at the prior intraday high. Next resistance begins at 700 on up to 708 and the aforementioned up trendline.

GOOD TRADING SUCCESS!



NOTES ON MY TRADING GUIDELINES AND SUGGESTIONS

CHART MARKINGS:

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.