THE BOTTOM LINE:
The S&P 500 (SPX) and the Nasdaq Composite (COMP) have diverged a bit, with SPX achieving both a bullish weekly Close that is comfortably over resistance implied by the top end of its prior trading rangeAND keeps the S&P above support implied by its prior up trendline, as you'll on the SPX chart further on.
COMP also managed a weekly Close that was above the top end of its prior range, just not as decisive. (The continued play in energy stocks and the strong rebound in some of the key financials helped boost SPX.) The Nas Composite DIDN'T manage to regain its prior up trendline, minor league bearish. However, the key big cap Nasdaq 100 (NDX) rebounded from its (regained) up trendline, so all markets are looking ok for further gains as will be discussed with the individual indexes.
The S&P and Dow are short-term overbought, nearing that zone on an intermediate-term (2-3 week), but are closer to 'neutral' midrange readings on a longer-term (2-3 month) basis. The question is whether a strong European bank and sovereign debt solution (if it comes about) is fully priced into the market. The old 'sell the fact' kind of ruse could come into play and by Tuesday let's say we see some weakness.
Moreover, in another way of looking at how 'extended' prices might be short-term, COMP and NDX backed off from their 5% upper envelope lines at their highs this past week. SPX and the Dow 30 (INDU) closed above the upper envelope band I use at 4% (above a 21-day moving average), which is not to say they won't spurt somewhat or well above these parameters. There is a tendency for corrections to come at levels that get extended above (or below) these envelope values such as within a few trading sessions; alternatively the pattern tends to be a slow down in further gains once the indexes get well over their 21-day averages and a more modest rate of ascent occurs. We also saw a spike in my bullish sentiment numbers on Friday which is supports a view of a market getting somewhat overheated.
The charts are bullish, with the S&P and Dow leading the charge this time, but we could soon get into a period of froth and churning so I advise caution in putting on new bullish strategies. The ideal in terms of putting on new bullish positions is to buy substantial dips toward or into support levels discussed and identified with the individual index charts.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart is bullish with the index's continued ability to hold above it's prior broad multimonth trading range, a so-called rectangle in technical terms. When a rectangle pattern forms AFTER a decline, it's assumed to be a rectangle bottom but the main thing is the direction of a breakout above (or below) such a well-defined trading range. This recent upside move bodes well for an eventual objective back to the 1350 area.
Tough overhead resistance, where substantial supply exists, is at 1300. To pinpoint an area of implied resistance between the 1238 weekly close and 1300 needs looking back further than the chart below is showing, or to the 1250-1265 price zone.
As I noted in my initial 'bottom line' commentary above, SPX is getting somewhat 'extended' in terms of its upper (4%) envelope. This is not resistance in the sense of a prior area where sellers came in but does provide an idea of where an index starts getting over or well above where it's been trading in recent weeks or months in terms of a percentage value above the centered (21-day) moving average. Indexes tend to revert back to a mean eventually.
The same kind of 'overbought' dynamic registers with Relative Strength Index (RSI) readings that hit 65-70 or above on a 13-day basis. Moreover, traders are getting more bullish again; maybe a bit too bullish given the state of our economy. Still, earnings have been good overall. Bad economy, good earnings, go figure.
Support is indicated at 1200; below the key 1200 level (especially on a daily/weekly closing basis, a next substantial support looks like 1150 currently.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart continues to be bullish. The final push higher at week's end pulled the weekly Close (at 558) to its best gains yet above the prior 548-553 line of resistance.
While prices look headed higher, factors working against a further dramatic advance are an approaching overbought condition suggested by the 13-day RSI indicator nearing its common upper range as well as the 'extended' nature of current prices as OEX hits the upper (4%) envelope line that tends to suggest a slowing advance at a minimum. The odds of another major up leg look less likely than it would for a more modest further week to week gain.
I've pegged next resistance at 563, then well above that in the 580 area. Near support is 540, with next support well under this at 520.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) chart is bullish, more so than last week as INDU's Friday strong close at the intraday high took the Average well above the cluster of prior recent highs in the 11600 area.
There's good reason for the renewed push as AXP, HD, CVX, DIS, INTC, MCD, MMM, MRK, PG, WMT, TRV and XOM all especially spurted higher either continuing strong moves or making breakaway type advances above prior congestion.
Next resistance comes in around 11900-12000; with further resistance then estimated for the 12200 area. Technical support is at 11400, the current intersection of the Dow's up trendline; this support was 'proven' so to speak at Tuesday's intraday low which marked the lows and prefaced a substantial intraday rebound. Major support begins at the 11000 level.
INDU is again approaching a 'typical' overbought RSI level which begins around 70 and extends to 75. There's further room on the upside regardless of some suggested signs that the Dow may be getting overextended, including the march to my upper 4% envelope line. Nothing 'magical' about these levels as rally stoppers but they do tend to put me on a cautionary alert as far as jumping into new bullish positions.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart turned from predominately mixed to bullish prior to this past week. This past week saw COMP trade in a relatively narrow range with resistance seeming to come in after COMP hit my 5% upper trading band (envelope line).
The index came back fairly strongly after Thursday's intraday dip below 2600 support. This is a key support and top end of the prior trading range. Once prices break out above resistance, assuming a sustained advance follows, what you expect to see to stay bullish is support develop as what was previous resistance and that is on balance how it went. Hey, COMP is merely FOLLOWING the leader S&P for a change. It happens. To keep on a bullish track, the Composite ought to trade above 2650-2667 fairly soon.
Support is anticipated again in the 2600 area, then at 2550 on down to what should be substantial support in the 2500 area.
Resistance comes in around 2700, then at 2750.
If the Composite stays mostly above the top end of its prior price range, this pattern suggests an eventual 'minimum' upside objective back to the 2880-2890 area. This based on another up leg that would be at least equal to the difference between highs and lows traced out in an apparent rectangle bottom; such a rule of thumb calculation is also called a 'measured move' objective which assumes that a NEXT price swing will equal the move from multiple highs to repeated lows when ADDED to the top end of the rectangle. 2-3 such repeated bottoms and highs make up the well-defined price range of a rectangle pattern.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) remains bullish in its pattern but got a bit 'mixed' again as its upside momentum got arrested this past week as investors shifted some money to the more cyclical and economically sensitive bread and butter stocks of our consumer economy. Don't you love it when the government determines that we have no core inflation as it's JUST food and energy prices going up like gangbusters. The Chevron, Exxon, Kraft and McDonald's of the world do well because of this 'non'-inflation however!
On the bullish side, NDX pulled back just to technical support at its (regained) up trendline and rebounded and went to Close at its prior intraday high. You can see in my NDX daily chart how the last couple of rallies have reversed in the area of the upper 5% envelope line. Next resistance, based on this criteria comes in around 2400, then most definitely at the prior 2438 intraday high.
I've noted near support in the 2880 area, the current intersection of the aforementioned support/up trendline. Next support should come into play around 2250, extending to 2225. I didn't highlight it on my chart but fairly major support begins in the 2200-2190 area.
I anticipate higher levels ahead but the index could bounce around between 2300 and 2400 for a while. I doubt that NDX is going to get this close to its prior high without re-testing the same area however. Above the 3 multiple prior highs of 2011 (Feb-May-July) ranging from 2373 to 2438 there's a 'mountain' to climb represented by the extreme run up and equally extreme crash of 1999-2001. Better to stick to a possible challenge of the prior peak and leave what comes after to a later look.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) continues bullish. QQQ remains within its uptrend channel but has dropped back from its recent high around 58, which is highlighted as near resistance. Near support is in the 56 to 55.3 area. Major resistance begins at 60-60.2.
Continued low volume is not your typical situation with rallies in 'ordinary' (i.e., company) stocks where daily trading volume tends to rise during rallies. If volume spikes well above the Q's daily average volume there's a sure sell off going on. If Thursday's dip to the 56 area was troubling to traders/investors, a spike in volume would have been a likely result and that didn't happen.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) continues bullish but the recent advance lost steam as prices slide sideways with RUT following the Nasdaq Still, the index had an end of the week Close near the top of its recent price range. I anticipate higher levels ahead as long as 680 continues to hold up as near support.
Next lower support comes in around 654-655; below this area, I anticipate support developing if there was pullback to the 640 area again, which is the current intersection of the prior down trendline; resistance and lines of resistance, once penetrated, tending to 'become' subsequent support.
Near resistance is at 718-720, with pivotal resistance suggested in the area of the prior high around 738. Major resistance begins at 800.
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 options (CPRATIO) with the S&P 500 (SPX) and the Nasdaq Composite (COMP) charts. However, this indicator pertains to the market as a whole, not just SPX or COMP. 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 2-3 or more weeks) rather than just 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.