THE BOTTOM LINE:

Two indexes with price action encouraging for a further technical bounce are the Dow 30 (INDU) and the Russell 2000 (RUT). A potential double bottom in RUT and INDU found support in the 10000 area. These two charts are the most encouraging for the bulls.

I like the Dow for some more upside, ditto RUT. In general it now looks less likely that the major stock indexes are going to get pushed to under their late-June/early-July lows. RUT was a possible test for where perceived value is currently, as the Russell did touch its July low and rebounded.

I'm featuring the 21-day moving average this week on my charts, with upper and lower envelope lines set at 3 percent above (the 'center' moving average) and at 4-5 percent below the 21-day average. Given the lower volume and moderate to low volatility overall, it becomes helpful to use envelopes to better gauge areas where index levels are at relative 'extremes' and likely to reverse within 1-2 days; e.g., at 2100 in the Nas Composite (COMP).

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The chart remains bearish for the S&P 500 (SPX) but the end of week rally has lifted the Index above resistance it was hitting this past week in the 1060 area. We have to see what follow through (if any) there is but the pattern here suggests some further upside for this most recent bounce. Bullish sentiment, in terms of the jump in call volume, took a huge jump at the beginning of the week but SPX was weak for the next few days; no surprise there.

The important technical aspects to the chart are: the index remains within an overall downtrend; signs of support/buying interest show up on dips below 1050; in terms of SPX's percent dip below the key 21-day moving average, the Index got about to that extreme again as you can see in the chart.

An indicator often overlooked or not well used is the Relative Strength Index. My RSI setting is 21, a fibonacci number. When we get the kind of 21-day RSI low-end extremes seen below, it's been a good predictor in the recent past for at least a good-sized tradable rebound.

I've noted first support at the lower 5% envelope line, at 1029 currently. I doubt we'll see OEX even touch 1000. First resistance is at 1090 per the red down arrow, with even more pivotal technical resistance at 1110, the top of the downtrend channel .

MARKET SENTIMENT:

A big spike in bullishness occurred on the first day this past week in the CPRATIO number seen above. There was a Monday rally and then churning action that went on into the final hour when selling drove SPX to a Close below 1070 support but with strong call buying that day. Sure enough, the following day (Tues) saw a lower gap down opening with further weakness over the next 3 days, not surprising in terms of the aftermath sometimes of even a single day of such a spike in my indicator.

Bullishness in terms of my indicator's typical scale is still above mid-range: too high to suggest that a next rally might be a leg rather than a technical rebound. The chart pattern doesn't look encouraging for a reversal of the intermediate downtrend anytime soon. Rather, more of a 'technical' rally so to speak; e.g., back up to 1100-1110 in SPX and 2230-2250 in the Composite.

S&P 100 (OEX) INDEX; DAILY CHART

What I've wrote above for the S&P 500 in terms of the relevant bullish/bearishness of the chart and indicators. The intermediate trend is down until/unless there's a decisive upside penetration of the upper channel line. Beyond such a move would be the ability to also pierce prior highs in the 512 area and for the Index to advance beyond that. I discount the idea of a big 'breakout' move anytime soon.

While I don't see big rally potential, it does look like OEX may have bottomed for now and is due for an oversold rebound; back up to the 495-500 area.

I've noted near support around 480, then at 467. Assumed support is then at the prior 459 intraday low. Resistance is at 500-504, with fairly major resistance anticipated at 510-512. I would pay attention to any next low at or under the lower envelope line, as risk to reward on calls would look good.

DOW 30 (INDU) AVERAGE; DAILY CHART:

Among the major indexes, the Dow 30 Average (INDU) has been showing superior relative strength on the last rally. INDU then held up very well on brief dips below 10000. In terms of its prior tradable bottoms, the average got back again to the lower (4% under moving average) envelope line with signs of bottoming type sideways action. I see decent potential back up the 10400 area, resistance implied by the 21-day average.

Since the intermediate trend remains bearish, I anticipate limited rallies only. Bullishness is a bit 'too' high among option types like us for a big move and seasonal factors don't agree either. Not many would be too surprised at another sell off in this nervous market. However, the odds of another SHARP decline is low when the 13-day RSI gets to or near 30; one caveat is that weekly oscillators don't show overbought extremes and we're far from that.

I've noted support (up) arrows on my chart only at 10000, but support should extend to 9900 as well. Major support begins in the 9600 area. I've noted resistance (down) arrows at 10400 and then in the 10600 area.

NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:

The Nasdaq Composite (COMP) Index chart has an overall bearish pattern except that formation of the recent lows in the 2100 area suggests a bottom temporary or otherwise. I find it favorable that 2100 also was the level of the 5% lower envelope line. Prior recent months' lows that fell to 5% or more below the 21-day moving average have been followed by tradable rallies. Does this pattern HAVE TO repeat? Of course not. But, buying at the equivalent 2100 COMP level offered a good risk to reward; e.g., risk/exit point at 2050; upside 'reward' potential to 2250.

Key near support is at 2100, extending to the prior low in the 2060 area. Major support implied by the channel is nearing 1900. My down arrow resistances are at 2227-2230 and then at the upper channel boundary at 2250. Nothing changes the current bearish intermediate trend unless COMP can pierce the prior high in the 2300 area.

The lower channel line, at 5% under (the center moving average) is where COMP was at or close to bottoms since the May lows. The fact that the index got to this lower envelope line and then had the nice rebound on Friday is suggesting at least an interim bottom if not 'the' low. While a large further decline looks unlikely, upside potential may not be to more than the upper end of the bearish downtrend channel that COMP is in. If, against the odds, the short-term trend continues south there's plenty of 'room' on the lower end of the bearish channel!

MARKET SENTIMENT:

A big spike in bullishness occurred on the first day this past week in the CPRATIO number seen above. There was a Monday rally and then churning action that went on into the final hour when selling drove SPX to a Close below 1070 support but with strong call buying that day. Sure enough, the following day (Tues) saw a lower gap down opening with further weakness over the next 3 days, not surprising in terms of the aftermath sometimes of even a single day of such a spike in my indicator.

Bullishness in terms of my indicator's typical scale is still above mid-range: too high to suggest that a next rally might be a sizable up leg rather than a technical rebound. The chart pattern doesn't look encouraging for a reversal of the intermediate downtrend anytime soon. Rather, more of a 'technical' rally so to speak; e.g., back up to 1100-1110 in SPX and 2230-2250 in the Composite.

NASDAQ 100 (NDX) DAILY CHART:

While the intermediate trend is bearish for the Nasdaq 100 (NDX), as is seen visually in the various downtrend channel, a bottom temporary or otherwise may have been reached at recent lows and a 50-60, to 100 point rally is a feasible rebound objective from Friday's 1791 close.

Conversely, if NDX should fall under 1750 or makes a Close lower than 1767, I look for further selling and a key next day as to further weakness OR recovery. I've noted support also at 1730 and buying interest should extend to 1700.

Short-term I see some upside potential and traders may well go with that trading stance, but as a larger play I favor selling rallies (lightly) that carry up to anticipated resistance at 1850-1860, then selling more (heavily) in the 1890-1920 zone.

NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:

The Nasdaq 100 (QQQQ) tracking stock may have reached at least a temporary bottom at recent lows in the 43 area. Upside potential could be up to 46. I'd like to take the short side in the 46 area, if reached.

Volume picked up briskly on the Friday rally, a real change in the typical pattern where volume picks up mostly on the downturns. Of course a good deal of the end of week strength could be due to short-covering buying, but some new buying was also coming in on the heels of the Fed announcements.

Near support: 43.0 - 43.25

Next support: 42-41.7

Near resistance: 44.5

Next resistance: 45.4-45.8

Major technical resistance begins at 46

RUSSELL 2000 (RUT) DAILY CHART:

The Russell 2000 (RUT) is showing a possible double bottom, which is the Tuesday low relative to the early-July bottom. The rebound from these almost equal lows (588 vs. 587) culminated in a strong end of the week finish. Resistance in the 633 to 643 area could be a cap on a further advance building on Friday's strength.

Pivotal support is at 588-587 and the level of the current double bottom. It's worth also noting that technically to 'confirm' a double bottom is for the stock or index involved to go on to exceed its prior upswing high; in this case, at 672.

As for more major resistances, it looks unlikely to me that RUT will pierce prior highs at 672-677, at least not in the near-term but I am not expecting a new low either. If RUT should make new lows, a next potential technical support comes in around 550, at the lower trend channel boundary.



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.