THE BOTTOM LINE:

The bearish technical (chart) rumblings should start getting put to bed as the S&P 500 and the Nasdaq Composite have to date retraced only a 'minimal' 38% of the last big run up and since these lows were made the indexes have rebounded smartly.

There was widespread thinking among technical analysis types, known and unknown, that when SPX dipped below 1040 and thought to 'break' a Head & Shoulder's (H&S) neckline on weekly charts, it 'signaled' a move to much lower levels. I haven't been interpreting the weekly chart in the same bearish way. It was, to me, too 'obvious' and as Joe Granville used to say about the market, "if it's obvious, it's obviously wrong!"

Moreover, with the strong weekly close of Friday, it looks again like SPX is breaking out above the Right Shoulder (RS) line, which is ZERO 'confirmation' of an H&S Top.

As I was anticipating from the way the charts looked, earnings are coming out OK and an economic recovery proceeds. Bullish also technically was that the Dow and the Nasdaq indexes, as well as the Russell 2000 (RUT) closed above their 200-day moving averages.

Another key technical aspect of the charts was that the S&P and the Nasdaq fell back to within their bullish declining wedge patterns (a not uncommon occurrence), but then quickly rallied to pierce key down trendlines, leaving only a move to ABOVE the prior highs to 'confirm' an intermediate trend reversal. The breakout points are to above 1120-1130 in SPX and 2320-2341 in COMP.

A number of THIS week's support and resistance points (marked by green up arrows and red down arrows respectively) are basically unchanged from last week as this past week's range was largely contained by the support and resistance points I noted in my prior week's commentary; i.e., reflecting the week ending 7/17.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

As I noted last week regarding the reversal of the last S&P 500 (SPX) rally when the index stopped at the its down trendline:" Technically, the rally from the lower downtrend line had better than average potential to keep going higher. However it's also true that typically there are still further (and smaller) price swings that 'complete' a wedge pattern. Once the wedge pattern completes itself, confirmation of a bullish breakout move comes in the form of rallies beyond prior rally highs..."

In this vein, the S&P definitive 'breakout' point is 1120-1131, with a move above this zone tending to 'confirm' the substantial further upside potential implied by the bullish (falling) wedge pattern. I continue to be bullish, with a little less reservation than last week.

I mentioned already key resistance as being 1120-1131; next important resistance is in the 1170-1173 area.

Near support remains 1060, although I should also note very near support around 1080, as implied by the previously broken down trendline; i.e., resistance, once pierced 'becoming' support on subsequent pullbacks. Fairly major support should be found beginning in the 1020 area.

MARKET SENTIMENT:

The CPRATIO line above represents daily readings for Trader sentiment in addition to a 5-day moving average line of the same. In this (market) cycle, it appears that any readings at, and especially above, 1.9 represented by the red level line, connotes an 'overbought' bullish EXTREME; i.e., an extreme that suggests to be wary of pullbacks that 'correct' unrealistic bullish expectations. So far, bullish sentiment is not showing an extreme and bodes well for further upside progress in the market.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) achieved a bullish breakout above its down trendline this past week which is bullish; 'confirmation' of an intermediate trend change (from down to up) would come on a move above the prior upswing highs between 505 and 510. While the index could see another pullback to the 490 area, I'm bullish on the further 'breakout' and upside potential for the OEX.

I've noted initial resistance as being close at hand, at 500; with pivotal resistance at 505-510 as already noted, with fairly major resistance beginning in the low-530 area, extending to 540.

Near support is at 480, with next lower support in the 460 area. If the index fell back to the lower trendline, fairly major technical support should be found in the 450 area.

DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 Average (INDU) achieved a bullish upside breakout above my revised (light blue) down trendline drawn last week and INDU went on to have a strong weekly close. Immediate support at 10270 is now suggested at the (penetrated) trendline.

Last week I was discounting the bearish talk of a huge top pattern seen in the weekly charts. I also noted a week ago that only 4 of the 30 stocks were still clearly bullish in their patterns. As of this past week however, half (15) of the Dow 30 stocks were showing good upside momentum and have completed what now looks like could be lows for our summer correction.

On balance I see further upside potential for the Dow. If INDU clears its prior intraday high at 10594 would of course be a bullish milestone, but any Close above 10450 would be a new high on a closing basis, dating from the rallies that started after the May and June lows.

Near support as mentioned already is at 10270, with pivotal support in the 10000 area.

Near resistance is suggested by the prior high close at 10450, with resistance then extending to 10590-10600.

NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:

The Nasdaq Composite (COMP) Index has achieved a bullish breakout above the upper trendline of a bullish falling wedge pattern and I see good potential for a further and 'confirming', upside move that takes out (pierces) prior closing and intraday highs made in mid-June; i.e., suggesting key resistance at 2320-2341.

Support levels noted last week around 2150 were not violated and I continue to highlight this area as a pivotal technical support.

Key overhead resistance is 2320, extending to the prior intraday high at 2341.

MARKET SENTIMENT:

The CPRATIO line above represents daily readings for Trader sentiment in addition to a 5-day moving average line of the same. In this (market) cycle, it appears that any readings at, and especially above, 1.9 represented by the red level line, connotes an 'overbought' bullish EXTREME; i.e., an extreme that suggests to be wary of pullbacks that 'correct' unrealistic bullish expectations. So far, bullish sentiment is not showing an extreme and bodes well for further upside progress in the market.

NASDAQ 100 (NDX) DAILY CHART:

The Nasdaq 100 (NDX) reversed its bearish chart this past week with its upside penetration of its April-July down trendline. As I've been noting about all the indexes, 'confirmation' of a renewed intermediate up trend in NDX will occur if the index can climb above resistance implied by its prior mid-June highs; in the case of NDX this is at 1900 and above. The long-term trend of the major indexes never reversed lower, only the short (2-3 day) and intermediate-term (e.g., 2-3 week) trends.

Resistance is noted at 1900, extending to 1915-1939. Major resistance begins at 1980-2000.

Near support is highlighted at 1833, with next support coming in around 1780, unchanged from my last weekly commentary.

NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:

The Nasdaq 100 (QQQQ) tracking stock chart followed the underlying index in its upside breakout action of course, but sometimes a trendline on the stock will have a different slope than the underlying (NDX) index. With QQQQ the breakout above trendline resistance was not as pronounced as NDX, but its bullish Friday Close did clear its resistance trendline. A 'confirming' bullish breakout move comes if QQQQ can close above 47 again and keep going. I've noted resistance at 47.18, extending to 47.7.

Key technical support is unchanged from where I noted it last week in the 43.8 area.

As is usually the case, this past week's rally did not occur on a surge of volume, unlike the 'confirming' trend of volume in most stocks that are in a rally phase.

RUSSELL 2000 (RUT) DAILY CHART:

The Russell 2000 (RUT) broke out above its bullish falling wedge pattern by its upside penetration of the upper trendline comprising the wedge. To keep the bullish ball rolling, as with the other major indexes, needs a 'confirming' upside breakout above prior highs in the 672-677 zone.

Near technical support is noted at the previously broken down trendline, currently intersecting at 628. Pivotal support is still around 600.



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.