THE BOTTOM LINE:
In the way of looking at some more prior technical analysis considerations I had discussed back in February, I received an e-mail from a subscriber to the effect that a few weeks back I talked about possible long-term resistance that appeared to have been reached in the NYSE Composite (NYA) but that other leading indices like SPX had pulled back to technical support.
As this reader pointed out, something had to give. It's like no two objects can co-exist in the same space (unless seen in terms of quantum physics) I suppose. Sure enough, BOTH indexes rallied in February, but it was the last hoorah it seems, at least for awhile I'm thinking. It may be of interest to you to look at what I was viewing back a few weeks ago on the charts. Here are relevant charts:
The New York Composite Index has been in VERY STRONG uptrend since 2004 and on a weekly closing basis, I constructed an uptrend channel that looked like what you see outlined on my first chart. In the week ending 2/2, I remember thinking that this market has finally hit at least an interim top based on resistance implied by the upper trend channel line (seen at the red down arrow). This action fooled me for about a week then it was off to the races again as implied by strength showing in the S&P 500 weekly chart, seen after this first chart.
The weekly S&P 500 chart seen next is cut off as of the week ending 2/2, so that we can frame this past action. There is that week's low rebounding right off the rather steep up trendline as noted at the green up arrow. The only technical bearish note was that the 13-week RSI failed to confirm this latest high seen in SPX below. Well, we know what happened later on, week before last, so the bearish RSI divergence was forecasting a possible downside reversal, but it took 3 more weeks for this (top) to manifest itself.
Interestingly, SPX only went around 10 points higher after the surge shown in the last weekly bar below. But, 3 weeks later on can be an eternity in index options trading. Obviously, price/indicator divergences like this can't be counted on for close-in market 'timing'. But, they can sure put out a heck of an ALERT or yellow light caution signal. Said the Japanese tourist who had learned to drive here on being asked about the meaning of a green, yellow and red light; response: green mean go, red mean stop, yellow mean 'go VERY fast!'
For the period shown, this is a very consistent chart pattern. There was a little dip under the line last week, but judging by the weekly close and the rebound from the area of the low end of the channel plus the oversold reading on the 8-week RSI, it appears that oil prices aren't coming down much more than they have recently; e.g., the retreat in OIX to near 600 again. Stay tuned on that! While a possible further rebound in oil stocks should help the S&P some, there is no real economic relief that looks to be ahead on energy costs.
** SUBSCRIBER MAIL **
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
Resistance is showing up around 1400; you can't see it on this daily chart but on an hourly chart basis, SPX was turned back at a down trendline in this area as will see seen in the next chart after the daily one.
It's not the most well 'defined' (large number or highs) down trendline, but the one you see highlighted below is a valid 'line' of resistance, until pierced on the upside especially with a move above 1400. Resistance shows up on now on the trendline around 1395. Above 1400, 1412 is near resistance, with major resistance at the 'breakdown' point around 1450.
Support is in the 1376 area, then in the low-1360 area. I would say this chart points to lower prices in the near-term, but watch the 1400 area.
Key or pivotal support in the OEX is in the 630-628 area. As with SPX, or even more so, the chart still looks bearish in its pattern.
Indexes DO turn on a dime in upside reversals (V-bottoms) but this pattern occurs most often when the market has been going down for a prolonged period of time and the major market indexes are oversold on a long-term basis. After such a long time of mostly one-sided (upside) price action, where the market mostly ignored economic unknowns and uncertainties, I would anticipate a period ahead of backing and filling, fits and starts, as market participants sort out and rethink the months ahead.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The upward sloping bearish 'wedge' type pattern in the Dow 30 (INDU), as outlined in the light blue dashed lines, has a 'minimum' downside target, which is for a correction to carry at least back to the start of the wedge pattern, which has occurred. How much lower, if any, can INDU sink below recent lows? Support around 12,090 is suggested although the Dow sunk a bit lower than this on the recent decline.
On balance, 12,090 is the area where the Average saw a number of lows form since the late-November pullback. Next support I've pegged at 11,988, at the 38% retracement levels; we could just say the 12,000 area in general looks like a key support in INDU. A close below 12000, not reversed (back to the upside) the next day, would suggest the possibility for a second down 'leg' with downside potential of another 200-260 points over time.
Resistance and further selling pressure looks like it would come in again beginning at 12,337-12,360. A close above 12,340 for a couple of days running would suggest the market has made a bullish recovery and has seen its lows already. Next resistance is suggested at 12,440-12,450.
The 12,000 area seems likely to be tested next as support and INDU may not have seen its 'final' low for this recent correction/pullback.
The Nasdaq Composite (COMP) chart has near overhead resistance in the 2400 area. Ability for COMP to close over 2400, assuming this carried over into the subsequent or next day also, would suggest that COMP had regained or was back in its trading range. My best guess however is that the Composite will see another decline that carried to or near 2300 at a minimum. 2332 is potential support implied by the 38 percent retracement of the July-Feb advance.
COMP finally got 'oversold' as defined by the RSI seen above dipping under 30. If the market is finally undergoing a significant correction and it was overdue, there won't be just one dip in this indicator into oversold territory.
NASDAQ 100 (NDX) DAILY CHART:
The key area in the Nasdaq 100 Index (NDX) on this recovery bounce is for it to regain the low end of the prior multimonth trading range by trading back above 1750 and holding this area as support. The low-1800 is likely next tough resistance. NDX's downside chart gap begins at 1807 and extends up to 1820. If this gap got 'filled in' the Index would offer a tempting put trade, with an exiting stop at 1830.
1693-1700 is key support. I don't assess that the recent low in the 1711 area will be the final one. A target back to the 1650 area is a possible longer range objective; that is absent the ability for NDX to climb to and stay above 1750 again as mentioned.
I continue to suggest 42 as a key level in the Nasdaq 100 tracking stock (QQQQ); if the stock fell under 42 this could be 'confirming' a major top. Assuming the Q's didn't climb right back above 42, the suggested ultimate downside potential is to as low as 39, possibly even to 38-37.75.
Key overhead technical resistance is implied by the downside price gap, as mentioned relative to the underlying (NDX) index; the downside chart gap in QQQQ is at 44.43 to 44.73. This area could offer strong resistance and selling pressure.
Volume pattern are not overly bearish as QQQQ daily trading volume has been contracting on the decline, but levels have been above average at the same time up through this past Thursday, suggesting that a lot of holders of the stock got out. On Balance Volume (OBV) turned down a day before the market break began and is an indicator to take note of if it starts rising again, which along with rebounding prices would be mildly bullish at least.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 Index (RUT) rapidly retraced around 40 percent of its entire July to February advance; they 'slide' faster than they 'glide'! Near resistance and selling is coming in at 780-781; 796-800 is next and also pivotal resistance. I don't look for the RUT to climb back above 800. If it did, especially for a couple of days running such action would be bullish.
Near support is 764 to 760. 750 is support implied by a one-half 50 percent retracement. 746-750 may be the worst downside potential for this Index. It could be tempting to buy calls on dips to and (just) under 750 if a decline to that area occurs. A period of backing and filling ahead would be pretty common given the size of the recent break. Traders are likely to be cautious for a time yet.
** SUBSCRIBER MAIL **
NOTES ON MY TRADING GUIDELINES AND SUGGESTIONS
Trading suggestions are based on Index levels, not a specific option (month and strike price) and entry price for that option. My outlook often focuses on the intermediate-term trend (next few weeks) rather than the next several days of the short-term trend.
Having at least 3-4 weeks to expiration tends to be my guideline for trade entry choice. I attempt to pick only what I consider to be 'high-potential' trades; e.g., a defined risk point would equal in points only 1/3 or less of the index price target.
I most often favor At (ATM), In (ITM) or only slightly Out of the Money (OTM) strike prices in order not to 'overtrade' my account. Exit or 'stop' points, as well as projected profitable index price targets, are based on my technical analysis of the indexes.