THE BOTTOM LINE:
Different technical analysis aspects 'work' at different times. An example is support being suggested by a pullback to a particular moving average. Often the 21-day average suggests where support and resistance can be anticipated in the major indexes; sometimes the popular and widely followed 50-day average will indicate support on pullbacks. This past week the major indexes, particularly SPX, the Dow and the Composite, rebounded pretty much exactly from support implied by their 50-day averages.
I often look for support on pullbacks in uptrends to be found at the common fibonacci retracements, with the addition of the 66% 2/3rds retracement in that mix. I put even more stock in chart patterns like trendlines as suggesting where a pullback will end and a trend resume. Last week saw a convergence of an exact key retracement (66%) being reached as well as a touch to a key up trendline, with both suggesting a 'natural' area for a pullback low in the S&P 500 (SPX). The S&P stocks are getting more play now that a recovery is being hinted at in the economic tea leaves.
It is also true that it can be hard to pinpoint WHICH trendline and which prior low and high to use in calculating key retracements. We know which high to use in calculating possible pullback retracement levels in an uptrend; i.e., the LAST one. I got throw off the scent somewhat in my last week's analysis by going back to last MAJOR low (in early-July) and calculated retracement levels relative to the 1075 SPX high.
Sometimes the market is completely simple and the key retracement support, at 66% in SPX anyway, was found simply by using the LAST low in late-August. This brings me to the chart of the week. Technically, two aspects, the hourly support up trendline and the sometimes pivotal 66% retracement, seen on the hourly S&P 500 chart showed exactly where our recent low could or 'should' fall.
CHART OF THE WEEK:
There are other things to look at here and the key one is what the heck happens NEXT!? Bullish sentiment took another huge jump and I'm as usual leery of being in the swell company of a bunch of 'swells', the crowd that is jostling for the next big win. As the major indexes are coming up on their prior highs we have to be leery of a possible double top to cause a stumble even an interim and temporary one.
This idea contradicts with my belief that we WILL see DOW 10000. Actually, these two concepts don't necessary contradict as itâ€™s a question of WHEN we see INDU challenge 10000 if I'm correct in THIS assumption. I base my conviction of Dow 10000 on 1.) the simple psychological 'pull' toward a major number like this and 2.) that enough Dow stocks project higher to take the Average there.
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) remains bullish in its pattern and the next key test of that trend is the ability of the index to pierce its prior (1075) high per the SPX daily chart highlights below.
The key near-term support is now suggested by the recent 1020 low, at the 50-day moving average. SPX remains in its uptrend price channel as do all the other indexes. A tip of to slowing upside momentum is still the same which is any close below a prior (down) swing low. The virtual definition of an uptrend is where prices make higher relative highs and relative lows; i.e., the 'stairstep' effect we see in uptrend like this.
Key support is 1020 as mentioned, than at 992, extending to around 978, support implied by the third last swing low AND the low end of the uptrend channel I've projected for SPX.
Pivotal resistance is at the prior 1075 high, extending to 1100.
I mentioned bullish sentiment taking a big jump last week on my indicator, as seen at bottom. This relatively high level doesn't point to an immediate top but there's a good track record of corrections within 1-5 trading days of such highs.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) Index chart remains bullish and is now approaching its prior intraday high and a very key resistance in the 500 area. Currently I don't see OEX going to much more than a nominal new high before pulling back again. If the index instead breaks out to above the top end of its channel, currently intersecting in the 510 area, this action would instead suggest an accelerating advance.
I've noted the tendency before for the S&P when in a strong uptrend to not have many instances of pullbacks that also see an 'oversold' 13-day RSI. Rather, I've highlighted the many instances where rallies occur after this indicator gets back to a more neutral mid-range reading. There is a concomitant association for corrections to occur after rallies carry the RSI into 'overbought' territory and there's more room on the upside so to speak in this regard.
Key support is at the prior 473 low, then at the prior swing lows before that at 462 and 455. Support implied by the low end of OEX's uptrend channel is in the 460 area currently.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow has maintained its bullish chops as the last low at 9430 stayed above the prior low and bounced from the 50-day average. Ahead lies a possible test of the prior 9918 rally high. The major level we'll all be talking about is if and when the Dow can manage to get to a FIVE digit number at 10000 and above.
Key near resistance, beyond 9918 and 10000 already mentioned is suggested by the top end of INDU's uptrend channel, currently intersecting at 10125.
Pivotal near support is at 9430, then at 9253, extending to the 9115 to 9030 area. 9000 continues to look like major support.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) in a switch isn't getting pulled higher to the same degree as the S&P currently. Has tech lost some of its luster? This sector and the Nasdaq market is still quite strong but leadership tends to shift a bit when some of the cyclical stocks start getting picked up by fund managers when they smell economic recovery or a turn of the corner.
Key near resistance is in the area of the prior high around 2168, then up in the 2200 area and a bit higher in my estimation.
Pivotal near support is suggested at the recent low in the 2040 area, with major support in the 2000 area.
Bullish sentiment was discussed with the S&P above but again the indicator at the bottom of the COMP daily chart below tells the story historically at least. Rallies have had difficulty sustaining themselves when traders get as bullish as suggested by my CPRATIO model.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) has a bullish chart and awaits a key re-test of its prior intraday rally peak in the 1755 area. Such a retest is a common outcome of a bullish pattern like this one. The expected or common doesn't have to happen of course but I tend to go with the percentages of times that we see similar occurrences. A prior high so often attracts more buying until at least that high or near to it is seen again. A stumble or pullback from the 1750-1755 area would set up the possibility of a double top, even if this was only temporary; e.g.,1-2 weeks.
I've suggested by the trend channel boundaries seen below, that next resistance above the prior high would lie in the 1800 area.
Near support is suggested at this past week's intraday NDX low around 1657, with the next lower support zone at 1610 to 1585. I'm out of any calls I held in NDX but am in the (QQQQ) Nas 100 tracking stock, which offers me NDX participation without worries of a whippy market on a short-term basis. Hey, I want to be long in any 'Santa Claus' rally and with the snow whipping around in the Rockies here I am thinking more like Christmas than I was last week overlooking the Pacific!
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
The important On Balance Volume (OBV) indicator has now of course flipped back up and lends support to the bullish possibilities of a new high above 43.17. Stay tuned on that. I'd like it but I'm talking my position.
Near QQQQ resistance: 43.17
Next overhead resistance: 44.0
Near QQQQ support: 40.7
Next support: 39.5-39.0
RUSSELL 2000 (RUT) DAILY CHART:
Gee, if I had only been looking at the 55-day fibonacci average which I find usually 'works' with the Russell 2000 (RUT) in terms of showing the strength or relative weakness of the its trend, I'd have better pinpointed the SPX and COMP low. RUT remains in a strong uptrend but with an important test of the prior 625 high as a possible to likely next move. Next resistance is suggested by the top end of its uptrend channel around 640.
Near support is in the low 580 area currently. My suggested key support last week was pretty close to the actual 576.4 low intraday print in the RUT. Next support in the Russell is at 552, extending to around 549.
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.