THE BOTTOM LINE:
Prices were whipping back and forth this past week (although staying within uptrend price channels), making for almost no upside gain for the week. A likely reason for the inability to make further gains is that the major indexes haven't completed their downside corrections.
The pattern being traced out on the charts looks to me like 'completion' of the current correction will come with another shot down. I don't currently anticipate a MAJOR pullback ahead, but one that could carry the S&P 500 (SPX) back to the 1280-1260 zone and the Nasdaq Composite (COMP) back to around 2650.
One 'problem' for the bulls on a technical basis is the market has gotten quite overbought on a longer-term chart basis. Moreover, there's a potential double top that's formed in the broad Nasdaq index. Both aspects are seen in my first chart, that of the weekly Nas Composite.
We don't see this same potential double top pattern in the other major indexes, so I wouldn't generalize too much here. Still, given the overbought extreme seen with the weekly Moving Average Convergence Divergence (MACD) indicator, it may take a further pullback or sideways move before COMP would be in a position to challenge and pierce its prior highs just over 2800.
As to the MACD overbought extreme seen above, it's also quite common in a strong uptrend when this weekly indicator hits such extremes as you see for, # 1, for MACD to stay high for a prolonged, but not indefinite, period. #2 is there might only be minor short-lived pullbacks in such overbought situations, followed yet another rally that takes MACD to extremes again or into 'overbought' territory. After a 2nd or 3rd MACD extreme, then the big tradable corrections tend to come. Seasonally, the market tends to advance or stay steady price wise through March-April.
No doubt the oil futures market is over-reacting to the Libya situation and the media is playing up economic recovery 'derailment'. Much of the run up is also driven by speculative buying of oil futures. We pay a lot more at the pump that partly lines the pockets of big hedge fund speculators. Libya is far from being a Saudi Arabia type producer in terms of its daily oil exports. A characteristic of an overbought stock market is that potential bearish developments start getting blown out of proportion.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) index chart remains within its bullish uptrend channel but the pattern being traced out can either suggest a consolidation before a push higher or could suggest a minor top has formed ahead of a further decline that would suggest completion of a typical down-up-down correction. The fact that SPX is having trouble staying above its 21-day moving average is another sign of flagging momentum.
If there's a decisive upside penetration of the prior high in the 1344 area, then a new up leg would look to be underway. Conversely, a break below the 1306-1294 area would set up a possible retest of prior downswing lows in the 1275 area. I indicate potential support in the area of the 1275 prior low but SPX could see 1260 again; I don't have downside objectives lower than this currently. A further decline could 'set up' an oversold RSI reading again, which hasn't happened since late-August. Another oversold RSI reading could 'signal' an opportunity for new bullish positions.
Bullish sentiment was moderate this past week, but my CPRATIO indicator is still far from showing a bearish extreme implied by a LOW reading on a single day, or on a 5-day moving average, basis.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) index is either consolidating for a renewed push higher or building a minor top. OEX remains within its uptrend channel so I can't say that there's any breakdown of the existing up trend. It's more that the pattern is one suggesting a possible further downswing to complete the common a-b-c correction where a final 'c' down leg carries to a price lower than the first downswing.
In a way there's no need speculating on how this will unfold now, since a move above 602 suggests a renewed advance whereas a decline that carries to below 582 would suggest a retest of the 575 low. 564-563 is a next support.
I noted last week that: (I'd) "get very cautious ... if there's a breakdown below the 21-day average; e.g., a Close below this key average that is followed by further weakness the next day." We did see this happen on Tues-Wed but prices rebounded the next day, but that didn't last for more than a day.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) average is also now in a sideways trend, although this is unfolding as INDU holds above its up trendline. This pattern would break down on a decline below 11955, the current intersection of the bullish up trendline. The prior recent intraday low is another potential support, so I'd call key near support as 11983-11955, with next support in the 11800 area. A Close below 11803, not reversed (back to the upside) would suggest a reversal in the short to intermediate-term trend from up to down.
In terms of technical resistance, the key area is around 12400. A close above 12391-12400 would indicate renewed upward momentum.
In the 30 Dow stocks, only PFE and oil companies CVX and XOM continue to have strong bullish charts, as opposed to all that are in sideways trends; except those in a decline like HPQ, MSFT, PG and WMT.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) chart, while holding within its bullish uptrend channel is struggling to climb further and break out of its congestion zone. This isn't unusual given the downside break that occurred recently (2/22). It's hard to predict the next move however. Unlike the S&P, COMP's pattern looks a bit like it has traced out a Head & Shoulder's top formation, so without further upside progress above 2800 I lean to a chart interpretation suggesting a further downswing ahead. The key is whether there's a move up through resistance or to below technical support and I don't believe we'll have long to wait to see how this unfolds.
Near resistance is at 2808, extending to 2823, the low and high end respectively of the downside price gap. Next key resistance is at 2840, our last rally peak in COMP. A close above 2840 would be bullish provided there was some (upside) follow through in the days following this. Major resistance comes in at 3000. Conversely, a decline to below 2740-2705 support and especially to below prior lows at 2677, would suggest a possible retest of pivotal support around 2600-2590.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) remains within its bullish uptrend channel, but with the downside price gap of late-Feb there's key resistance at the low end of that gap at 2366 which extends to 2382, the top end. Next resistance is at 2400-2403. If NDX clears 2400, especially on a Closing basis, further upside progress should develop. Major resistance begins around 2550.
Like the Composite, NDX looks like it could have traced out a Head & Shoulder's top, which suggests a bearish down leg to come. Key near support is at 2315-2285, then at 2258, a prior downswing low. I don't currently have an objective to below the 2225 to 2200 area. I'd want to see NDX get 'fully' oversold in terms of the 13-day RSI before suggesting renewed bullish strategies.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQQ) has resistance in the 58.5 to 58.9 (downside) gap area, then at 59.0, the Q's most recent rally high. The sideways trend after the late-Feb. technical 'break' and the struggle to sustain rally attempts, suggest a possible further down leg could lie ahead; one that could take the stock to lower lows than seen recently.
Key support begins at the up trendline, currently intersecting at 56.8, with support extending to 56.1, the most recent swing low. Next support is implied by the previous (down) swing low at 55.4. If there is another substantial decline, my lowest current downside expectation for QQQQ is to around 54.0.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) chart looks like the other major indexes, in that the recent rally has so far been unable to climb back above resistance implied by the downside chart gap at 830-832 or to above the prior recent 838 top that preceded that the break that came post-President's Day, our last exchange holiday. A close above 838 would be bullish.
Key support is at 806, extending to 795. Next support and a key one is in the 770 area. If there is going to be this further downswing that the unfolding chart pattern is suggesting to me, my downside objective to not lower than around 760. I think this market is just too overbought to not have a correction at this juncture with oil prices skyrocketing in terms of the fundamentals here. However, I don't see an end to the uptrend and the major trend always reasserts itself. We could have an intermediate correction here however.
GOOD TRADING SUCCESS!