THE BOTTOM LINE:
I wrote last week that the Dow 30 (INDU) was nearly 'fully' oversold on an intermediate-term basis. After it got fully oversold according to the 13-day RSI (see chart below), the average reached the top end of the 12000-12075 support zone highlighted (on the daily INDU chart) by the Thursday close. That was enough for me to exit the DJX puts I had. The S&P 100 (OEX) got to a similar oversold level and then rebounded after retracing 2/3rds of its last advance, a natural area to anticipate buying interest/support to come in.
I also noted last time that: "Holders of SPX, OEX and Dow Index puts from higher levels should be feeling a little more comfort, but those indexes may not have major further downside potential; e.g., to around 1325-1300 in SPX and 610-600 in OEX..." SPX got to a low of 1331, OEX to 607 so far in their recent corrections.
Another reason to not get too bearish on the S&P side is suggested by Nasdaq
experiencing only a shallow correction so far; this could change later on, but
tech stocks are holding prior gains fairly well so far.
My most recent Thursday (6/12) piece on "anomalies" had my take on the sharp run up in the Dow Transportation Average (TRAN) of 33 percent from its January closing low to its early-June top. This rise contrasts with the linked Dow 30 Industrial Average (INDU) advance of only 11 percent. TRAN's rise was all the more unusual given the huge adverse (to TRAN earnings) run up in oil prices.
The first chart (1 of 2) in my TC column traced out a parabolic or circular arc pattern drawn through the various TRAN closes on the way up. When the 'line' of this type of arc gets so steep that it goes vertical or nearly vertical, the result in my experience has ALWAYS been the same: a sharp correction follows, maybe not right away, but it's usually only a matter of time before there's a decline, usually a steep one.
TRAN made a new weekly (5/30) closing high which was also a new all-time high. I thought the run up could be viewed as a kind of mini-bubble and was unsustainable. The closely linked Dow 30 Index is one of my favorite trading indexes, as it often is so 'technical' in its patterns. Due to what I saw as an unsustainable run up in TRAN, I got even more behind buying DJX puts when INDU traced out a minor double top with the 13-day RSI failing to get near ITS prior peak, setting up a bearish price/RSI divergence.
I also noted in my Thursday TC article that INDU had fallen to the area where I noted chart support last week in this column and had gotten fully 'oversold' finally, suggesting taking put profits. Sure enough, INDU had a good-sized rebound on Friday. Not that I assume that this recent low is necessarily the final low for the recent correction, but it was a heck of a place to take the money and run. I think it's unlikely that the S&P and Dow are going to make lower lows relative to the March bottom.
here provides an online link to my most recent Thursday Trader's
MARKET NEWS and INFLUENCES:
** MAJOR STOCK INDEX TECHNICAL COMMENTARIES **
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) may have reached at least an interim bottom this past week. It hasn't tested its prior lows, but it might hold above them, which would make the pattern more bullish in fact.
Key nearby support is 1324, then at 1313.
Pivotal near resistance is at 1373, at prior lows in that area and next at 1385, at the 21-day moving average. Even tougher resistance should be found at 1400-1405, where there was a cluster of prior highs.
I'm not making a suggestion that buying calls would offer good risk to reward just yet; better (risk to reward) would be buying calls in the 1320 to 1300 area if such a trade presented itself; risk to 1295 if purchase was at SPX 1320, a stop at 1285 if at 1300-1305, with an upside objective back up to the 1370-1375 area.
S&P 100 (OEX) INDEX; DAILY CHART:
The 607 intraday low this past week was in the area of a 2/3rds retracement of the mid-March to mid-May advance and where I'd anticipated seeing buying interest coming in, absent OEX making a 'round-trip' to its prior low. A retest of the March bottom in the 589 to 583 area doesn't seem likely to me, but some think it will happen and bears are thinking NEW lows. I say no, but stay tuned on that!
Below the lows seen already in the 610-607 area, next technical support is at 602-598, then at 583. Pivotal overhead resistance currently stands at 632; or, the level of the 21-day moving average going forward. A close over the average not reversed (to the downside) in the following 1-2 trading sessions would be bullish. A close over 640 would suggest that resistance at 658 to 662 could be tested.
I doubt that OEX is going to have a sustained upside run, it just was due for an oversold type bounce after finding buying interest at prior lows. A mostly sideways (to a bit higher) move may be seen in the coming week. OEX could rally to the 630 area then get slammed again and build up bearish sentiment some more.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) has been the weakest of the major indexes, but also offered good potential for a rebound as it was the most oversold. INDU found support in the zone indicated last week at 12075-12000. I think that buyers were not waiting to buy at the 'obvious' support at 12000. A famous (unnamed) market observer used to say about market forecasts that "if it's 'obvious', it's obviously wrong".
Initial overhead resistance is at 12370, then at 12600, and lastly at 12690-12725. I don't anticipate a move above 12700 anytime soon.
Support is at 12075, then at 12000. If 12000 was pierced, especially on a closing basis, I anticipate support next coming in around 200-230 points lower, at 11800-11770. Support implied by the March lows is in the 11730 area.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) Index corrected into this past week, coming down from a minor double top. A 'minor' double top is determined by how far apart (number of days/weeks) the two tops were. If a top is separated by 13 days, which is the case for two COMP tops in the 2550 area, it makes for a double top that is less powerful so to speak, than if the two tops in the same area formed 3 months apart.
Making the chart pattern, to date, a 'minor' correction is that COMP's initial rebound came from the top end of the prior (upside) chart gap as highlighted on the chart below. COMP is so far showing only a minor, not overly bearish correction. A double top is nevertheless a potent negative for the tech bulls.
It is up to those bullish on tech to 'prove' that they can take the Index above 2550, the pivotal technical resistance. This area (2550) also represents a 2/3rds or 66% retracement of the entire October to March decline. COMP only has to climb that final third to retest its 2007 top at 2860. This 'final' third is often tough going however, the Mount Everest of a climb back to the (prior) peak.
Immediate overhead resistance is at 2480, at the 21-day moving average and next in the 2537 to 2551 zone; lastly, a next resistance is just slightly higher (than 2550), in the 2570 to 2590 area.
Near-term support is at 2387-2352 per my chart highlight below, then in the 2266 to 2256 area. I anticipate a further decline down the road here, toward 2350 or perhaps 2300, assuming the 21-day average acts as a cap on an extension of the Friday rebound. Two consecutive closes over the average would be a bullish plus.
NASDAQ 100 (NDX) DAILY CHART:
I anticipated a potential decline to the 1900 area in the Nasdaq 100 (NDX) Index and possibly back to the chart gap area at 1868 to 1850. So far, NDX is holding up pretty well and has only retraced a 'minimal' fibonacci 38% retracement of the mid-March to early-June advance; when stocks or indexes turn around from a retracement this shallow, they are showing good technical strength.
The 1992 to 2000 area is a key overhead resistance. A close at or above 2000, not reversed in the following 1-2 days, would be a bullish plus. Most significant would be a climb above the 'line' of resistance at 2040-2050. There was a bearish price/RSI divergence that developed on the last advance to the 2050 area. Such divergences usually signal more than a minor top. We'll see.
I'm watching the 2000 level as an initial key test of the strength of big cap tech stocks. If I look at the key tech biggies, at individual charts, it looks like they're still correcting; this may go on for a while.
Near support is estimated at 1900, then at 1850 and finally in the 1800 area. I don't anticipate a decline to below 1850, or beyond 1800 in terms of a maximum correction that I envision currently.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQQ) has key resistance at 50.4-50.6 and fairly major resistance around 52.8. The immediate test for the bulls is to push the stock back above its 21-day average at 49 and hold this area mostly.
Near support can be assumed for to be the recent 47.0 low, with next support at 46. Major support should be found in the 44 area.
I wrote last week, that "...chart and indicator patterns looks like a top has probably been seen to the multimonth rally." However, there's still a question as to whether QQQQ has made only a temporary top or has concluded a corrective rebound within a bear market. I figure that there's some more downside to come, or more 'work' to be done on the downside before there's another attempt to climb above 50-50.5.
RUSSELL 2000 (RUT) DAILY CHART:
I have to give the Russell 2000 Index (RUT) more respect than in the recent past, as this index is also holding up quite well. The bounce this past week from the area of its 55-day average is a bullish plus. Unlike the other major indexes that I follow, the moving average I find 'works' best in terms of gauging the intermediate RUT trend, is a 55-day length. 55 also being a fibonacci number. (The fib number series is one where each number is the sum of the prior two; e.g., 1, 2, 3, 5, 8, 13, 21, 34, 55, etc.)
There is significant resistance in the 760 area, with my next estimate of higher resistance being 772, at the fibonacci 62% retracement level relative to the last down leg (from 852 to 644); including the level representing the 66% retracement (not shown) I'd estimate pivotal resistance as 772-782.
Immediate or near support is at 720-718 with the next lower support likely to be found at 686-683, at the prior (down) swing lows. I figure that's more of a decline to come later, but after a continuation first of the recent rebound, as the index 'throws off' a short-term oversold condition. RUT seems unlikely to have made a 'final' low to its recent correction and faltering (upside) momentum.
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.