THE BOTTOM LINE:
In mid-July both Dow Averages went to new weekly closing highs, providing the bullish pattern where both averages 'confirm' each other (in a not too distant time frame) by each moving to a new high. What we saw in July is what we would expect in a bull market. After mid-July, it was a quite different story. To anyone paying attention, it was striking (alarming?) to see how the Dow Transportation Average (TRAN) went into a steep tailspin type decline from mid-July into early-September.
The anemic rebound in TRAN from early-September into October failed (by a country mile!) to 'confirm' the new weekly closing high of the Dow 30 (INDU) made in mid-October, as can be seen on the chart below. For the week ending 11/23, both Averages went to new closing lows. Given this recent market action with BOTH Dow Averages making new weekly closing lows, the two Dow averages are starting to 'confirm' each other in a BEAR trend.
Charles Dow would have rightly assumed that weakness in shipping goods out (as reflected in TRAN, the lead 'indicator' here) was now being matched by declining production or orders (in INDU stocks), as reflected in the respective averages.
My upside objective in the S&P 100 (OEX) for 715 came close to being met with this past week's OEX high at 711; the Dow 30 (INDU) made it to 13780 but to 13850; the Nasdaq (Composite) got to 2735, not 2750 and the Nas 100 (NDX) didn't climb as high as 2168 by a long shot (its weekly high was 2147).
Have I given up any expectation that there will be the seasonal year-end rally that could take the major indexes back up to higher highs than seen on the last advance? Not necessarily, especially provided that the indexes stay at or above their 21-day averages, which they all were nearing or had already reached, in the case of COMP and NDX, by the end of this past week.
One close under the 21-day trading average is ok if followed by a rebound back above the average the next day. However, a continued decline after piercing this average and I think we're looking at a pullback that will carry prices back toward the November lows. The NEXT rally after that would then be likely to carry to LOWER relative highs than seen at the last (12/11) peak. Declining relative highs and lows on successive price swings is the pattern that DEFINES a bear trend.
MARKET NEWS and INFLUENCES:
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
I noted last week that I thought the best bullish case for the S&P 500 (SPX) Index would be for it to hold the 1490-1492 area on pullbacks. Well, SPX sank below that of course, but the chart turns significantly bearish if SPX pierces 1465 to 1460. A close under 1460 that wasn't reversed the next day suggests potential for the Index to retreat to next key support at 1430. Major support continues to look like it's going to be found in the 1400 area.
Near resistance is at 1490, then in the 1510 area and then at 1520-1528. Major resistance begins in the 1550 area.
S&P 100 (OEX) INDEX; DAILY CHART:
The S&P 100 (OEX) Index got up to my upper envelope 'resistance' line, at 3.5% above the 21-day average, before coming back down. Now, it looks like we could be in for a period of choppy two-sided trading swings ahead. I anticipated a correction early last week but was thinking early weakness, followed by later strength (in the week); instead the reverse happened.
Momentum indicators like the Relative Strength Index (RSI) as seen above in the SPX chart are coming down, but this is not reflected in my sentiment indicator shown in the lower section of the OEX chart below. Sentiment here reflects what I think is an underlying feeling that the market can rally again and at least challenge the recent high. The weekly chart (not shown) doesn't look to me to be as bullish as the view reflected in the call/put readings I utilize.
Near support is at 684, then down at 670-669, the area of the upside gap from late-November.
Close by resistance is 695-696, with next resistance starting around 707 and extending up to 710-711. Major resistance begins at 726 at the late-October (up) swing high.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) got close to hitting my anticipated resistance in the 13800 area but without more certain optimism related to actions by the US Federal Reserve, the buyers got scarce as INDU ran up toward this key area, which was also technically right at my upper envelope 'resistance' (moving average) envelope line.
13530 is near resistance, with next technical resistance coming in around 13690, then finally at the recent 13780 high. Major resistance is at 13960-14000.
I assume near support will or could be found at the current 21-day moving average; e.g., at 13260, give or take about 30 points. 13000 looks to be the Dow's key technical support level if 13200 is pierced. I don't see the Dow retreating to below 13000 this year at least, especially on a weekly closing basis.
If INDU got up to 13800 or a bit higher, Dow Index puts start to look attractive. However, pronounced market weakness might not be seen until a few weeks into the New Year; e.g., mid-February to early-March. It would be ideal of course to catch a prolonged move lower close to when a slide really got going and avoid the chop beforehand. Stay tuned on that!
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) Index has been lagging a bit relative to the S&P for a change. COMP's last rally lacked that spark of yore and even a market darling like Apple (AAPL) looked toppy by the end of the week. Moreover, the Composite closed below it's 21-day average, which is where I indicated potential near-term support assuming Monday brings in some renewed buying interest.
If the Index however continues to sink below the key 21-day average, this could suggest a retreat to support in the 2586 area, where an (upside) price gap would get 'filled in'; prior price gaps under current levels, tending to act as support. 2550 is the next key technical support. If 2550 was pierced it could lead to another 50-point retreat, to around 2500.
Overhead resistance is at 2670-2672, then at 2712 on up the 2730-2735. Significant technical resistance implied by the upper (4%) envelope line comes in around 2770 currently; 'resistance' is not quite the best description, as the upper envelope line tends to be area where the index would likely slow its upside momentum at a minimum and at a maximum be at an 'overbought' extreme.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) Index closed at support implied by its 21-day average. Next support is at 2050, then at 2035. The 1990 area at the 'line' of prior lows is pivotal technical support; if this level was pierced, a move to the 1950 area becomes a potential target.
The chart looks mildly bullish still on a near to intermediate term basis but would turn bearish if there was a close below 2035 and suggest at least a re-test of prior recent lows. Best case for the bulls is if NDX rallies from the 2070 area.
2096-2100 is near resistance, and then 2130, with key technical resistance next being the recent 2147 swing high. If 2147-2150 was penetrated, a further potential objective becomes 2168-2170, with resistance extending up to 2182, at the upper envelope.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
The key near support for the Nasdaq 100 (QQQQ) tracking stock is also at the 21-day average, with probably even more substantial support to be found around 50.0. 49 looks like the beginnings of fairly major support.
The chart is bearish now on a long-term basis, but there could be another rally coming before longer-term downside momentum sets in again. The key for a next rally attempt should be told by what buying interest there is around current levels or where QQQQ closed on Friday. Next in importance is what happens if the stock falls to the low-50 area; if reached, look for a rally attempt from at or near 50. A close under 50.0 would suggest that support at and just under 49 (down to 48.65) could get re-tested.
Selling late in the week was coming in around 51.6; next resistance and the key one, is at the recent rally high at 51.2. 53.3 is lastly an area of important overhanging resistance where there is likely to be a lot of stock for sale.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 Index (RUT) has a bearish chart period but there is probably not major further downside potential in the near-term. Technical support is suggested at 745, with key next support around 735 at its line of prior lows. A close below 735 that wasn't reversed back to the upside in the next day or two, would suggest a possible new down 'leg' was getting underway, that could eventually carry the Index back to the 680 area.
Near resistance is at 770, then important trendline resistance intersects around 790 currently. A close above 790 to 795 is needed to suggest that the Russell could mount a sustained rally above 800, which seem doubtful currently. This stock group was in a 'bubble' for a long period and the underlying stocks appear to be out of favor currently or are adjusting to more reasonable valuations.
Good Trading Success!
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.