THE BOTTOM LINE:
This past week's rally attempts failed to take the major indices back above the key 21-day moving averages, which I use as a trading 'benchmark'. After prices have reached the upper moving average envelope lines and then later fallen under the centered 21-day moving average; and this is followed by rally attempts that are deflected by the average (rallies fail to pierce it), another downswing lies ahead, or is likely.
The other dynamic I find striking, is that bullish 'sentiment' remains relative high; higher than 'usual' considering the recent market weakness. This is a good indication that there is more weakness ahead. Declines tend to keep going until there is at least a one-day 'reading' of my sentiment indicator that is at or close to a bearish 'extreme'; an outlook reflected in more put activity in stocks.
I look for further weakness ahead. The specifics are with each index chart.
** INDEX TRADER - MIDWEEK UPDATES **
In my Wednesday Trader's Corner article appearing in the e-mailed Option Investor (OI) NEWSLETTER, I frequently have some updated analysis, at least for 1-2 of the major trading index options in response to OI Subscriber e-mail.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES:
S&P 500 (SPX), Daily chart:
Support in the S&P 500 (SPX) is apparent at 1190. Rallies have been stymied when they've gotten up to the 1200-1205 area. Major resistance is up around 1220 currently.
SPX looks headed still lower, such as back to the 1180-1178 area at a minimum, and possibly then to 1160-1162. 1180 is a key level too, as it was the top of a prior rally; as noted by the horizontal dashed line on the daily chart below.
If key support in the 1180 area gives way, it would suggest that a second down 'leg' was underway.
1178 is at the important 200-day moving average. Next lower critical technical support is around 1160 and at the bottom of the uptrend channel.
To gauge the oversold condition of the NYSE sector, look at the S&P 500 Index, not the S&P 100, which is already registering oversold. In the above, the RSI 13-day indicator is close to a mid-point reading, not yet in oversold territory, suggesting that a further decline could come before this index was oversold.
S&P 100 (OEX) Index - Daily chart:
Resistance in the S&P 100 (OEX) Index is at 565-566 and is noted by the down (red) arrow on the chart below.
Important support around 557 in the OEX is highlighted on the chart below, then 553; if this level was seen, 550 is a possible lower target. A break of 557 pierces its bullish up trendline, and would suggest downside potential to the 550 area next; and, an area where I would cover any remaining put options held.
Two closes under the trendline says there is some more downside, but it doesn't look huge to me currently; say, to around 545.
Sentiment is too bullish to suggest to me that prices don't have to go still lower before any meaningful, and sustained, rally attempt.
DOW 30 (INDU) Average, Daily chart:
10475 is near resistance in the Dow 30 (INDU) average; above this area, key resistance is 10600, the recent 'breakdown' point.
How much of a downside move might develop should be determined by what happens in the 10250 area, at the up trendline. If the Dow starts closing under the trendline, by more than one day, it will look like a next down 'leg' is underway and happening 'now', not later.
The key technical aspect of the Dow chart below is the uptrend from the April low and whether that trendline gets pierced or not. It's quite possible the trendline will hold and buying interest develops in this area. If a rally develops taking INDU to the 10475 area, I favor buying DJX puts.
How much downside potential there is (in the Dow) is an amount equal to its first downside price swing, a so-called 'measured move' objective, which is to the 10,000 area.
I favor buying puts on a rally should one develop; more so than buying calls on a further dip. This scenario assumes that INDUU stages a rally in the upcoming, holiday shortened week.
If support at the trendline around 10250 area is pierced, on down to 10175, a further 150-200 point decline is not much more than a big down day.
With the Dow Industrials right now, it's worth also keeping an eye on its companion average, the Dow Transportation average (TRAN). On the last INDU rally, the Transports were in a downtrend; per the opposite directions shown by the two trendlines: one on TRAN, the other on INDU. The averages should normally 'confirm' each other and when they don't you often get these sudden reversals.
NASDAQ Composite (COMP) Index, Daily chart:
The 21-day moving average has been a pivotal number in the Nasdaq Composite index (COMP), as can be seen in the last rising trend.
Once the 21-day average got pierced, rallies back up to this line coincided with selling overwhelming buying and COMP couldn't regain traction. The subsequent rebound, took prices to, but not ABOVE, the average on a couple of days running, a not uncommon occurrence.
This 21-day average coincided with the area where COMP topped over last week's best prices. Resistance is at 2070. It would take a close or, better two, over 2070, to suggest a possible move to the 2100 area again and a tough area for the bulls to overcome.
The Nasdaq Composite (COMP looks headed again to 2000-2005. The key is what happens in the 2050 area, at the (up) trendline. If COMP rallies from this area, 2075 could be seen next but that is my least held expectation.
2032 is the level of the 200-day moving average; a close under this most watched street indicator, will mean that most of the major market indexes will have tipped toward a declining momentum.
Nasdaq 100 (NDX), Daily chart:
1517-1520 is the pivotal resistance area in the Nasdaq 100 (NDX) index. 1480-1482 looks like key support and a likely area from which the Nas 100 could rebound.
1480 would represent a 50% retracement of the last advance. Later on I could see the NDX reaching the 1460 area, but this seems most likely over the coming weeks, not the coming days.
The Nasdaq 100 tracking stock, QQQQ: Daily chart:
$36 is my target on the Nasdaq 100 tracking stock (sym: QQQQ). 35.5 is possibly within reach. However, if QQQQ again could climb above 37.40 to 37.6, a rally could carry a bit higher, but not much higher in my estimation.
I favor buying puts on rallies such as back up 37.60; and/or shorting the stock in this area. Conversely, I would buy the stock in the 35.50-36 area, risking to 35.15.
The volume trend is still down, confirming the weak technical picture suggested by the fall below 37 when the trendline was pierced, making the chart picture decidedly bearish.
HAPPY AMERICAN INDEPENDENCE DAY!
Good Trading Success!!
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