You can imagine what this market would be doing if it wasn't for such sharply rising oil prices; the indexes would probably have barely paused, given the strong economic and earnings trends. It figured that rising energy prices would be a damper on the market for a while, as the oil price chart has looked very bullish and it also appeared that a final upside acceleration (in prices) was coming.
The run up in crude prices got steeper this past week, making it increasingly likely that the price speculation will reach a climax and cool down, with prices falling back, especially once past the height of the summer driving season. Moreover, crude looks like it will have significant resistance if and as it nears $70, the top end of its likely uptrend channel.
The chart above joins together several prior 'front-month' crude futures contracts in order to get a longer price history.
The Oil Index (OIX) price rise is starting to look unsustainable. Anytime an up trendline, like the one below drawn under the weekly OIX lows, starts to get closer and closer to being vertical, that market or index is getting close to a final 'blow-out' top.
When this oil price frenzy ends, the market will likely have completed its sideways to (slightly) lower move and 'thrown off' its overbought condition. So far, it doesn't look like the correction is going to be very deep price wise. So far, only the S&P 100 (OEX) and the Nasdaq Composite (COMP) have even retraced a 'minimal' 38% retracement of their last upswings.
Particulars relating to the major indexes follow below with the respective charts.
MARKET NEWS and INFLUENCES
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S & P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart remains bullish in its overall pattern and trend. Prices are coming down slowly in what looks like only a minor pullback. The price pattern also suggests that another downswing would mark completion of the (downside) correction. Maybe, maybe not on a further downswing: the 1225-1220 price support zone has held up well. 1220 looks like key near support; a break of 1220 suggests a test of the lower (up) trendline around 1212-1210.
1235 is near resistance; a close above this level may mean the correction is over without SPX reaching the low end of my projected uptrend channel. A close under 1210 would be bearish, although SPX could still rebound from around 1205. It seems unlikely 1200 will be seen again.
It remains to be seen if the S&P 500, reflective of the broad market indexes and which have led this market advance (that and the Russell 2000, RUT), is going to reach an oversold condition again. It didn't in the last correction.
If the RSI got down closer to the RSI 30-35 area and it happened to coincide with a dip to 1210-1212, buying calls would be especially attractive, looking for a next advance to 1253-1255. A long range target looks like 1300, assuming there's a weekly close over 1250.
S & P 100 (OEX) INDEX; DAILY CHART:
Friday's close in the S&P 100 (OEX), under the low end of the prior trading range at 571, was bearish. 565-566 looks like a potential next target. 563 is also a possibility, as is a move back to the 560 area again; possible, but not likely it appears now.
The 560-561 area is key support implied by the low end of its uptrend channel. I'd be a buyer of calls in this area if reached. Waiting for a 560 print might not be seen, as there's likely to a lot of buyers showing up if OEX got to this level.
Immediate overhead resistance looks like 575, at the minor down trendline that was the 'stopper' on the sharp run up of last Wed. That and some negative news of course, but trendlines like this, even though pierced intraday, often mark reversals by the end of the day or the next. A close above 575, not reversed the next day, would suggest the index could make it to 580. The OEX has been lagging the S&P 500 (SPX); the Dow 30 (INDU) even more so.
Bullish sentiment continues to moderate and my indicator gradually has been seeing the readings coming down in the 5-day simple moving average. A call buying opportunity would likely follow a fall to the 'oversold' level around the 1.2 or so, around the lower dashed line on the 'sentiment' indicator at the bottom of the chart above.
DOW 30 (INDU) AVERAGE; DAILY CHART:
Dow 30 (INDU) resistance around 10700 is very well defined and what Charles Dow called a 'line': a price point where a level (horizontal) line marks numerous highs (or lows). If 10700 was pierced, next resistance looks like 10775-10800.
10500-10475 is key near support, with major support coming in around 10300. If 10300 was seen, especially if accompanied by the 21-day stochastic falling to an oversold (lower line) reading, I anticipate looking to buy the DJX calls, risking to 102.5, with an objective back up to at least 106.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite index (COMP) fell to support in the 2150 area by the end of the week. This area is the low end of the rather steep uptrend channel that COMP has been trading in dating to its April bottom. Whether this steep of an advance or such a high rate of ascent can be maintained is the question.
My key volume 'indicator' for Nasdaq, its 10-day moving average of total Up Volume (not shown) has contracted to a level from which rallies have begun in recent months. This situation with volume AND the fall to this lower channel line, makes for a bullish outlook in my estimation.
The 2106 to 2114 zone is the next broad area of likely support, if 2150 gives way. I doubt that the 2100 area will be seen again before a next, maybe 'final' (for this move), rally.
If the Composite got oversold again, it would lend bullish support to another rally to come, especially if it's up trendline was not pierced on a closing basis for a couple of days running. Alternatively, a move to around 2115 accompanied by an oversold reading, would also make for a potential buy.
NASDAQ 100 (NDX); DAILY CHART:
The 1580 area in the Nasdaq 100 (NDX) looks like near support and might be as low as this index will go on this correction. Next support is the 1565-1560 area. I would like to buy calls in the 1560 area if NDX got into this area, assuming support/buying interest showed up. 1540 is major support, implied by its up trendline. I'd like to buy calls. Buying around 1580 is higher risk, 1560 less so, with a major opportunity around 1540 if reached. That's a lot of 'ifs' and a lot of ground!
Near resistance is at 1600 currently. A close over 1605 would suggest upside
potential to 1610; then, to 1627-1628 for
If I anticipate a buy point based on retracement levels, I would look for 1573 and a 38% retracement, as an area of buying interest; 1560 is the second area of interest and a retracement of half/50% of the last run up.
This looks like one of those markets, where, if looking to get into calls again, you're compelled to buy a relatively shallow dip. Too many buyers are likely to be waiting to buy after a deeper correction; of course, less 'risk' and cheaper! There is an alternative, more bearish possibility in the hourly chart below.
NASDAQ 100 (NDX); HOURLY CHART:
IF the hourly pattern is a potential Head and Shoulders top formation, it implies that piercing 1580 would be a 'break' of the 'neckline' and sets up an objective to around 1540. Maybe this is wishful thinking. I'll watch for an hourly close under 1580 and see what sort of further price pressures are developing (or not) at that point. I'm not in a rush to buy this thing, but I also figure calls are a good trade at the right point: not too soon, not too late; sounds like what Goldilocks needed!
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
The Nasdaq 100 (QQQQ) has held near support around 39.0. Next lower support is around 38.40-38.50. 38.40 would 'fill in' the upside gap and is my first or favored buy point. Major support comes in at the up trendline, currently intersecting around 37.75. If I had bought the stock around 38.40, I would buy some more if there was a further dip to and under 38.00, but risking only to 37.5.
Daily trading volume picked up after the rally failure of mid-week, which suggests that buyers were starting to exit.
A close above 39.45-39.50 is needed to get the trend turned back to the upside, in which case my upside objective in the Q's is to around 40.7. I tend to assume that strong moves that carry up toward prior significant highs will be 'tested' at least, if not exceeded.
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