THE BOTTOM LINE:
My chart of the week (one that I don't normally feature every week), that of the Dow 30 (INDU), suggests that the most recent INDU high forms the third point in a major weekly down trendline dating from INDU's late-2007 top. The fact that the Dow also has now retraced 50% of its Oct '07 to March '09 decline (from the 14000 area to around 6400) lends some further technical weight to why INDU might struggle around recent highs. The chart suggests that the last run up into mid-Sept also produced an overbought weekly RSI extreme, with subsequent highs not 'confirmed' by concomitant higher highs in the RSI indicator.
The sum of the foregoing chart considerations relating to INDU suggests technical 'reasons' why the market may struggle to make further advances from highs already reached. The Dow 30 big cap stocks have been leading the market higher recently (actually playing catch up to SPX and COMP leadership earlier) and when the current leader stumbles the other leading indexes will struggle. This is evidenced by the recent double top seen in the Nasdaq Composite (COMP).
Sure, the late-October COMP intraday peak was 2190 and this past Monday's high was 2205, but two tops within 15 points of each other in COMP is a potential double top. Apparent double tops are often overcome but they show at least areas of significant, even if temporary, resistance/selling pressure. Prior highs in the major indexes will likely be overcome at some point but further upside looks limited for awhile.
The S&P 500 (SPX) pierced ITS major down trendline some weeks back, but also is facing potential near resistance at its 50% retracement level around 1120; SPX's recent rally peak was in the 1114 area. The Nasdaq has now gone well above a 50% retracement of the '07-'09 bear market decline and could be headed next to test of implied fibonacci resistance in the 2250-2325 area; this from recent highs around 2200.
The long-term bull trend is intact from my perspective. However, corrective pullbacks along the way have also been part of the process and I'm assuming some further downside action lies ahead, or at least a choppy sideways trend over the coming 3-4 weeks. Currently I'm keying somewhat off the Dow for clues to market direction. Key INDU weekly trendline resistance comes in at the 10400 area in the coming holiday-shortened week. Pivotal near-term Dow support is 10200, the area of its prior (up) swing high, with next support suggested around 9920 as the current level of the 50-day moving average.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
There was a further run up in the S&P 500 (SPX) this past week consistent with the prior week's minor bull flag consolidation although the index follow through to the upside. No seen on the daily chart, resistance on the weekly chart implied by a major 50% retracement objective is at 1120 and SPX got close to that target before dipping back below 1100 support.
If a pullback here is like past corrective patterns, look for further downside. Near support is implied by the 50-day moving average, currently intersecting at 1070. Next support begins in the 1045 area, extending to the prior lows around 1030 which is also support at the low end of SPX's uptrend channel as highlighted on the chart.
A move above 1105-1110 is needed to suggest that the index could not only manage a Close above the 1113 prior intraday high, but could then push on higher, such as to the 1150 area.
A recent closing high (11/17, at 1110) took the SPX 13-day RSI to my suggested overbought zone; this area (of the RSI) has been a fairly reliable indicator reading that has preceded pullbacks such as for 60-70 points on the last two occasions. Since the July low, SPX has not been into oversold RSI territory.
Bullish sentiment has been declining on balance in the last 7 trading days as can be seen on my CPRATIO indicator above. This is a healthy trend for the bulls. Another price decline accompanied by a further drop in bullish sentiment or a buildup in bearishness, should bode well for another rally to come.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) Index after a recent rally petered out going into expiration has dropped back to support in the 509-510 area. My assessment is that there's a better chance of a further 15-20 point drop then there is for that much on the upside relative to Friday's 509 close.
Near resistance is assumed at the 517 recent high, with further resistance projected at 525-530.
Support is anticipated in the 595-596 area, which is both where an upside chart gap is 'filled in' but also the area of the 50-day moving average. Next lower support is likely at the prior low in the 480 area, extending to 475 at the low end of OEX's uptrend channel.
The OEX has had a consistent tendency in recent months for sell offs after reaching the highlighted 'overbought' zone, but for rallies to develop not on pulling back to an oversold RSI reading but from its suggested 'neutral' zone as seen below. It's common in strong uptrends for limited occasions of oversold extremes, similar to dominant downtrends only rarely having overbought readings.
DOW 30 (INDU) AVERAGE; DAILY CHART:
As anticipated the Dow 30 (INDU) Average got close to resistance implied by the top end of the highlighted uptrend channel followed by a pullback. As I wrote last week: "After any further surge higher I'd be looking to take profits in Dow Index (DJX) calls." Monday's strong rally qualified and the following day saw the Dow close a bit higher even.
INDU resistance is suggested at the prior recent intraday high at 10438. An interesting aspect of the way the Average is kept is that its intraday high doesn't always reflect an actual 'print' at that level but the level that the Dow would have reached given the highest highs reached by the 30 stocks comprising the Average at any given point in the day's trade or by day's end. Next higher resistance is suggested at the top end of INDU's uptrend channel, intersecting at the beginning of the coming week at 10535.
Initial near support lies in the 10200 area, or at what was prior 'resistance' at the cluster of prior INDU highs from 10/21-10/23. Next support is at 10100-10120, then in the 9922 area suggested by the level of the current 50-day moving average.
The Dow hit an overbought extreme according to the (13-day) Relative Strength Index or RSI on the highest daily close seen this past week; Tuesday, at 10437. You can easily see on the RSI indicator line the past overbought extremes leading to a subsequent correction. Sometimes the 'lag' time before that happens is a few days, but you can generally assume that a correction is coming, even if that 'correction' is more of a sideways to slightly lower trend rather than a sharp sell off.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP), as mentioned in my initial 'bottom line' comments above, has a bearish looking chart given the current formation of a double top. If resistance at 2200-2205 is pierced then the chart accordingly turns bullish again and a next upside objective could be to the 2250 area, even 2300-2325. Any recent bearish pattern still is seen in the context of COMP's uptrend price channel.
Support is suggested in the 2127 area, at the 50-day average, then down at the low end of the aforementioned channel that currently intersects at 2081 as noted on the chart. If COMP closed below the prior 2024 low for a couple of days running, a reversal of the intermediate up trend would be suggested.
As noted with the S&P, bullish trader sentiment has been falling recently and this bodes well for a next rally, especially on or after any drop in my CPRATIO bullish/bearish model to its 'oversold' (extreme bearishness) zone.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) index showed a bullish pattern when it achieved a decisive upside penetration of its prior high in the 1780 area. Subsequently, last week, it was not so bullish to see NDX drop back under its prior 1781 peak in that this action suggests a possible at least interim top.
Any recent near-term bearish price action has to be viewed in the context of the continued Nas 100 trade within a broad uptrend channel. Absent a fall below pivotal technical support at the NDX up trendline at 1700, maintaining a trend within the uptrend channel suggests potential to go higher still. Near support is noted at 1731 on the chart (at the 50-day average) and this also falls near important support at 1733, at the low end of the upside price gap that occurred in early November.
Key near resistance is at this past week's 1814 high, with a pivotal longer range resistance at the top end of NDX's broad uptrend channel (seen at the red down arrow) around 1900. Assuming resistance at this past week's 1814 high is overcome, an initial move could take NDX to the 1850 area.
I noted last week that: "Faltering upside momentum seen recently suggests that another pullback is underway, consistent with NDX price swings of recent months. This has been especially true after the index has hit overbought RSI extremes." Well, there was ONE more minor rally on Mon-Tues, followed by a correction. Some further downside is suggested although nothing major.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
Always it seems we see QQQQ surges in daily trading volume on declines, especially ones that break some perceived technical support; e.g., a pullback below a prior top after it was substantially exceeded. This is consistent with the way that stocks trade, as buying often is piecemeal on the way up, but selling often tends to be a one-time dumping of most or all of what was previously accumulated over time.
The On Balance Volume (OBV) indicator has been sloping lower along with the recent decline so no bullish divergence is suggested. QQQQ looks headed lower from here, but I don't see huge downside: maybe to support around 42.6 or perhaps to 41.8.
Near resistance comes in at 43.8-44.0, then has to be assumed at the prior 44.6 high, but is then hard to measure technically until or unless there was an advance to the 46.17 area at the top of its trend channel. I get one projection of interim resistance (above 44.6 and below 46) that comes in around 45.3 currently.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) has been the weakest of the major indexes which somewhat reflects its tendency to track the Nasdaq, but there seems to be more than this at work. The small to mid-cap stocks do best when there's a strong economy or the prospects of one. Lately, discouragement about how long a full-blown recovery may take to develop has set up.
A 625 double top looks cemented in place so to speak if the prior low at 553 is pierced. Absent that, 620-625 may simply be the top end of a trading range going forward, perhaps for some weeks.
Pivotal near resistance comes in around 600 currently, with a next key resistance at 616-618.
Immediate near-term support is noted at 577, at the lower channel trendline, with the most pivotal support at the prior 553 low. Below 553 I'd estimate a next downside objective to maybe 536.
GOOD TRADING SUCCESS & A HAPPY THANKSGIVING!
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.