As is usually the case with stocks or indexes declining within broad downtrend channels, stocks continued mostly lower this past week, especially within the Dow and S&P indexes. Holders of puts are in the driver's seat. For example, in the Dow, which had been leading the last rally, there's now only one(of 30) stock (MCD) bucking the current downtrend.

Without a larger volume more sustained rally ahead the current decline looks to continue almost by virtue of too little buying interest. The current decline of course beginning from the late-July/early-August high, and which was a retreat from technical resistance implied by the top end of downtrend price channels highlighted on all the major index charts seen below.

Some support/buying interest developed in the area of prior (down) swing lows in the Nasdaq Composite at least and the other major indexes aren’t far away from a possible retest of their pullback lows of 7/16-7/21. However, it looks like the strongest potential support is in the area of the early-July bottom, with next major support at the LOW end of the various uptrend channels.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The reason I described the S&P 500 (SPX) last week as having formed a 'possible' double top is that confirmation of such tops are considered made if/when a stock or index pierces the low made AFTER the first top; i.e., at 1011. With this past week's low in the 1064 area, SPX has a ways to go for that. Still, the chart is bearish currently as prices fall within the index's broad downtrend channel. SPX is getting nearer to what's considered an oversold 30 or below on the Relative Strength Index (RSI) shown. However, in terms of the long-term weekly chart (not shown), prices would have to fall much further to say that this index was 'oversold'.

Key near resistance is at 1100, then at the upper trendline comprising the top end of the downtrend channel, currently intersecting in the 1116 area. A decisive upside penetration of this resistance is needed to turn the chart picture from bearish to one having some bullish potential again although such a rebound would still face further resistance implied by the prior two tops made in the 1130 area.

Pivotal near support can be assumed in the area of the prior downswing low made in the 1057 area. As I noted in my initial (bottom line) comments, I don't view this low as potential major support. Rather, I would grant that potential to the previous bottom in the 1011 area, which also represented support implied by a 38% fibonacci retracement of the March '09 to April 2010 advance. The 1000 level tends to be a technically significant level as support or resistance, just as 100 is in stocks and stock indexes. Major support, below 1000, can be implied by the low end of SPX's downtrend channel, which intersects currently around 960.

MARKET SENTIMENT:

Not surprisingly, bullish sentiment is tapering off and the 5-day average of my CPRATIO line is approaching the lows seen in this indicator just prior to the early-July bottom. Generally, I expect bearish sentiment to reach an oversold extreme when 1-day dips are seen that touch or dip under the lower line seen above. If such sentiment lows occur ahead of or simultaneously with bullish chart action, short-covering is advisable as well as trading again on the long side of this market.

S&P 100 (OEX) INDEX; DAILY CHART

What I've written in general for the S&P 500 above, is true as well for the big cap S&P 100 (OEX) index as to a bearish chart and importance of prior lows as possible support points; in the case of OEX we're looking at 480 and then, most importantly, in the 460 area. Major technical support below 459-460 would then come in at the lower trend channel boundary, currently intersecting around 437.

First key technical resistance is at 500 (and one of the technically important '100' multiples I talked about in my SPX comments above) and then at the upper trendline, currently intersecting at 507. Of course then the prior recent intraday high at 512 is another important benchmark level; the 200-day moving average also falls in this area. You'll note that twice now this key average has 'acted as' resistance at important prior tops.

DOW 30 (INDU) AVERAGE; DAILY CHART:

I mentioned also in my initial comments on the indexes, that of the 30 stocks in the Dow 30 Average (INDU), only one is bucking the current downtrend (MCD). The other 29 technically don't look like patterns that will have upside reversals anytime soon. Intraday highs seen over Tuesday-Wednesday of this past week reversed in the area of INDU's 200-day moving average. It's not so much that this average always acts as resistance, but failure to get above this key average in stocks tends to see buyers withdraw their bids.

The 10000 area is key near support, but the 9600 area represents fairly major support as suggested by the last important bottom.

I've noted resistance around the 200-day moving average at 10453 currently, with next key technical resistance at the down trendline comprising the upper end of INDU's bearish downtrend channel, currently intersecting at 10650.

It would be surprising, given the current look of the underlying stocks, to see the Dow NOT test support around 10000 and then perhaps break under that level at some point. If INDU gets to 10000 and then rebounds (and it would likely be oversold at that point) it doesn't mean that that such a rally will be the start of a sustained up leg.

NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:

The Nasdaq Composite (COMP) Index is bearish its pattern as the index continues to trend lower after the last rally. COMP is racking lower within the broad downtrend channel seen on its chart. The pattern looks most like 'completion' would be a retest of the prior lows in the 2060 area. If a new low for the move is seen, major technical support is then assumed at around 1940, the low end of COMP's downtrend channel.

Key near-term resistance comes in around 2230, with important upside 'break-out' resistance at 2257 currently. Of course above 2257-2260, next resistance would then come soon overhead in the area of the prior double top that occurred between 2309 and 2341; the most recent high being 2309 and 2341 the peak price of the top made in June.

2150-2160 is still near support, than in the 2060 area, marking the prior low in this current bear swing.

MARKET SENTIMENT:

Not surprisingly, bullish sentiment is tapering off and the 5-day average of my CPRATIO line is approaching the lows seen in this indicator just prior to the early-July bottom. Generally, I expect bearish sentiment to reach an oversold extreme when 1-day dips are seen that touch or dip under the lower line seen above. If such sentiment lows occur ahead of or simultaneously with bullish chart action, short-covering is advisable as well as trading again on the long side of this market.

NASDAQ 100 (NDX) DAILY CHART:

I begin to sound like a broken record to myself, as I state the obviousness of the Nasdaq 100 (NDX) chart looking bearish like the other major indexes. It doesn't look like NDX can mount any substantial rally from near the 1800 level as it was trying to do feebly this past week. 1800-1785 will likely be under assault by the sharks in the water in coming days. 1750 seems more probably as a next low for example; somewhere between my (green arrow) support point at 1785, equaling the last low and 1700 which is assumed as an even more pivotal technical support at this juncture.

The near support/buying interest area looks like 1785-1808, at least until that zone is penetrated and by the looks of the chart, the index working lower ahead to under 1785 looks more likely than not. Fairly major support should be found at the 1700 prior low. If evaluated by the current intersection of the lower channel line, another major support is suggested around 1623, down from 1635 last week.

Key near resistance is in the 1860 area, with fairly major resistance beginning at 1900, extending to the 1920 area. The 1900 level is the 'breakout' point, assuming a sustained rally is mounted after the index crosses above that level.

NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:

The Nasdaq 100 (QQQQ) tracking stock is of course showing the same bearish patterns as NDX with only the differing levels to look here at in terms of support and resistance.

The trend is down and until/unless there's an upside breakout, we should be positioned with the trend. Nothing 'telling' in volume/On Balance Volume (OBV) this past week. Volume has been relatively low but that's across the board such as at the CBOE. No one knows for sure which way this economy is going to go but there are some disquieting signs.

Near support: 44.0 - 43.8

Major support: 42-41.7

Next major technical support: 40.0

Near resistance: 45.75

Next resistance: 46.3

Major resistance: beginning 47.2 extending to 47.7

RUSSELL 2000 (RUT) DAILY CHART:

The Russell 2000 (RUT) continued to slip lower along with the rest of the market but hasn't yet tested or broken through nearby support at 600. 587 is a prior low that seems likely to get re-tested. Support has shown up in the past in the low-600 area and it may be supported there again. The small to mid-cap stocks segment has been a favored investment theme and is still a potent idea out there for how to best make money in coming years.

I was writing last week about a rebound from the low-600 area, especially thinking of the prior 603 low; Friday's low: 601.7. We did see a bounce from there with what looked like pre-weekend short-covering. Just based on the chart pattern, a next probable move for RUT looks like at a minimum the index tests its prior 587 low and possibly makes a new low after that; e.g., to the the 550 area. Stay tuned.

Key near resistance is 632, with a more pivotal technical resistance at 650, the current intersection of the upper end of RUT's broad downtrend channel.



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.