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The price chart below shows daily SPX (green line and right scale), daily NYSE Summation Index (NYSI; red line and left scale), and the NYSE Oscillator (NYMO) 50-day MA (blue line). Normally, when both NYSI and the NYMO 50-day MA rise, SPX also rises. Moreover, both NYSI and the NYMO 50-day MA fell to low enough levels recently to create an SPX intermediate-term bottom. Also, above the price chart is the CBOE Put/Call (CPC) 21-day MA and below the price chart is the CPC 50-day MA. Typically, a falling CPC 21-day MA is market bullish. Both the CPC 21

The monthly chart below shows SPX managed to close the month above the middle Bollinger Band, maintained the bullish MACD, and held Money Flow steady. So, the cyclical bull market remains intact. Also, intermediate-term technical indicators, e.g. the NYSE’s Summation Index, Bullish Percent Index, and Oscillator MAs, reached low enough levels in June, consistent with other cyclical bull market pullbacks, to indicate an intermediate-term bottom. However, a breakdown of those lows will lead to a larger correction or a bear market. Also, SPX had a classic October to May rally and has entered the seasonally weaker period. Consequently, a volatile trading range will likely take place over the next few months.

The daily chart below may indicate the SPX July trading range. Volume normally decreases over the summer. Major support levels are 1,253 (multi-year Fibonacci level) and 1,246 (previous support

The most recent article “Lower Volume Trading Range” showed SPX held the cyclical bull market low, intermediate-term technical indicators may have bottomed, and an SPX 1,246 to 1,290 range may take place in July. However, the possibility of a rise above 1,290 should be taken into account.

The two charts below show daily SPX (right scales and candlesticks) and daily NYSE Oscillator (NYMO; left scales and green lines) in 2004 and currently with SPX 50 and 200-day MAs. NYMO closed above 72 on Monday, which is the highest level since early-June 2004.

The first chart shows SPX topped in March 2004 at 1,163 and began a volatile downtrend. The second chart shows SPX topped in May 2006 at 1,326 and also began a downtrend. The gray arrow in the 2004 chart may indicate SPX movements over the next month. The first two weeks of July tend to be bullish. So, it’s possible, SPX may rally into earnings season, stay high, and sell on the FOMC anouncement August 8th. A short-squeeze may be triggered above 1,290 with upside potential to around 1,310.

However, there are major differences between the 2004 and current charts. When the 2004 NYMO rose above 80, it began below negative 100 (both the high and low were historical extremes), while the current rise began slightly below negative 50. Also, SPX rose above the 50-day MA on the first bounce after the top in 2004. However, SPX failed to reach the 50-day MA on the first bounce after the top in 2006.

Over the 2004 downtrend, Read more…

Stock option trading can be considered as one of the most financially rewarding strategies one can become involved in. Sometimes, this becomes a destructive investment plan, though. Stock option is the ?right? to purchase a stock at a given price within a specified time. Stock option trading is largely dependent on certain factors, such as name of the associated stock, strike price, expiration date, and the premium paid for the option, plus the stock broker?s commission.

Stock option trading involves trading standardized options contracts, which are listed by a variety of futures and options exchanges. In the United States, there are presently six exchanges where stock options are traded, including four open-outcry marketplaces and two electronic marketplaces. The open-outcry marketplaces are Philadelphia Stock Exchange (PHLX), American Stock Exchange (AMEX) in New York City, the Pacific Exchange (PCX) in San Francisco, and the Chicago Board Options Exchange (CBOE). The International Securities Exchange (ISE) and Boston Options Exchange (BOX) are included in the electronic marketplaces. In Europe, the main futures and options exchanges are Euronext.liffe and Eurex.

Another option to trade a stock is the ?over-the-counter? (OTC) trading, which is the opposite of exchange trading occurring in option exchanges or futures exchanges. The OTCs are traded not in exchanges, Read more…

The FOMC has raised the Fed Funds Rate 25 basis points (or 1/4%) at every meeting, since mid-2004, from an accommodative 1% to a possibly neutral 5%. It’s widely expected the FOMC will tighten again on June 29th and there’s uncertainty if further tightening will take place this year.

The first chart is a five-year weekly chart of SPX to USD (red line and right scale) and SPX (blue line and left scale). The chart shows the SPX to USD ratio and SPX are highly positively correlated, although there’s some spurious correlation. The MACD indicator, above the price chart, has a negative divergence and bearish crossover, which may indicate SPX direction.

The second chart is a five-year weekly chart of USD and SPX. The chart shows USD steadily depreciated from early-2002 to late-2004. The circle identifies a USD bullish inverse head

Previously, I’ve noted similarities between the recent SPX and the 1994 SPX, which suggested a bottom at 1,197, and the April 2005 SPX, which suggested a bottom at 1,228. Last week, SPX fell to 1,219 and rallied strongly to close at 1,252 Friday. Currently, intermediate-term technical indicators suggest SPX may have reached or is close to an intermediate-term bottom and may begin a rally soon.

Below is a two-year daily chart of SPX (black line and right scale) and NYSI (blue line and left scale) with 50-day MAs of VIX NYMO and CPC above and below the price chart. The gray arrow indicates similarities between the current SPX and the Apr 2005 SPX. The indicators suggest there may be a final “wash-out” below 1,200 or a continuation of the volatile trading range e.g. between 1,220 and 1,260 next week. SPX may then begin an uptrend for at least several weeks.

However, fundamentally, SPX may be in a volatile range throughout the summer, rather than rally to new highs, because the general price level is high enough to carry on uncertainty about monetary policy. Consequently, SPX upside may be limited, e.g. 1,280 or 1,290, although all the intermediate-term technical indicators should turn bullish in June or July. Currently, Read more…

Option trading is fast becoming one of the hypes of this generation. Option trading has been and still is being taught all over the world as the definitive investment instrument for entry to the fast track. Popular speakers like Robert Kiyosaki and Robert G Allen have fuelled this option trading hype in a very big way. The steadily rising number of option contracts that have been traded over the past years is evidence to the rising popularity of option trading.

While option trading is one of the most versatile investment vehicles that have ever been created, it does have fundamental limitations.

First of all, the number of optionable stocks in the markets is really quite limited. Only 2649 out of 7277 tradable securities in the US markets offer stock options. This represents only 36% of the universe of tradable securities. This percentage is even lesser in other markets in the world. This results in a fairly limited choice for investors to choose from.

Secondly, the liquidity of most stock options up for option trading is also pretty limited. In fact, only a handful of stocks have options with liquidity to handle a respectable fund size. The result of which is that it may be difficult for investors with bigger funds to participate as freely in option trading as they may in trading shares. In this respect, option trading may be more productive as a hedging instrument against a large portfolio of shares.

Thirdly, due to its Read more…

The first chart shows the daily SPX (black line and right scale) and the NYSE Oscillator (NYMO) 50-day MA (blue line and left scale). Previous patterns indicate when the NYMO 50-day MA falls below negative 20, then a bottom will be in place and SPX will be in position for a sustainable rally. Currently, the NYMO 50-day MA is negative 15 1/2 and the daily NYMO is negative 15. So, the daily NYMO will have to stay below negative 15 1/2 for sufficient time and levels to bring the NYMO 50-day MA below negative 20.

The vertical line in the first chart shows April 2005 technical indicators are in somewhat similiar positions compared to current indicators. In March and April 2005, SPX fell from the high at 1,229 to the low at 1,136, from early-March to late-April, before starting the uptrend. Over the current downtrend, SPX fell from the high at 1,326 in early-May to a low at 1,235 last week. The similarities indicate SPX could trade between 1,230 and 1,260 for one to three weeks and then the NYMO 50-day MA may be in position for a SPX bottom. Also, the NYSI (below price chart) may fall into position for a SPX rally.

The second chart is an SPX monthly chart that shows the monthly middle Bollinger Band, currently 1,228 1/2, has held throughout the recent cyclical bull market. Consequently, a fall below that level may indicate a greater fall and the start of a cyclical bear market. Below the price chart is the monthly MACD, which gave a bearish crossover last week. However, the crossover is valid only if it closes the month bearish. Above the price chart is the monthly Money Flow, which remains positive, although has deteriorated, which may indicate the tail-end of the cyclical bull market.

It seems most likely SPX will Read more…

There are two Market Forecasts this week (also see “Cyclical Bull Market Support Line”). The first chart below is an SPX monthly chart from January 1990 to November 1994 and the second chart is an SPX monthly chart from January 2002 to the present time (June 2006). The first chart shows SPX traded above the monthly middle Bollinger Band for 37 months, except briefly in October 1992, and then fell below that level when it had a 9.7% correction. The second chart shows SPX traded above the monthly middle Bollinger Band over the past 36 months and continues to hold that level.

Unfortunately, much technical data for the early-1990s are not available. Also, much of the available data for both periods don’t have meaningful relationships. However, the VIX MACD and ULT are shown for both periods. Comparing the two pullbacks, the monthly VIX in 1994 rose from roughly 11 to 21, while the current monthly VIX is slightly above 18 from roughly 11. The monthly MACD in 1994 gave and held a bearish crossover, while the current MACD gave a bearish crossover last week, although it’s uncertain if it’ll hold for the month. The 1994 monthly ULT held 50, while the current monthly ULT is 51. So, the technical data are mixed.

Currently, the CBOE Put-Call Ratio MAs are at historically extremely high levels, which is typically market bullish (since the put/call is a contrarian indicator). Also, the 10-year bond yield is slightly below the Fed Funds Rate, which may indicate little bond upside and limited Read more…

The first chart shows SPX and the NYSE Oscillator (NYMO) 50-day MA. Previous patterns indicate when the NYMO 50-day MA falls below negative 20, then SPX will begin an uptrend. However, the NYMO 50-day MA hasn’t fallen below negative 20, which indicates either volatility, a test of the recent low, or a further pullback.

Above the first chart is the daily NYSE Summation Index (NYSI) and daily NYMO with its 20-day MA. The NYSI is not low enough to indicate a sustainable SPX rally. Also, the daily NYMO indicates SPX is currently near severely overbought. Moreover, previous patterns indicate the NYMO 20-day MA needs to fall below negative 30 for SPX to begin a sustainable rally.

Below the first chart are the SPX MACD and CBOE Put/Call (CPC) 10-day MA. The SPX MACD created a bullish crossover late last week, while the CPC 10-day MA is at an extreme enough level to indicate the SPX rally is sustainable. However, the gray arrow shows similar extreme levels of these indicators can still allow one more SPX pullback after a bounce.

The second chart shows SPX is near resistance at 1,295, i.e. the 50-day MA, the two day pause of the steep fall, and a Fibonacci level. If SPX rises above and holds 1,295, it may test the high at 1,326. However, resistance may hold after rising from the low over a week ago. If the correction is over, which is unlikely, SPX will often bounce off the 10-day MA.

The third chart is a monthly SPX chart. The zigzag line shows that the previous three times SPX pulled-back, it fell roughly 75 points in two or three months. However, this time, SPX fell roughly 75 points in just over two weeks. The middle monthly Bollinger Band, currently 1,230, is the cyclical bull market support line.

Above the third chart is Money Flow, which shows money is flowing into SPX at Read more…