THE BOTTOM LINE:

Options traders overall have been bullish on balance for some time (extreme trader bullishness is often a bearish indication in a 'contrary opinion' sense), but such high bullishness hasn't quite spilled over to investor types, where there's been a net outflow out of equities funds for months. That outflow is slowly reversing and is a good omen for a further run up. I wouldn't expect any major top until the 'public' is again VERY enthusiastic about the Market and its prospects.

Short-term, the major indexes are again nearing an overbought status as seen in the hourly S&P 500 (SPX) line (close-only) chart below as the 21-period RSI nears a 'typical' overbought reading at/above 70. In the past few weeks such extremes have only brought on relatively minor and short-lived selling. There may be a bout of selling/weakness coming up but I don't currently envision any major disruption to this strong bull move.

In terms of the daily and weekly charts, the major indices are all at or near overbought extremes; especially so in the Nasdaq 100 (NDX) index. However, until we see a trendline break longer than a single day and a drop below the 21-day moving average, I assume that the market is going higher, consistent with bullish chart patterns for the major indexes. Sometimes an overbought situation will be 'relieved' by a sideways move for awhile.

A note on this coming week's options expiration. The last 4 options expiration weeks have seen a continuation of prior weeks' gains. I anticipate this pattern to repeat in the coming 4-day trading week (Monday's closure is for MLK day).

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The S&P 500 (SPX) index chart is bullish. So what else is new? Well, SPX is getting more and more 'overbought' of course, according to conventional technical indicators. However, price action is 'king' so to speak and as long as SPX's up trendline is not pierced, or there's a close below the 21-day moving average, SPX appears headed still higher.

Bullish sentiment among traders is also very high but can get more 'extreme' if there's another period ahead without any significant correction as has been the case for many weeks. Greed has overtaken fear in this market. Many options traders tend to be momentum players and as long as the market is going up faster than the erosion of the time value in call premiums, then it's a no-brainer to keep buying dips. While it's risky to keep price averaging UP in long calls in an overbought market like some trader friends are doing, the continued rewards keep some traders coming back for more. Based on what I see, we're not seeing much covered call writing in this market either.

The 1250 area still looks like a key near-term support, which then extends down to around 1238. I didn't note it as 'support' but keep an eye on the 21-day average. A close below this key trading average (currently at 1265), that didn't see a bounce back above the average the next day would put me on alert to a possible further dip such as to test trendline support.

Near resistance comes in around 1300 now, with next resistance now pegged at 1326 as implied by the current intersection of SPX's uptrend channel.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) index's chart remains bullish and we saw two days in the past week with above average gains in OEX. As upside price momentum increases momentum type indicators like the Relative Strength Index (RSI) also move still higher. Since the market trends this strongly only around 30-33% historically, it’s a time when many switch to a 'trend following' mindset; e.g., as long as prices keep moving higher, stick with the trend rather than being scared off by an overbought extreme.

The Index could reach the 600 area before coming down much. As with the S&P 500, I'm cautious in terms of adding bullish positions due to overbought extremes but the trend is UP, until its NOT; which would be signaled by such events as a 'key' downside reversal (a new high on heavy volume followed by a close below the prior 1-2 days' lows), a close below the 21-day average, or decisive downside penetration of the up trendline.

Near support remains at 570, then at current trendline support around 554. I've pegged resistance at between 585 and 593 in the near-term. More major resistance is expected in the 600 area.

DOW 30 (INDU) AVERAGE; DAILY CHART:

The Dow 30 (INDU) average continues to roll upwards. The latest sign of 'technical' strength was that prior resistance at 11600, once penetrated, 'become' a new support as highlighted on my daily Dow chart. I wrote last week that 11600 was of some long-term chart significance in that it represents a 2/3rds or 66% retracement of the major decline from late-2007 to March 2009. Going beyond a 2/3rds retracement has often been a good indication for a further move in the same direction and a possible retest the prior top in the case of an uptrend.

I've projected next resistance at 11800, then at 12000. Near support is 11600, then at the trendline, currently intersecting at 11450.

There are more Dow stocks performing bullishly. Stand out to good Dow performers are AA, BA, BAC (resurgent), CVX, DIS, GE, HD, HPQ, IBM, JPM, PFE, and XOM. These 12 alone, assuming there's not huge new weakness in the laggards, should propel INDU still higher.

NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:

The Nasdaq Composite (COMP) Index chart continues to trend higher within its uptrend price channel. Prices have pulled up and away from the lower trendline, showing increased upside momentum in the past week. COMP looks poised to go still higher.

Support is expected if there's a pullback to the 2700 area and resistance is next anticipated at 2800, with further resistance at the top end of the channel, currently intersecting at 2900.

This index is of course also at what is typically an 'overbought' extreme in terms of the RSI (above or well above 70 on a 13-day basis), but this doesn't mean that prices won't go still higher. Markets get overbought in strong trends. Eventually there occurs at least a sideways if not lower correction that will serve to 'throw off' the overbought condition. The timing of the start of a pullback is hard to project until COMP has some reversal type action; e.g., a move to a new high on heavy volume followed by a sharply lower close.

As I discussed with the S&P 500, bullish sentiment is very high but that doesn't have its usual bearish significance in a market that is being driven by investment money just starting to really pour into the market in a bigger way. It takes a LONG time for the average 'public' investor to believe that stocks can go up in a still struggling economy; whereas the early phases of a bull market usually produce big gains. When everyone jumps in (as investors in stocks) is when to look out!

NASDAQ 100 (NDX) DAILY CHART:

The Nasdaq 100 (NDX) still is showing strong upside momentum and there's no sign of 'resistance' or selling pressures showing up. If the well-defined up trendline is decisively penetrated, as well as the 21-day moving average, that action would suggest at least a short-term pullback or some sideways action for a while as the RSI 'throws off' its overbought extreme. I've noted support at 2290, then in the 2235 area, extending to 2200.

Resistance may next come in around 2355, with fairly major resistance projected at the top end of NDX's uptrend channel currently intersecting around 2455.

NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQQ) chart is bullish. It will be instructive to see if the accelerating trend continues after Friday's strong rally. An trend that gains added upside momentum, after a lengthily prior run up, suggests that sellers are throwing in the towel.

Friday's CBOE equities call volume was a whopping 2.7 times that of total equities daily put volume as you can see from the CPRATIO spike seen on the COMP chart above. That's a lot of call volume but I doubt that we'll continue to see such lopsided figures. Still, traders are forgetting fear and going with greed as they say, which is usually at least the start of a higher-risk market in terms of potential for a sell off. The first big sell off will likely bring a big jump in daily trading volume for the Q's as now bullish traders dump stock in a concentrated way.

Near support: 56.0

Next support: 54.0

Nearby estimated resistance: 58.3

Next projected resistance: 60.0, then 60.4

RUSSELL 2000 (RUT) DAILY CHART:

The Russell 2000 (RUT) bounced from where its recent minor slide took it, which was support implied by its up trendline. The subsequent rally is showing renewed upside momentum and the chart is back on a fully bullish track.

I've highlighted (topmost green up arrow) near technical support at 783, at RUT's up trendline, with next support in the 760 area. Next resistance is projected for the 820 area, than around 840.

I've often written about the way that only a few days of sideways to lower price action, will 'throw off' a good bit of an overbought condition. This is seen in the RSI portion of the chart. It didn't take more than a 20 point pullback to pull the RSI down to a more 'neutral', less extreme, reading. Normally I would also say that the latest high is 'unconfirmed' by a similar new high in the Relative Strength Index (RSI) and constitutes a bearish divergence. However, this rally will be 'over when it's over' and this divergence won't necessarily 'signal' a downside reversal, at least not in the short-term.



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.