Sterling Market Commentary for October 17th, 2011

A Look at Friday’s Market:  The overall market moved sharply higher on Friday in a broad based move that saw every sector I track moved higher with the exception of the airline indices.  The strongest sectors were the Oil Services,  Oil & Gas, Gold/Silver, Commodities, Natural Gas, Transports, Cyclicals, Chemicals, and High Tech indices.  The Dow Jones Industrial Average was higher by 1633 points.  In the Dow the top performers were Caterpillar, DuPont, Disney & Co., Chevron, and General Electric.  Oil was higher by $2.55 to $87.00 per barrel, and Gold was higher by $14.50 to $1,683.00 per ounce.  In the grain market,  Wheat was higher by $046 to $6.226 per bushel,  and Corn was higher by $0.016 to $6.40 per bushel, while Soybeans were higher by $0.130 to $12.70 per bushel.

A Few Thoughts Before the Open:  In looking at the charts from Friday’s market activity I have the following thoughts and comments.

1.  Volume was very light across the board. On an average morning I review the charts on approximately 40 indexes,  all the stocks setting new yearly highs, and all stocks that traded more than 1 million shares the day before. In looking at the charts from Friday’s activity,  I saw nothing that broke out to the upside that had a volume confirmation.  That alone should be a warning bell for the upcoming market.

2.  In looking at the Dow Jones Industrial Average it is interesting to note that Friday’s close appears to have been pretty much right on the 200 day moving average. I have the Dow closing at 11,644.49 and the 200 day moving average at 11,656.29

3.  It does look like many of the sector indices I track have broken out to the upside despite their low volume.  As a result, I am updating the support and resistance levels on the indexes I’ve been tracking.

4.  It’s earnings season, and the results of any one of a key group of companies can swing the market.

In looking at the major market indices I track, I have the following updates on support and resistance:

Dow Jones Industrial Average:  The Dow Jones Industrials closed at 11,644.49  I now see upside resistance on the Dow at 11,896.44 and downside support at 10,415.54 on a closing basis.   The light volume the last 1-2 weeks on the Dow Jones Industrial Average makes me nervous and I am not convinced this rally has legs beyond the current levels.  I hate to sound like a broken record,  but my gut continues to tell me to be cautious until I get the confirmation the market historically requires.

S&P 500 ‘SPX’:  The S&P 500 closed at 1,224.58  I see upside resistance on the S&P 500 at 1,256.88 and downside support at 1,096.48 on a closing basis.  I expect I’ll be able to tighten the trading range on the S&P 500 within the next few days.

NASDAQ 100 Index ‘NDX’:  The NASDAQ 100 closed at 2,371.94  I now see upside resistance on the NDX at 2,429.45 and downside support at 2,192.96 It should be noted that the NASDAQ 100 ‘NDX’ is a capitalization weighted index  and the recent massive outperformance of the NASDAQ 100 ‘NDX’ in comparison to the Dow Jones Industrial Average and the S&P 500 is a function of the excessive weighting Apple ‘AAPL’ and the structural flaws of the NASDAQ 100.

The Dow Jones Transportation Average:  The Dow Transports closed at 4,691.46    I now see upside resistance on the Dow Transports at 4,950.00 and downside support level  at 4,038.73 on a closing basis.  Again,  very light volume on this index makes me skeptical of the recent rally.