THE BOTTOM LINE:

In this choppy summer lower-volume (and less volatile) period I'm not expecting resolution of the question of whether the market will be in a prolonged trading range into year end perhaps OR will be capable of a new high for the uptrend dating from the March '09 bottom. Such a new high, such as above 1200 in the S&P 500 (SPX), would cross an important retracement milestone.

Trading range markets are decent opportunities for those who want to position themselves with the appropriate option strategies for a range bound period.

The price trend is lackluster if looked at in terms of the weekly S&P chart below and the S&P is a good current benchmark index for the overall market. The market isn't strongly trending. It IS however trending (higher) since the rally dating from the early-July low has had pullbacks that keep stepping higher as you'll see with the up trendlines on my daily charts. Moreover, all the major indexes ended the week trading above their 200-day moving averages, which is taken as a bullish indicator of trend and momentum.

What I've tried to show at-a-glance below on my first chart, is 1.) that the recent SPX pullback low, relative to the 667 low of last year and the April rally high of 2010 was a relatively shallow retracement (of 38%) and 2.) that the April top completed a rather deep 62% retracement of the point loss from the 2007 high to the 2009 bottom.

The shallow retracement suggests another rally attempt to challenge highs in the 1200 area at some point ahead. The fact that that high completed a fibonacci 62% of the 2007-2009 bear market decline suggests this area (low-1200's basis SPX) as a possible major resistance point. Conversely, a new up leg above 1200 would be bullish for the long-term trend.

Climbing much above 1200 in SPX may be tough going absent some strong pickup in the economy such as suggested by an acceleration of job creation. It appears more likely that the 1200-1250 area, if reached again, may end up being the top end of a broad trading range, perhaps into year end. The 1050-1000 area looks like it should hold on any further big selloff.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

By my lights the S&P 500 (SPX) has broken out above its downtrend channel as highlighted in its chart. Recent lows held above key trendlines, where they 'needed' to maintain a bullish chart.

I noted last week that "Prices could fall back to the previously penetrated down trendline, and provided that this line 'held' as support, SPX would still have a pattern of higher relative lows, maintaining a bullish trend." Bingo. SPX is also nearing an overbought reading on the Relative Strength Index (RSI) suggesting greater potential for downside surprises.

While SPX hasn't shown any bearish reversal, it hasn't 'proven' it will have a significant new up leg either until or unless it can substantially pierce a line of resistance at 1128-1130. A new up leg above 1130 suggests upside potential perhaps then to the 1170 area. A dip or close below 1100 sets up a test of 1080 support. A close above 1130 seems more likely than a sustained break below 1080.

Key immediate near-term resistance is at recent highs in the 1128 area. Resistance implied by prior highs comes in at 1170-1173. Near support is at the trendline, currently intersecting in the 1105 area, with next lower support around 1080. Fairly major support begins at 1160.

MARKET SENTIMENT:

Bullish sentiment is clicking along a bit above a 'neutral' mid-range reading. Call activity relative to puts (equities-only) suggests more of a bullish view than a bearish one. And a mildly bullish outlook is borne out by the way the market came back on by late in the session this past Friday. A bout of short-covering ahead of the weekend no doubt but I saw real buying interest besides, especially in key Dow stocks.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) has cleared prior closing highs and the chart is bullish in this respect. In a further bullish note, the Friday lows held key (up) trendline support. OEX is also near the bearish upper 'overbought' area highlighted on the 13-day RSI indicator. This of course, as any who've worked with overbought/oversold concepts, doesn't mean OEX won't keep advancing but the risk of a sell off does increase. Since trading options is also very much concerned with risk to reward, it's not a great bet to anticipate a lot more upside here.

If OEX can mount a sustained rally above 1130 its got potential for a move to 530-533 and I've noted next resistance above 511-512 as beginning in the 530 area.

Support is evident at 500-505 and a break of 500 suggests potential for a move to next technical support in the 480 area. Fairly major support is seen around 460.

DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 Average (INDU) was the subject of my recent (7/4) Trader's Corner article. If you didn't see it and are a close follower of the Dow and the opportunities in Dow Index options, check out points related to better seeing Dow turning points (via e-mail on Wed. but also up on the OIN home page).

INDU has cleared its prior rally high and the intermediate-term trend can be considered up because of it. That said, the Dow hasn't cleared near resistance or congestion around 10700. If the Dow can climb above 10700 and to the point where this same level shows up as a new support, potential for INDU to retest prior highs in the 10900 area is suggested.

Near support is at the trendline (unnoted at 10495), with pivotal support at 10400 and next support at 10200. It looks like one of those occasions where the Dow is leading the market and could climb some more, such as by tacking on another couple hundred points above 10700.

NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:

The Nasdaq Composite (COMP) Index, unlike the S&P 500, has not broken out above ITS downtrend channel and recent highs seen in this area tends to 'confirm' technical resistance; as is often seen when prices approach the upper end of a downtrend channel that's been traced out over many weeks or months. The RSI reading is close to but not at the overbought level as I commonly judge it anyway.

For the bullish case, what is needed is a move above 2300 which would then suggest further upside potential to resistance noted at 2336 at the topmost red down arrow; next resistance after that occurs technically at the top end of a prior price gap, at 2388 and not written on my COMP chart below. Well, I confess I don't think COMP will pierce near-term resistance.

Near support 2250, then at 2230-2232; next lower support begins around 2172, extending to 2160.

MARKET SENTIMENT:

Bullish sentiment is registering just over a 'neutral' mid-range reading. Call activity relative to puts (equities-only) suggests more of a bullish view than bearish. And a mildly bullish outlook is borne out by the way the market came back on by late session this past Friday. A bout of short-covering ahead of the weekend no doubt but I saw real buying interest besides, especially in key Dow stocks.

NASDAQ 100 (NDX) DAILY CHART:

The Nasdaq 100 (NDX) has 'maintained' levels at or above the fairly steep up trendline dating from the 7/1 low. This played out as the Friday low rebounded from its support (up) trendline. This is one aspect to the chart. Anyone using charts much at all would then note the prior rally, which hit 1939 as an intraday peak. The rally culminating at 1939 also had the distinction of closing an important previous downside price gap. 'Closing' the gap is one thing and charging on above this area can be quite another, more difficult, undertaking.

From around 1910, on up to 1939, is an area that to watch in terms of whether selling overwhelms buying. The last rally to the area NDX is nearing was followed by a sharp sell off. It's an area that should test the bulls' ability to push prices much higher, such as to, eventually, the 2000 area again and which marks fairly major resistance.

In a general way, I wonder how far the Dow and S&P are going to fly without the stocks of the big player tech companies not along for the ride, should they continue to lag here. That said, in fact NDX is hanging in above 1900 recently and that's potentially bullish for some further upside, such as for a move that retests key resistance around 1939.

Very near support is at the up trendline but I've noted first green arrow support in the 1850 area, which is also where key market moving averages are intersecting. Next technical support is at 1800.

NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:

The Nasdaq 100 (QQQQ) tracking stock is back in the area of a prior top so presents a mixed chart picture. On the one hand, price dips have been making higher 'stair-step' lows, which keeps QQQQ in an uptrend. To suggest potential to retest and perhaps exceed the prior 47.7 intraday high would be to see closes above 47.0, and/or 47.3, in the coming week. If the 47 area became a 'platform' for further rallies, there's potential for the move through 47.7, to 48 and even higher; e.g., the 48.7 area.

Near support is at the trendline, currently intersecting at 46; next support as noted by the arrow is at 45. If the 45 level gave way, a next potential support is at prior lows in the 44-43.8 area.

RUSSELL 2000 (RUT) DAILY CHART:

The Russell 2000 (RUT) has stalled in its rally but has held the low end of a support zone, at 640. Price action on Friday was mildly bullish as RUT rebounded strongly from 640. That doesn't necessarily then make for upside follow through.

A decisive upside penetration of 671-674 is needed to clear the trading range that has existed since June.

Key near support is at 640, with next support seen at the trendline, currently intersecting at 612. Major support begins at 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.