The market looks like it is at or near a bottom. At least the conditions are there, as the indices are finally getting close to 'oversold' and certain of the averages are approaching potential support. It's turned out to be a substantial fall off from the highs. I didn't myself play the put side, now to my regret, but also didn't figure that fall would necessarily be as deep as my projected targets.
Theoretically it looked like OEX (S&P 100) would fall to at least 560, the Dow (INDU) to around 10360-10330, NDX (Nasdaq 100) to around 1447 to perhaps 1440 and the QQQQ (NDX) tracking stock to either 38.47 or to the 38 area. Such levels were substantially below the highs made early this month. Nevertheless, I assumed that a turnaround (to the upside) could come at any time and the market back to charging higher.
The thing that MOST argued for the deeper more prolonged correction such that we've been seeing was that there was such a high level of bullishness, as I measure it. I tend to mistrust 'complacency' in the market. Especially with the Fed continuing to raise rates and with energy costs pushing prices higher, but with a 'lagging' effect. It is likely that the market has sensed some trouble ahead and it's no longer the 'what, me worry!' attitude that is ascendant.
I anticipated last week that a bottom would not come UNTIL there was a reading on my sentiment indicator at or near (or below) at least one day's total equities CBOE call to put volume ratio closer to parity; specifically, 1.2 or less. Friday's reading on my sentiment scale was 1.2. The chart plotting these (call/put) numbers is seen on the OEX chart.
There is FEAR afoot Watson! Look for a bottom coming anywhere within 1-5 trading sessions from Friday; i.e., Monday to the following Monday. This doesn't pin down a specific day or possible price targets, but there's more on that in the specific Index commentaries to follow.
MARKET NEWS and INFLUENCES
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
I'd be surprised to see SPX slip much lower than 1200, but a prior low always should be watched. If a turnaround does come from this area, we're looking at a potential double bottom. I'll trade these situations of possible double bottoms anytime, especially once the index gets 'oversold' (according to the RSI indicator). At a possible double bottom, we can set close stop or exit points on calls; there's usually substantial upside rebound potential, relative to the point value of our exit point.
1220, what I had seen as support, now that it's been pierced, is figured as the
reverse to what it was; now being near resistance.
I suggested last week that 1215 might be a place to look at some initial call buying, but risking to not more than 1212 to 1210. I have not suggestion as to a further probe of the long side except to see how the index acts around the lower (green) moving average envelope line, assuming it's reached. Signs of buying interest, a tendency to rally from this area would promising signs of a bottom.
The 1207 to 1204 zone is where SPX achieves a 62 to 66% retracement. I still assess a low likelihood for a retreat to much below 1200. The index might reach 1195, but I don't think we'd see SPX under this level for more than a day.
S&P 100 (OEX) INDEX; DAILY CHART:
I peg near resistance now at the prior 561-562 support. Next higher resistance looks to be in the 566-569 area. A close back above 570, not reversed the next day, would suggest a turnaround in the near to intermediate-term trend.
Immediate overhead resistance is now 568/570 to 572. A daily close over 570, not reversed the next day, would suggest upside potential back up to 578 at the 'line' of recent highs. If 578 was exceeded, next resistance (implied by the upper end of OEX's uptrend channel) is around 582.
I thought that OEX would get to at LEAST the low end of its uptrend channel, instead it went through it, perhaps accounting for the great put volume totals seen at week's end.
The greater activity in puts finally put my bullish/bearish sentiment indicator down pretty close to the level of sufficient 'bearishness' to suggest a bottom. A further fall to the price levels mentioned above, might give me an even lower reading, but its gotten pretty close already, as can be seen on 'Sentiment' section on the OEX chart above.
DOW 30 AVERAGE (INDU); DAILY CHART:
I said last time that I favored purchase of Dow Index (DJX) index calls in the 103.3-103.5 area. The index got to 103.8. I am lowering the level at which I have buying interest for the index calls to the 102.8 - 103.3 zone.
At 10350, the Dow will have had a 2/3rds or 66% retracement of the prior advance. It could slip a bit more than this, but I am still of the mind that INDU will basically hold at or near its up trendline and above 10300 with possible once or twice it slipping below this level in the coming week.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
I estimate near-resistance at 2150, then up around the 21-day moving average at 2162, which is also where the previously broken up trendline intersects and now marking likely resistance. A close over 2162 or the 21-day average would be suggestive of a trend turnaround.
The very gradual but steady decline is only SLOWLY putting the RSI down to an oversold level. It still has a way to go to get to its lower extreme. A move down to the 2100 area would probably get close to an oversold extreme reading, which is typical of the 30 level.
NASDAQ 100 (NDX); DAILY
I continue to have call buying interest if the index gets to its up trendline; at the green (up) arrow in the 1550 area. However, I still also see potential for NDX to fall to 1540, or even to the 1520 area. I'm taking a wait and see attitude on purchase of calls. If holding puts, covering in the 1540 to 1520 price zone, if reached, is probably going to be optimal.
Near resistance is around 1570; next and key resistance, in terms of turning the trend, is at 1590.
However the next moves play out in the Nas 100 index, as long as the next low is at or above the prior intraday low around 1183, NDX remains in an uptrend.
I mentioned before the Russell 2000 Index (RUT) has a related bellwether for the Nasdaq indices: a close back above 654 would be encouraging for the bulls; its Friday close was around 648.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
I've thought for a while that the 38 area might be an 'ultimate' low for this correction, as the Q's would reach its lower trend channel boundary. However, a daily close under 38.0, not reversed the next day, implies further downside potential to the 37-36.75 area.
A favorable initial purchase area for the stock buy in my estimation is in the 38-37.75 area. This kind of purchase is best taken if you can see some intraday support developing on dips to and under 38. If you take the trade, my suggested sell stop/exit point is pretty tight, as I will risk only to 37.60 on such a trade.
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