THE BOTTOM LINE:
The S&P 500 (SPX) broke out above its trading range dating from mid-December; the Nasdaq decisively so. Surprising best longer-term play now looks like Russell 2000 Calls.
My favorite shorter-term trading vehicle has become the S&P 500 Volatility Index (VIX). Volume is massive, with major institutional players due to its tendency to move inversely to the SPX; i.e., VIX calls being a hedge against a falling S&P 500 Index.
Moreover, VIX trades quite 'technically' as VIX tends to move in fairly predictable chart ranges and overbought/oversold extremes tend to be good places to look at reversing directional trades.
VIX traded 526,000 (rounded to nearest 1000) options on Friday, dwarfing all but the S&P 500, with volume at a million.
The volume split in VIX was 284,000 calls and 242,000 puts, an interesting split.
In terms of daily trade volume on Friday, the Russell 2000 came in a distant third at 42,000 options changing hands. As to my bullish comments on RUT above, the Index has been out of favor for nearly a year now and over this period to date has traced out a sizable 'base' pattern. Moreover, there's a bullish long-term chart picture seen in a sizable multimonth Head & Shoulder's bottom pattern. I'll take a more detailed look at the Russell chart picture on the Monday stock holiday (President's Day) in my next Trader's Corner article. If I can't trade I might as well write!
And, by the way, Happy Valentine's Day!. And, luckily hearts and flowers days is today (Saturday), not yesterday, Friday the 13th. March will see a subsequent Friday the 13th. I don't know how rare two back to back such Fridays are but it must be uncommon.
The overall Market looks headed higher, is not yet at 'overbought' extremes on a 2-3 week basis (although it's headed that way) and bullish sentiment is gaining but isn't 'extreme'. The big cap S&P 100 (OEX) and the monster cap Dow 30 (INDU) look like they can also break out above their prior highs. More specifics to follow.
The S&P 500 Volatility Index (VIX) DAILY chart:
I generally use a Close-only 'line' VIX daily chart. The intraday fluctuations can be extreme and can be a distraction in terms of VIX analysis on a day to day, week to week basis. At times I may note a particular VIX intraday high on this chart if that intraday high took the Index above resistance. [I'll use a 'standard' Open-High-Low-Close (OHLC) bar chart in my second VIX chart below, which is the Index on an extended hourly basis.]
VIX, a week ago (Friday 1/30/15) got up to an intraday high at 22.18, above anticipated resistance in the 22 area. I've highlighted previously how a VIX reading above 22 is an 'overbought' extreme generally and a place to look to buy VIX puts.
I noted last time that: "I anticipate a gradual VIX decline, probably back to 16 and perhaps falling again to 14 or under." VIX has dipped in the past week to below 16 and looks headed perhaps to the 14 area or lower. I consider VIX readings in the 14 to 12 range to be the 'mean' versus the extreme.
VIX also looks headed to an oversold RSI extreme but in terms of 'timing' entry into call positions, such readings can go on for lengthily periods. We need to see an upside reversal pattern to suggest that VIX is ready to rip again. One way that I evaluate a possible upside chart reversal is by use of an extended hourly chart, which comes up next.
The S&P 500 Volatility Index (VIX) HOURLY chart:
The extended hourly VIX chart seen next provides a closer-in view of the past few weeks' action, with downside turning points (red down arrows) that developed already. I've highlighted potential 'support' with the green up arrows, at 14, then 13.
Note also that on a shorter-term basis, the hourly VIX is into a typical oversold zone in terms of the hourly RSI, length set to '21'; i.e., the indicator uses the past 21 hourly Closes to yield the most recent reading. (I switch to a length setting of '13' on a daily chart basis as seen above.
Bottom line, VIX looks headed lower as it drops below the prior few weeks' lows. 14 begins an historical VIX support range, which is between 14 and down to around 12.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The S&P 500 (SPX) had a prior trading range from December into early February that ran from approximately 1973 to 2093 until this past week when a daily and weekly Close took SPX above the prior late-December top.
The pattern here looks like a bullish chart (upside) breakout but more time is needed to see if SPX will have a sustained advance above 2093-2100. The Index is short-term overbought so a minor sideways to lower pullback could come in the coming holiday shortened week but I envision more upside ahead, such as to the 2130 to 2150 area.
Technical support is highlighted in the 2050 to 2042 area (at the 21-day moving average). Next lower support looks to come in around 2020, with fairly major support near 2000.
Bullish sentiment, as seen with the CPRATIO line at the bottom of the chart, has climbed but isn't at an extreme. I get more concerned about a downside reversal with a prolonged period of high bullishness. We have probably too many Market cross-currents to get most traders and investors throwing money at stocks anytime soon. There's Greece, and Greece and Greece again. Nice place for a holiday. I love the Islands but I digress.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is in a strong move higher and has a high probability to follow the broader S&P 500 to new highs and to also break out ABOVE its prior trading range. Of course, in trading as well as life, another motto is to 'never assume', so we'll see what the coming week brings.
Resistance is assumed at the prior intraday high at 924, and then perhaps at 932, at my upper trading 'band' or properly my upper moving average 'envelope' line set currently at 3.3% above the 'centered' 21-day moving average. OEX resistance then extends to 938-940 in my estimation.
I noted last week that "I'd be happy to take profits on calls in the 920 area, if reached." Reached it was and anyone who bought 'right' (as my Mentor used to say), or on the OEX dip below 880, should be pleased. I never hold on for what I consider the last dollar of potential profit but I get bullish (or bearish) when others might not. Different trading strategies can work for different traders and investors no doubt!
Technical/chart support is highlighted around 910, then at 900, extending to 895. Assuming another shot higher OEX would likely get into the 'overbought' area seen on the 13-day RSI. At that point I'd be quicker to exit calls, depending on subsequent price action, and wait for a possible next dip in order to continue to trade WITH the dominant up trend.
THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:
The Dow 30 (INDU) Average is bullish in its pattern given the recent breakout above 17690-17700 trendline resistance. I wrote last week that Dow "18000 could be reached, then 18100 or a bit higher as a next target." That is still my predictive thought as I see a better than even chance that INDU follows the S&P 500 to new highs; in the case of the Dow, to above 18100. A next resistance than begins around 18230-18240 and extends to 18300.
17800 is now highlighted as near technical support, with 17600 as a next pivotal technical/chart support. An INDU Close below 17600 that was sustained would be a bearish chart development.
Dow stocks that look capable of moving higher include BA, CSCO, CVX (in a recovery oil stock rebound - more so than XOM), DD, DIS, HD, MMM, PFE, TRV, UNH, UTX, V and perhaps WMT (especially if it holds $85).
I've noted 13 Dow stocks that could help sustain a move higher. I'd want to see more of the 30 in upswings to stay bullish on INDU. That it's not 15-17 Dow stocks with strong bullish charts is a reason that the Dow is lagging the broader S&P here.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) is strongly bullish in its pattern with the recent power push above its prior highs in the 4820 area. A next stop could be 4935, then on to a major milestone 5000.
Key near support now is up to 4820-4800, with next support looking like 4720, in the area of the 21-day moving average.
I wrote last week that "I don't see a compelling chart story to suggest a sizable upside move ahead, at least near-term." Opps, that was, how can I say it, WRONG! I thought COMP might STAY within its multimonth trading range but I'm not a bear.
For the most part I don't take on big trades AGAINST a dominant up trend, although a sideways trading range market yields some two-sided opportunities for sure. In terms of taking on bigger positions, a sideways trading range of even many weeks duration has to be viewed as a possible consolidation in a primary trend that is UP, as I keep reminding traders. Bull markets don't die because they go on LONGER than the average/'normal' which this one has; they tend rather to die from our economy falling into recession.
NASDAQ 100 (NDX); DAILY CHART:
NDX has regained strong bullish footing with first its advance to above 4300, then in its decisive upside penetration of the prior intraday peak at 4347.
This week I've highlighted next potential resistance around 4415, then at 4500. Near support is at 4300, at prior resistance, with support then seen in the area of the 21-day moving average, currently intersecting in the 4225 area.
I suggested last week that "4100 was a positive buy and 4300 would be a place to take profits." I'd be happy with that trade but 4500 now looks like a next possible upside objective.
The Nas 100 volatility index, VXN, looks to be headed to the 14 area which is a typical low reading in a strongly trending NDX.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The QQQ trend went from 'mixed' to resuming its strong bullish pattern with the breakout first above prior near resistance in the 104 area, at its down trendline. This was followed by some bullish upside price gaps as NDX leaped higher. This pattern in turn was accompanied by the Q's usual ho-hum accompanying low volume.
It seems that traders of the stock don't jump in on 'breakout' or accelerated upside moves. I've never understood this pattern exactly. It's the opposite in the futures and individual equities, but never-mind. The volume trend that does matter in a QQQ upswing is seen with On Balance Volume (OBV) by the OBV line trending UP along with price.
I've noted potential resistance at 108 but at and above my upper trading 'band' (3.5% above the 21-day 'centered' moving average) intersecting currently at 107, an advance can be relatively short-lived. Assuming bullish fire continues, 109 is a next target at the current upper end of QQQ's broad weekly chart (not shown) uptrend price channel.
Last but not least, I suggested last week to all you QQQ bulls out there to "Stay long pending what happens at the resistance trendline." Well, not much question that the Q's knifed through that implied resistance!
RUSSELL 2000 (RUT); DAILY CHART:
Last week I noted that the "Russell chart pattern is slightly better (more bullish) than the other indexes after RUT traced out a symmetrical triangle that was followed by the Index's breakout above the upper trendline, suggesting upside potential to 1260 or higher."
There's more than this chart to turn me longer-term bullish, which is the long-term weekly chart (not shown here) which has traced out both a sizable 'base' but also a bullish Head & Shoulder's bottom. I'll feature more about this in a Monday Trader's Corner article as noted in my initial 'bottom line' commentary.
Back to the chart below: the pattern I've highlighted is a bullish 'symmetrical triangle'. The upside penetration of the down sloping (upper) trendline, followed by a pullback to that line which then 'acted as' support, followed by a surge higher suggests more upside to come.
The aforementioned upside breakout implies a next target to the 1260-1270 area over time, but perhaps not in a straight line so to speak. Once the Relative Strength Index (RSI)indicator reaches an overbought extreme, this might be associated with a sideways to lower corrective pullback; for example, RUT reaches 1240 to 1250 and pulls back to 1215, then resumes a further rise.
Resistance is suggested in the 1240 area, with a next possible upside target of 1256. Technical/chart support is seen at 1200, extending to 1190.
GOOD TRADING SUCCESS!