THE BOTTOM LINE:
A week ago Friday (1/29) saw a downside reversal pattern that suggested a further decline to follow. But there was no downside follow through on Monday and the S&P closed back above the key 21-day moving average; game (still) on!
Other stand out technical aspects to this past week's market action in the major indexes included a better than average performance of the Dow 30 (INDU). INDU found support in the area of its 21-day moving average, whereas the two main S&P indexes pierced this average, for a day anyway. Chevron and Exxon contributed to Dow strength on Mideast oil supply concerns, as did 7-8 other INDU stocks that were strong. This market just keeps rolling along.
The Nasdaq had been in congestion or resistance zone defined by several highs in the same area in the Composite and the Nasdaq 100. By Friday, however strength in the S&P and Dow helped pull up the tech heavy Nasdaq which broke out above this line of resistance.
I'm downplaying for now the bearish price/RSI divergences, seen with all the major indexes; i.e., prices have gone to new highs but not the RSI which has had a series of lower lows. While there is this bearish technical divergence , this is no 'timing' indicator. And it seems that this market has the wind behind its back still and market fundamentals are driving stocks higher. I would respect the strong up trend in the major indices and avoid trying to pick tops. Which I have to admit, I sometimes try to do!
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) index chart had what looked like a key downside reversal coming into this past week, but that pattern was negated, as far as any short-term bearish implications, by the rebound that followed. SPX continued this past week to close above its 21-day moving average and is tracking higher in the middle area of its broad uptrend price channel. Unless the index starts falling under its 21-day average and its up trendline, I would anticipate still higher prices.
Support is at 1400-1289, next around 1270 and then in the 1240 area. I thought last week that we might see a test of SPX's up trendline (then intersecting around 1260) but my thought on that didn't pan out.
Near resistance looks like 1320, with fairly major resistance anticipated at the upper boundary of SPX's uptrend channel; this trendline intersects in the 1360 area currently.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) index continues to track higher within its longer-term uptrend channel. I also noted last time that: "the break below the 21-day average is bearish but one more day below the average is needed to confirm." My rule of thumb when prices penetrate a key moving average or trendline is to look for
'confirmation' of that break by what happens the NEXT day and whether there's a further move in the same direction (as the break). In this case the sharp 1-day decline was followed by a rebound Monday which continued this past week.
Given the continued buying interest on dips, I think OEX is headed to the 600 area. I've noted what I think will be fairly major resistance just above the 600 level (604), at the upper channel line.
The 21-day average at 580.8 represents a first area of support, with a next area being Monday's intersection of the up trendline, currently at 566.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) average held up well on its recent one day break, with a rebound the following day as INDU held above the key 21-day moving average. The fact that the Dow didn't pierce this key trading average on the Friday (1/28) decline, unlike the S&P indexes, was a predictor for the S&P rebound the next day.
Sometimes price action in the Dow is the top bellwether of the trend in the other major indexes. I wrote last week that:
"More weakness is suggested if INDU starts falling below its 21-day moving average." This didn't happen of course so any alarm to the bulls was short-lived. Dow stocks contributing the most to the advance this past week were AA, CAT, CSCO, CVX, DD, DIS, GE, IBM, XOM.
Near technical support is again figured as in the area of the current 21-day moving average; at 11866 coming into Monday. Next support should come in around the Dos' up trendline, suggesting support in the 11666 area.
I'm not predicting any very near-term 'resistance' as I don't have much to work from in terms of the chart. In terms of the upper boundary of my highlighted uptrend price channel, potential resistance there comes in around 12367 currently.
Checking in on the weekly charts (not shown), there's no obvious major resistance suggested until/unless INDU again hits the 13000 area. INDU has to date retraced more than 66% of the 2007-2009 bear market decline. This bodes well for an eventual retest of the 2007 July-October highs in the 14000 region. Often when a stock or stock index retraces an amount greater than 2/3rds of the prior price swing, there's an eventual 100% retracement of that move and there's a retest of the major prior high or low.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) rebounded after falling some after it hit some technical resistance. By Friday, COMP went on to pierce a line formed by several prior intraday highs around 2766. I've redrawn COMP's up trendline this week reflecting my latest interpretations suggesting more upside. The break below 2700 which had looked like the start of something (more downside) was instead the END of something, as COMP quickly came back. My '2-day' rule relating to two consecutive closes above/below a key moving average or a trendline as tending to offer 'confirmation' of at least a short-term trend reversal wasn't relevant here.
We could be seeing the start of new up leg in COMP. The potential for a substantial further advance depends on what happens in this coming week as to how much more buying comes in.
I didn't highlight it on the chart but 2700 now looks like immediate technical support, followed by support implied by the 50-day moving average at 2667; next support then comes in around 2600.
I've highlighted potential next resistance at 2800. Above that a gauge of possible next resistance is provided by the November 2007 top in COMP; the highest intraday peak of that top was 2862.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) had formed a line of resistance comprised of several intraday highs that formed around 2330-2331. I had been saying for awhile that 2330 was important as a next potential resistance as it represented a Fibonacci 38% retracement of the March 2000-October 2002 bear market decline. Sure enough this area was a stopping point for a while but with Friday's breakout above this 'congestion' zone, NDX may be embarking on another up leg.
I'm downplaying for now the bearish price/RSI divergence, as prices have gone to new highs but not the RSI which has had a series of lower lows. Such a divergence does give me pause in adding much new in the way of bullish strategies.
Support is highlighted at the up trendline, currently intersecting at 2280. Next support comes in around 2250, the level of the current 50-day moving average.
Resistance is anticipated at 2350, then next in the 2400 area.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
The chart remains bullish in its pattern after the beginning of the week brought in buying that checked the decline of the prior Friday (1/28). I anticipated that the break below 56.0 was the start of a further correction. WRONG!
Near resistance looks like 58.0-58.1; a broad uptrend channel on the weekly chart (not shown) suggests major resistance coming in around 63.0. Between 58 and 63 - well, I'd be hard pressed to figure resistance levels within that zone.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) has been either 'leading' the Nasdaq or at least keeping up with it. Not so lately, as the index has not yet cleared ITS prior highs. It seems that the index will pierce 807 and move still higher. By my analysis major resistance begins in the 850 area.
Support is at 780, extending to the prior swing low at 772. Major support begins in the 740 area.
GOOD TRADING SUCCESS!
NOTES ON MY TRADING GUIDELINES AND SUGGESTIONS
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.