THE BOTTOM LINE:

As I noted last Saturday (re the week ending 4/16), the CBOE Volatility Index (VIX) had fallen on the preceding Friday to 5 percent under its 10-day moving average. These kind of VIX lows have often been a precursor to a bout of increased volatility ahead, if not a decline. We got my anticipated increase in short-term volatility with intraday dips on Monday and Thursday of this past week. However, the S&P (SPX) came back on both of these days to Close higher and stay within its uptrend channel.

Nothing has been knocking this market down for long and the strong April seasonal pattern has dominated. The NYSE and Nasdaq then finished the week with a breakout above a line of prior highs (resistance) in the SPX, the Dow and the Nasdaq Composite on the impressive jump in new home sales. NYSE Advance/Decline (A/D) figures especially were impressive at 2.5 advancers for every 1 decline.

The speculative oil run up helped a number of energy stocks and that helped boost the S&P 500 index. I'm a free market guy but I wonder if we don't need revised futures' position limits for hedge funds (as speculators) given their at times massive acquisition of long oil futures contracts, thereby driving up gas prices we all then pay at the pump. Normal price setting, driven by true supply/demand considerations, goes by the wayside.

While my inclination is to be adverse to continued buying in such an overbought market, all such technical indicators be damned, this market is still going full speed ahead. I did end with this note last week: "I suspect that they'll keep this rally going a while longer, but it looks like its time to take profits on call positions and other bullish strategies on further rallies or exit on breaking support and to be alert for opportunities on the short side."

Traders are very bullish and have been for awhile. The duration of such a high level of bullish sentiment is unusual but I've seen this before from time to time where prices just kept moving higher and higher. I've seen the ability of stocks over many market cycles to correctly gauge the future economy and future earnings and have learned to not buck the trend as long as the chart pattern remains bullish. I may try to position for a counter-trend reaction but only when I am not risking much.

I dumped the few SPX May (1200) puts I had at a small profit. Conversely, I don't want to be in a recently acquired leveraged long call position for when this market does shake out so am only holding QQQQ stock as far as the indexes. The Nas 100 (NDX) advance is still very powerful and increasing volume is even finally coming into QQQQ on rallies; imagine that! The NDX (QQQQ) tracking stock is a good indicator that small investor/trader types are tiptoeing back into the market. It's still a big boy's game in stocks with market participation mostly off the radar for average investors, especially with shaky job security issues.

Meanwhile, let the party roll on. I like what this rally is saying about our economic prospects ahead.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

There have been a couple of intraday declines to below the current S&P 500 (SPX) up trendline but these were followed by the 'real body' (Close-Open) of those candlestick bars ending within SPX's uptrend channel, with the chart has staying bullish. Support came in as the Index approached and touched its 21-day moving average which is also bullish action.

The Relative Strength Index is still quite high but the RSI is not at as high an overbought level as it was. It's extreme for a 'normal' advance but less common in such a strong move as we've been in. I am wondering more about the bullish extremes seen in my call to put ratio line below. It's natural to wonder how long this run can go on with so much bullishness.

What has tended to have more of a finite life than the high RSI is a very prolonged period where the CPRATIO line stays above 2.0. CBOE daily call volume has been as high as 3 to 1 relative to put volume; quite unusual.

SPX has closed above the prior 1214 high and next technical resistance is guess work only and I try to not just guess resistance without something to go on; e.g., a prior high, the top end a price channel, etc. In this case, the top end of my highlighted uptrend channel suggests possible next resistance in the 1246 area.

Immediate technical support is 1205, with a next key support at 1183, extending to 1180-1175.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) remains bullish in its pattern; although unlike the S&P 500, the big cap OEX hasn't yet cleared its prior high. It looks poised to, but stay tuned for the actual event; or not. Potential immediate overhead resistance is implied by the prior 555 OEX peak. Resistance implied by where the top end of the bullish uptrend channel intersects on Monday is at 564. Of course, this intersection/this number, goes up a bit over the coming week, tracking the trendline up.

I've noted expected first support at 544, then at 540. A close below the 544-540 zone would be bearish. Less so, if such a Close is only a 1-day affair and OEX rebounds after that. That tends to be the scenario of running stops, scare a few or many holding calls and long futures and then take it back up again.

I discussed the continued overbought readings in the 13-day RSI relative to the S&P 500 and there's not more to say here other than the extended duration is unusual and suggests risk of a sell off at some point ahead.

DOW 30 (INDU) AVERAGE; DAILY CHART:

I thought that the 11000 level might prove to be a tougher area of selling pressure than it has turned out to be. We've got more Dow stocks in strong to semi-strong bull moves this week than last: from 8 INDU stocks in moderate to strong uptrends, to 11.

Moderately strong based on this most recent week's action is CVX (Chevron...who would have thought it), DD, DIS, INTC and UTX. Strong to very strong uptrends are seen with AXP, BA, CAT, HD, MCD and MMM. There are some themes here like fixing up the old rather than buying the new, cheap eating out, etc.

11100 now is immediate support, then back in the 11000 to 10955 zone.

Near resistance might still develop in the low-11200 area. Mostly, there is just free-sailing 'air' overhead chart-wise until INDU gets to the top end of its price channel around 11430, before I would anticipate anything like substantial resistance.

NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:

Clear sailing for the Nasdaq Composite (COMP) to date as it keeps trending higher, centered within its relatively steep uptrend channel.

Near support is noted for the 2475 area, at Monday's intersection of COMP's up trendline; support then extends to 2450, with next support in the low-2400 area to around 2385.

Near resistance could come in around 2550, the area of a 4-week cluster of highs going back to May-early June 2008. This was the top end of the March-June '08 rally, but on the way down within the 2007-2209 bear market. Perhaps even more substantial resistance comes in at the top end of COMP's uptrend channel, intersecting at 2583 currently.

There's very high continued bullish sentiment as discussed as part of my SPX commentary. Bullishness on tech stocks like Apple and the semiconductors is a driving factor. Such extremes in sentiment usually come at the end of at least a multimonth steep advance. More and more traders decide to get on board such a strong trend and figure it will go on longer than it usually does. Occasionally a strong rally does go on and on and seems like it will never end. And the thinking is I WILL be out before it reverses and I WON'T ride a (counter-trend) move back down; more of a risk in stocks than in options with a time duration.

NASDAQ 100 (NDX) DAILY CHART:

It's a heck of a rally Charlie Brown, as the Nasdaq 100 (NDX) has a strong bounce from what had been possible significant prior resistance in the 2000 area. Next stop 2100? A move to this area would finally hit potential technical resistance. Stay tuned on that! I mentioned the rebound into May-early June '08 in COMP; the equivalent high for that bear market rally in NDX was at 2056.

Near support is at 2000, then down in the 1950 area. I see nothing with recent price action that suggests NDX can't/won't get to 2100. The market is overbought on several fronts but the chart remains bullish. The indicators only suggest increasing risk of further volatility, if not a downturn that comes out of the blue.

NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:

The pattern of the Nas 100 (QQQQ) tracking stock of course mirrors the underlying Nasdaq 100 (NDX) chart and remains quite bullish. Potential technical resistance however is now not far overhead, at 51.2 starting out the week.

Near support is at 49-48.8, extending to 48.5, and then comes in next around 48 even.

Daily trading volume jumped on Thursday of this past week along with higher prices. Since there was a sharp sell off on and around the Opening, some of that jump in volume likely stemmed from long liquidation; e.g., from resting stop-loss sell orders partly. However, the Close on Thursday at 50.31 was quite strong relative to the early morning low at 49.26.

The important On Balance Volume (OBV) running tally was up sharply on the week, consistent with the bullish chart.

RUSSELL 2000 (RUT) DAILY CHART:

The Russell 2000 (RUT) chart remains strongly bullish in its pattern and RUT could be headed next to the 760 area. If so, this might also then (finally) be an area to take call profits and run. For a trading turn I may also consider buying May (at the money) RUT puts if the Index gets to, or a bit above, 760.

720 is a key immediate support, with even more pivotal support down at 700. A close below 700 for a couple of days running would suggest that a more significant correction than we've see for awhile was underway.

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.