THE BOTTOM LINE:
In terms of the S&P indexes and the Dow, prices were either unchanged to off slightly on the week. Meanwhile, the Nasdaq market continues to gain; not a lot but both the Composite and the Nas 100 (NDX) continue to maintain their steep up trendlines as you'll see highlighted on those charts below.
The S&P and Dow are stalled. The S&P and Dow have been in an area of significant supply (of stock for sale) for nearly 3 weeks. Meanwhile, the Nasdaq continues to gain. Not a lot but gains have been ongoing and steady.
Any significant overall market correction isn't likely to occur until tech stocks sell off. In Elliott wave terms, by my assessment of the pattern, the leading NDX index is in a fifth and final wave higher. The point to make about this pattern is that the current advance looks like it's a final rally before a significant correction sets in. This isn't the powerful midpoint advance such as occurs typically in a 'wave 3'; conclusion of a wave segment is the number at the end point. The lagging S&P and Dow would also suggest that without the still strong technology stocks, this market would be selling off. Stock valuations tend to come back into line with each other at some point.
I don't often analyze the market in Elliott wave terms but there does seem to be an obvious wave pattern. I wrote a part 1 primer on basic Wave theory in my most recent (10/28) Trader's Corner article. I'll include my weekly NDX chart here with the wave highlights as I see them.
The other point to make related to the above weekly NDX chart is that even NDX is nearing a longer-term overbought extreme. If/when the weekly MACD gets to 80 and above, the index is in a high-risk zone for a correction.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) daily chart continues in its pattern of a lateral or sideways trend, which has extended to nearly 3 weeks now. While I usually assume that the direction of a next move will be consistent with the strong prior uptrend, there reaches a point where I start to assume that a top may be forming. There is the reality that buying interest hasn't been able to churn through overhead supply between roughly 1182-1l90 and 1220. If earnings releases have kept the market afloat, what happens when most of these have been announced? The market is a seasonal period when tops occur; i.e., October-November.
While there's no definite chart action that suggests a trend reversal, I'm on alert for a pullback. A move to the prior high that faltered would set up a possible double top. Conversely, a breakout above recent highs that continues on above 1220 could be a final leg up before there was a reversal.
Bullish sentiment picked up this past week as traders likely perceive the sideways trend in the S&P as possibly bullish (i.e., a consolidation) before another advance and there's of course definite bullishness toward the tech heavy Nasdaq.
Initial support is projected at the 21-day moving average (at 1172 currently), with pivotal technical support at 1140, extending to 1131-1130. Near resistance begins at 1182, extending to 1189-1186. Major resistance begins around 1220.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is showing no ability to churn through ITS 'supply' zone (with significant stock for sale) above 537 and extending to 554. This pattern leans toward a bearish top building interpretation. A decisive upside penetration of 537-540 is needed to suggest at least a retest of the prior top. To suggest an extended up leg OEX would of course have to break out above its prior highs in the 554 area.
Near support continues to be assumed in the area of OEX's 21-day moving average, currently at 529. Next support should come in around 511, extending to the 500 area.
Near resistance is at 535 to 539, with major resistance projected for the line of prior highs at 554.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) has been unable to break out above the upper resistance boundary of its broad uptrend price channel as highlighted on its daily chart. There were a couple of intraday penetrations of the upper channel line, rallies which lacked follow through. The rising upper channel line is also approaching the prior INDU high at 11258 and is a key test for the Dow. Based on the 30 stocks, I don't interpret enough of those charts as bullish enough to propel the Average to a decisive new high. Without IBM and just a few others of the 30 Dow stocks, the Average wouldn't be holding up so well.
Near resistance is in the 11200 area, then at the prior intraday high at 11258.
Near support is at 11044, at the current 21-day moving average; Wednesday's low (and the low for the week) occurred after the intraday low touched this aver
age. Next support is figured in the area of the (down) swing low at 10917.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) Index chart remains bullish. The upward advance has just managed to maintain its steep up trendline. The slow upward creep of late is likely explained by the fact that the index is nearing potential resistance implied by its 12-month high at 2535 as buyers take on more caution.
The RSI extreme suggests caution in adopting further or new bullish options strategies in key Nasdaq stocks but being overbought alone doesn't provide a compelling reason in adopting bearish strategies. Nevertheless I'm more tempted to short a potential double top (around 2535) than not, with 'risk' to just over the COMP prior high.
Key overhead resistance remains the same, at the prior 12-month high at 2535. Near support comes in around 2440 or the area of the 21-day moving average, with pivotal support, especially on a closing basis, at 2400.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) chart remains bullish. Repeating last week's comment that, while upside momentum is slow, it's also been very steady. NDX continues to climb at a rate keeping daily price ranges above its steep up trendline and that's a key technical aspect to this chart.
Overbought RSI readings continue and in this kind of super strong advance, this indicator is discounted in terms of its predictive value for a top at any specific level. As seen in my FIRST chart of the weekly NDX, prices could go still higher before there was a 'major' overbought condition. The RSI extreme does suggest caution in adopting further or new bullish options strategies but being overbought alone doesn't justify adopting bearish strategies. If the Nasdaq Composite traces out a potential double top, I'd consider buying some NDX puts, with an exit point just above the prior COMP high. A break of the NDX trendline would be another initial bearish 'signal'.
What had been anticipated resistance in the 2100 area now looks like near support in NDX. Next support is at 2050.
Near resistance may come in around 2150, with fairly major resistance at the high made almost exactly 3 years ago at 2239.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
There's little to add for the QQQQ tracking stock in terms of bullish comments made for the underlying Nasdaq 100. The Q's are 'maintaining' the steep up trendline.
Daily trading volume has slowed noticeably in the past 6 trading sessions. I usually discount low volume figures for QQQQ and mostly emphasize a continued move in the On Balance Volume (OBV) line in the direction of the price trend. However, continuation of a prolonged advance in an overbought market on LOW volume isn't the usual volume 'confirmation' (of the price trend) that keeps me confident in a continued bullish trading stance.
Near support: 51.0
Next support: 50.0
Near resistance: 53, then projected at 54.0
Major resistance: 55.0
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT), unlike the Nasdaq, its mentor-sister index, is drifting sideways, more in keeping with the S&P indexes and somewhat unusual. I'd call this chart mixed in its pattern.
There's no technical breakdown yet of the bullish trend, but there's some risk that a top is forming. This recent pause may simply be a consolidation ahead of a rally to retest 720 resistance. A breakout above 720 suggests that prior highs in the 740-746 area could be retested.
Conversely, a decisive downside penetration of 690 and certainly 680 would set up a potential retest of support in the area of RUT's 200-day moving average intersecting at 657 currently.
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.