THE BOTTOM LINE:

I continue to anticipate that recent lows may hold but also don't look for a sustained rally for awhile. The market has excesses to 'work off', especially still high bullish sentiment. And, while I've noted an oversold condition on the daily charts, among the major stock indexes only the S&P 100 (OEX) is at or near an oversold reading on a weekly chart basis.

Technically, distinguishing features of this past week's rally (into Thursday) included a reversal at down trendlines dating from the April high in the S&P, Dow, Nasdaq and Russell 2000, as well as failure to either pierce or hold above near resistance implied by the 21-day moving average in the Nasdaq and Russell.

Sentiment readings ran back up to overly bullish extremes ahead of the Friday sell off. Only the Nasdaq 100 (NDX) and the Russell 2000 (RUT) ended the week still above their 200-day moving averages and fund managers tend to take note of this particular bearish technical sign of declining momentum.

A problem for the bulls as I see it is this tendency among traders to see a next rally coming already and to jump back into calls. I'll be more convinced about getting back into Index calls when there is greater bearishness reflected in higher levels of put purchases in equities relative to daily call volume.

My first chart, that of the weekly SPX, reflects the bit further down OR sideways that the major indexes would have to go to reach a 'typical' oversold extreme in terms of the 8-week Relative Strength Index (RSI).

I came back to my home among the Rockies from the Pacific shores to find that my data and charts had big 'holes' in them, so I am the one responsible for the lateness of my Saturday post and your e-mail from OIN. Blame me and I can blame the virus or whatever caused my disappearing data and the time it took to replace that data and rework my charts. Unlike many charting apps I store all my own historical data on a home network. A good idea usually but I see it can have a drawback when my backup hard drive is not up to date.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

I mentioned a key resistance last week as being the 200-day moving average for the S&P 500 (SPX) and that turned out to be a stone wall as you can see by the exact touch made there with Thursday's intraday high.

The chart is bearish still of course, with a down trendline that has been established. We can assess the upside 'breakout' point as being at this trendline, as well as in the area of the 200-day moving average.

On the downside, key support remains in the 1040 area, the prior low from late-May (5/25). I suspect that this low will hold up as future support again although there's a possibility that SPX blows through this, but maybe just once on stop loss selling followed by a rebound. Stay tuned on this!

Near resistance is still 1100-1105, extending to around 1120. Fairly major resistance begins at 1150 and extends to the 1170 area.

Near support remains the 1060 area as I noted last week, with a next key support around 1040 and the prior intraday low. If SPX pierced 1040, next chart support is 1020, extending to 1000 even.

MARKET SENTIMENT:

In terms of market sentiment, as seen above in my CPRATIO model, I think bullishness was overly high last week given the uncertainties the market still perceives; e.g., the state of our economy and the fears about European upheavals. (When I had European responsibilities for Dow Jones in London, it was usually what was happening in the U.S. or otherwise outside Europe that was potentially scary. Pay back time?)

As for the prospects for a bottom and recovery, I believe we need to also witness at least a 1-day drop in my sentiment indicator to or close to an 'oversold/high bearish reading such as occurred at the last bottom. I don't usually trust the herd and I'd like to not join it and own calls when bullish expectations are high.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) chart remains bearish as the index rebounded to resistance at its down trendline and then got hit with heavy selling on Friday as the employment report came in well under bullish expectations. It shouldn't be a huge surprise to get blindsided by economic forecasts in this current environment.

No possibility for a V shaped bottom any longer and it may end up looking a 'W', assuming a bottom forms this month. I'm not currently looking for a new down leg in an oversold market. In fact, unlike my first chart above that shows the weekly RSI chart for the S&P 500, the OEX weekly 8-week RSI (not shown) is already in oversold territory; the only major index that has gotten to the beginnings of an oversold extreme.

Key near resistance is still around 500, extending to the 21-day moving average at 504. A close above the 21-day average that was maintained would be an initial bullish breakout. Tougher, more major, resistance comes in at 530-532.

Near support is still 480-482, which extends to the prior 473 low. A major next support zone is at 450-440.

DOW 30 (INDU) AVERAGE; DAILY CHART:

I was anticipating last week that the Dow 30 (INDU) would end up making a bottom above 10000 and would therefore keep its long-term uptrend intact. We saw of course a Friday close below 10000, making it the first such WEEKLY close below 10000 since late-October. That prior close was on the way UP as the Dow was marching to above 11000, not down as in the current move. Another weekly close below 10000 turns the long-term INDU trend lower.

I'm not living and dying around INDU maintaining 10000 and think this coming week should see a close still in this area or above, even if only by a bit. It should also be noted that we have 22 Dow stocks trading BELOW their 200-day moving averages and only 8 that are still above this key average; i.e., BA, CAT, DIS, HD, INTC, KFT, MCD and PG.

Pivotal resistance remains the 10250 area. Key chart/technical support still looks like 9800. The next key support below 9800-9775 is at 9700.

I suggested last week that it looked favorable to buy Dow index calls on dips in the Dow to, and under, 10000. If you bought calls accordingly, I suggest exiting at INDU 9800.

NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:

I'm still anticipating a low setting up in the Nasdaq Composite (COMP) Index that is at or above 2200-2190 support. I noted last week that ... "I'd like to own the COMP basket at 2200 and under, with expectations for a rally ahead (maybe not just ahead in the holiday shortened week) that carries back into the 2350-2400 price zone." Well, COMP rallied so far just to 2300 and made another high defining a down trendline (and resistance) and then got slammed on Friday.

Where to from here? Chopping around, sideways to lower again as long as COMP can't get back above its 21-day moving average and the aforementioned down trendline highlighted on the chart. I think COMP is in a 'base' building process, not setting up for another sizable downswing, at least not below 2150 or to under the February 2100 low.

Key resistance is 2300 and then comes in at 2350, extending to 2375.

Near support is in the 2200 area, then at 2150, with fairly major support anticipated at the early-February low around 2100.

Bullish sentiment, as I discussed in my SPX commentary, bounced back 'too' fast in my estimation to suggest that bullish traders rushing back into calls were going to be rewarded in this still unsettled market. I'd like to see the call to put ratio (CPRATIO line seen below) come back down before I would start figuring that COMP was ready for any sustained rally.

NASDAQ 100 (NDX) DAILY CHART:

The Nasdaq 100 (NDX), unlike all but the Russell, is still holding above its 200-day moving average, showing how the big cap Nasdaq stock basket hasn't been hit quite as bad as the rest of the market. NDX has given ground but less so than the Composite. The Composite of course has all the dogs (sorry, the more 'challenged' stocks) in it, not just the big glamour companies like Apple and Intel.

I continue to anticipate support coming in on dips back toward 1800, with support/buying interest below that having been shown by lows made at 1752-1757.

Key resistance is at 1885-1900, with next resistance around 1940, extending to the last rally top in the 1980 area.

I wrote last week that ... "A rally to test 1900 may not be far off." How true! I might have forgotten to ALSO mention that 1900 would represent a great short-term NDX put buy for those steely enough to 'fade' (sell against) an expected bullish employment report. Old trader saying: buy the rumor, sell the fact. Assuming it's not a fact established in a pre-opening government report! How valuable to have seen that report before release. You think?

NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:

As there's been no official correction to the prior reported QQQQ low at 4155, this point now has been used to draw an initial up trendline. Unfortunately for the NDX bulls the down trendline, currently intersecting at 46.5, is the better 'established' line (of resistance). Until or unless the Q's break out above its down trendline, the chart remains bearish. This is not to say that the stock may not be forming a bottom in the 1750 to 1800 area. The longer such a sideways move goes on, the better are the prospects for a more sustained rally later.

I'm assuming next support comes in at 44.5, then at the prior 43.2 intraday low, with major support beginning around 42.6, extending to 42.

Key resistance is at 46, extending to the recent high in the 46.5 area and then coming in again around 47.

I was a bit surprised to not see a big volume spike on the Friday sell off. This may suggest that those holding the stock are not going to be scared out of their positions so easily.

RUSSELL 2000 (RUT) DAILY CHART:

The Russell 2000 (RUT) rallied back to its previously broken major up trendline and then fell like a stone after that, providing another example of support (or a line of support), once pierced, 'becoming' resistance later on.

As I wrote in my last week's commentary, "A move back above the trendline would suggest RUT would continue to be a hot sector or, in this case, an investment 'theme' based on company size; i.e., small to mid-cap companies." RUT probably still represents a key sector to play on a next rally but a tide still going out drops all boats.

The previously broken trendline currently intersects at 670 and is the current pivotal technical resistance. Resistance just below 670 is also noted at Friday's high around 660.

I've noted support at 632, at the 200-day moving average, then in the 620 area, including the prior 618 low.

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.