PeakTrader.com

[arthur]

The first chart is an SPX year-to-date daily chart that shows a MACD bullish crossover late last week. Also, the 10 day MA is rising, which may be bullish short-term. SPX has recent open gaps at 1,176 and 1,198. Short-term support levels are at 1,179 (10 day MA), and 1,164 (Parabolic SAR buy signal, see previous Market Overview section). Also, 1,170 to 1,180 was a recent congestion area, which is now a support zone. Short-term resistance levels are at 1,192 (which was a previous support and resistance level), 1,194 (50 day MA), and 1,200 (which would close the upper gap). Also, 1,182 to 1,188 was a previous congestion area, which continues to be a resistance zone.

The second chart is a SMH daily chart, since Jul '04, and the third chart is a SMH weekly chart, since mid-'02. The daily chart shows higher lows with resistance at about 35. The 50 day MA is rising and the 10 day MA has flattened after falling. The weekly chart reflects the cyclical bull market that started in 2002. SMH fell to a post-bubble low of 17.32, rallied sharply to 45.78, retraced 61.8% of the bull market gain, and then generally consolidated. The 10 week MA rose above the 40 week MA recently (for the first time in two years), which may be bullish.

The SMH 61.8% retracement last year was overdone, because the fundamentals (e.g. book-to-bill ratio) were stabilizing, and showing signs of improvements. The sell-off from the 50% retracement was brutal, because QQQQ retraced less than 38.2% of the rally, while SMH sold-off to 61.8% of the rally. Consequently, I believe, that sell-off "washed-out" many investors, and the subsequent rally and volatility removed even more "old" investors. It seems, SMH will retest 35 soon, and show greater relative strength. The Federal Reserve "talked-down" bond prices earlier this year and seems to be currently talking-down oil prices. So, perhaps, it's best to buy SMH long-term calls (e.g. Aug) on dips, and hedge with OEX short-term puts (e.g. May) on (OEX) bounces.

Economic reports next week include: Tue Trade Balance and Tue afternoon Mar 22nd FOMC minutes, Wed Retail Sales, Thu Unemployment Claims and Business Inventories, and Fri Industrial Production, Capacity Utilization, Michigan Sentiment, and Export & Import Prices. Some notable earnings next week are: Mon (after the close) DNA, Tue ABT AMTD TZOO, Wed AMD AAPL, Thu PEP UNH RMBS SUNW LUV FDC VICR, and Fri GE C MAT GPC. The Trade Balance report may affect the dollar, which may influence gold prices. A weaker dollar typically has a positive effect on the stock market, particularly U.S. multinationals (i.e. large American firms with foreign exposure), because of increased foreign revenues and favorable exchange rates. However, the Retail Sales report may have the most powerful effect on market direction.

The OEX Apr Max Pain point fell from 565 to 560 Fri. The other major indices Apr Max Pain points are unchanged, i.e. SPX 1,190, DIA 106, and QQQQ 37, with far more puts than calls, which is bullish (since the put/call is a contrarian indicator). However, I tend to believe, SPX will settle around 1,185, or lower, next Fri (just before Apr options expire). Also, I believe, SPX will retest the recent low, falling into the 1,160s, before the FOMC meeting May 3rd. So, perhaps, OEX May puts are buys at over 565. The market may be nervous before the Retail Sales report Wed. So, there may be an opportunity to buy SPX Apr calls Tue afternoon.