Bass Investment Group | Oklahoma City, OK

While the simultaneous expiration of contracts for stock index futures, stock index options, stock options and single, stock futures only occurs four times a year (aka “quadruple witching expiration” and that being today), two of the four major stock market indices broke their recent winning streaks. At the final bell, the DJIA and the NASDAQ gained 45 points and two points respectively; the S&P 500 and NYA closed lower. On the NYSE, volume contracted to 924 million shares. There were 499 net declining issues, a weak reading relative to the DJIA and indicative of more selling pressure than what was evident by the DJIA and the NASDAQ.

The stock market remains overbought on a short-term basis, as defined by some previous readings of the 10-day average of the Arms Index and the Oversold – Overbought oscillator. While persistent “overbought” readings are bullish (they are a sign of strength), I keep “hoping” for some type of pause or pullback. I feel this way because a pause (consolidation) or pullback would allow higher bases of support to develop, thus providing “better” stop loss points (manage risk) for many chart patterns, which includes the major stock market indices. Does it have to happen? Of course it doesn’t. Would I like to see it occur, yes I would.

In front of “who knows what might happen over the weekend with the healthcare bill,” its effect on the stock market and an extension of yesterday’s report, in which I included resistance, retracement (mathematical resistance), and target levels for the S&P 500, shown below is a nine month chart of the S&P 500. I’ve included a very short-term rising 20-day moving average (support).

I’ve attempted to highlight some initial support levels for the SPX (1165.83), which basically “cluster” between 1150 and 1125.

I commented last week about the potential for a short-term counter trend move higher, by the Euro. If I had to the opportunity do it again, which I don’t, an easier trade would have been to comment on the bullish trend of the Canadian Dollar, as defined by the CurrencyShares Canadian Dollar Trust (FXC/$98.24). Consequently, I’ll say it now. The FXC recently completed a triple-top continuation pattern and looks higher. Based on the depth of the base that was completed, a near-term target just under $103 can be gleaned. Initial support exists between $97.25 and $97 followed by $95.75.

Thursday Morning 03/18

Here are the most recent BULL - BEAR investment newsletter advisory sentiment figures and a paraphrase of a portion of the

The BULLS moved higher again to 46.1%. The bulls are now up about 12% from their reading that accompanied the early February market correction low, but they are still well below the levels shown at tops in bull markets. The bulls were 53.4% at the start of January when the indexes reached their first highs. It is a favorable sign now that we see almost all indexes above those levels without the same degree of advisor bullishness. Bullish readings in the mid 50's would worry us. The BEARS were down to 21.3%, still not near the very low level of pessimism shown on in January when they were 15.6%.

Relative to yesterday, much to the chagrin of those who have been wrong in looking for a “whack” this week (that would be me), in true “St. Patty’s Day” fashion, there was a sea of green on Wall Street. That said, while I had been feeling that “new reactionary highs by these indices are coming,” my statement that “I think we are subject to at least one good ‘whack lower’ at some point this week” couldn’t have been more wrong.

In what was a mirror image to Monday’s poor internal tape action, the stock market’s internal readings were stellar all day both Tuesday and yesterday. At the close, the DJIA gained almost 48 points; the S&P 500 and the NASDAQ rallied almost seven and eleven points, respectively. The SPX and DJIA have closed at new reactionary highs, thus joining the party. This implies that while I would still beg for a short-term pause or consolidation period in order to allow a new base of support to develop, the selling pressure derived from the mid-January peaks has been absorbed – bullish.

On the NYSE, volume marginally expanded to 1.02 billion shares. While the dearth of volume remains one of the points that the Bears are rallying around, 1) they have been wrong and have missed out on a huge number of money making opportunities, 2) this should be looked at as part of the proverbial “wall of worry” that the stock market likes to climb, and 3) when non-expiration induced volume explodes to the upside over a few day period, this will be a sign that “everyone” has finally accepted the intermediate-term rally and that it’s time to move to the other side of the ship. There were 601 new 52-week highs, finally taking out the former peak reading from January. This implies that trading and investing opportunities continue to develop.

Within the context of my long standing target for the S&P 500 (1166.21) closer to 1245 (derived from the inverse head & shoulders bottom pattern completed last summer), resistance exists at 1200 and a 62% retracement of the “2007 to 2009 decline” equates to approximately 1229. My long standing target for the DJIA (10733.67) has been closer to 11400 (derived from the inverse head & shoulders bottom pattern); resistance exists between 10829 and 11168. A 62% retracement of the “2007 to 2009 decline” equates to approximately 11246.

Interestingly, I had planned on featuring the chart on page two of the exchange traded note (ETN) for Nickel (JJN) today, not knowing about the article in today’s Wall Street Journal, titled “Scrap Metal’s Lament: Few Scraps.” A target price based on the depth of the recently completed base of $42 can be gleaned.

Side Note: Question: “Art, where can I see volume in a way that tells me something? If I look at a chart of Volume on the NYSE, the data is meaningless.” My Answer: I disagree. You can view volume (I use the figures in the Wall Street Journal) in two ways: 1) what is volume doing relative to the previous day - when the market is up or down, does volume expand or contract from the previous day and 2) what is happening with advancing volume versus declining volume?

Wednesday Morning 03/17

The debate rages on concerning the economy. “Some” love it. Okay, maybe they really just “like” it; maybe “love” is too strong. “Some” don’t like the economy. Others, like me, besides listening to what Chief Economist Dr. Scott Brown says about the economy, prefer to look towards the stock market for clues.

To this last point (“look towards the stock market for clues”), shown below is a relative strength chart* of the S&P Consumer Discretionary Sector, representing the cyclical aspect of the stock market versus the S&P Consumer Staples Sector, representing the defensive nature of the stock market.

When the line is trending higher, the cyclical aspect of the stock market is outperforming the “defensive” aspect of the stock market. Another way of interpreting the current trend of the relationship between the Consumer Discretionary sector and the Consumer Staples sector is that the economy is doing fine. Okay, maybe “doing fine” is strong; maybe it is simply “chugging along,” acting better than many think. Could it also be that this relationship is making a statement about the future of the healthcare plan (it fails), thus removing one anchor around the neck of the economy (no cat-calls or e-mails please)? Even “Mr. Boo-Yah” stated yesterday, “I think some of that is rates will stay low and some that employment is better.”

Interesting – yet in any event, the current trend shown above tells me that trading and investment opportunities still exist for proactive accounts that will manage risk (cut losses) and are willing to take profits, in the more cyclical areas of the stock market!

Tuesday Morning 03/16

While the DJIA gained almost 17.50 points, the S&P 500 was fractionally higher, the NASDAQ lost 5.50 points, and the “Dow Trannies” and “Dow Utes” were higher, the headlines I read stated that “stocks avoided a distribution day...” I beg to differ. For the first time in a while, the underlying price action of the broad market was much worse than what the major averages would lead you to believe. Political pandering (healthcare and financial regulation) in front of today’s FOMC meeting and policy statement surely didn’t help psychology. One of the best things I did see in “big-cap land” was the very bullish high volume base-on-base breakout by Strong Buy rated Wal-Mart – see chart below. On the NYSE, volume contracted to 926 million shares. Yet, for the second consecutive day, while the DJIA was higher, declining volume led advancing volume. There were 483 net declining issues as the hourly breadth figures were poor throughout the session.

Within the context of 1) an intermediate-term uptrend and 2) from a short-term perspective (“while history doesn’t always exactly repeat many times it rhymes”), the relative strength chart of the small cap universe defined by the Russell 2000 (RUT) versus the large cap universe as defined by the S&P 500 (SPX). shown below, implies the odds favor that the near-term trend appears vulnerable to a pullback (a “whack”) this week or a consolidation period.

Why do I feel this way? When the relative strength line is trending higher, small caps are outperforming large caps (and vice-versa.) As you can see, this relationship shows that small caps have been significantly outperforming large caps and have reached in extreme level, which in the past, have returned to a more normal relationship through a “whack lower.” Given the positive intermediate-term stock market backdrop, to paraphrase what Chief Investment Strategist Jeffrey Saut stated yesterday:

"We agree and therefore always try to ‘look’ down before looking up in an attempt to manage the risk. As for the ‘here and now’... we currently think pairing some trading positions, and/or raising stop-loss points, is warranted.”

Monday Morning 03/15

As the relative strength trend of the DJIA – versus the S&P 500 and the NASDAQ – has really waned recently, stocks closed mixed last Friday, accompanied by a mix of economic data; Retail Sales were better than expected, yet the Consumer Sentiment (University of Michigan) reading was a disappointment. At the final bell, the DJIA gained almost 13 points while the SPX, NASDAQ, and RUT closed fractionally lower. For the week, the NASDAQ climbed 2%, the SPX rose 1%, and the DJIA gained 0.6%.

On the NYSE, Friday volume expanded to 1.04 billion shares. There were 310 net advancing issues and 436 new 52-week highs. Despite these relatively good readings, I will mention that selling pressure was more prevalent than what they indicate. I say this because there was more declining volume than advancing volume, and the Arms Index closed at 1.61. In light of this, given that this week is “Quadruple expiration (more on page two) the “overbought” condition and the SPX is basically stalling at its January peak (resistance), I think we are subject to at least one good “whack lower” at some point this week! As long as volume doesn’t consistently increase during “down days,” I don’t think the “whack” will be a problem. I say this because a few low-volume declines would allow more institutional money to enter the stock market.

Very near-term support is as follows: DJIA (10624.69) = 10505 (uptrend line drawn off 2/5/10 low), 10415 (rising 20-DMA); similarly derived levels for the S&P 500 (1149.99) = 1125 and 1117.

This week is the first “Quadruple Witching” week of the year. What this means is that stock options, index options, index futures, and single stock futures all expire on the same day, Friday 3/19/10. As shown below in the table, the spread between the intraweek high and low can be substantial and produce opportunities.

One strategy for quadruple witching we have found that works well is if you want to buy a stock, put the order in a couple of points below the market. If you want to sell a stock, put the order in to sell a couple of points above the market. The potential volatility in the market this week might just see you get those prices. Any rallies in stocks that have given sell signals or weakened in their relative strength readings can be viewed as opportunities to lighten up or hedge those positions in some manner. Trade management is going to continue to be important in this market. So, if you are looking for an opportunity to re-employ cash, this week might provide some opportunity to buy stocks a bit lower.

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Weekly Technical Commentary by Art Huprich

Still Overbought ... (Revised)

Friday Morning 03/19

Thursday Morning 03/18

Wednesday Morning 03/17

Tuesday Morning 03/16

Monday Morning 03/15

Important Investor Disclosures