THE BOTTOM LINE:

In all the major indexes except the Nasdaq 100 (NDX), there were weekly closes under the mid-April downswing lows, suggesting the intermediate-term trend has joined the short-term trend as pointed down. If there was an immediate rebound ahead, then this trend change might be called into question.

I was going to be in Morocco this week, but a wedding of friends was moved to a southern Spain venue after a terrorist bombing in Marrakesh, so I'm looking at the U.S. market a bit far afield. As far as Spain being a 'domino' after Portugal, Ireland and Greece (PIG), my hedge fund manager friend here, who's been calling on Spanish banks to check out the validity of his being short Spain, indicates that the banks have not written off their bad real estate loans under what he calls a 'pretend and conceal' policy; i.e., the big banks are pretending that these loans will get paid off and are 'concealing' the true balance sheet picture if they were to write down all their bad property loans. Looks like the government may have to force that issue if at all!

The weekly S&P and Composite charts are bearish in that up trendlines in the Nasdaq Composite and the S&P 500 (SPX) have been pierced; along with these trendline breaks, the weekly MACD has been on a sell signal since the week ending 3/18/11. This downside momentum sell 'signal' hasn't played a big factor in my market view until the aforementioned weekly up trendlines were pierced this past week, as you'll see on my first two (weekly) charts. The weekly trendline break now suggests lower levels ahead, especially for a retest of the mid-April lows.

Alternatively, assuming the indices don't violate the 2/3rds or 66% retracement levels highlighted on my individual daily index charts, we may see the establishment of a broad trading range in the choppy summer seasonal period ahead.

The weekly Nasdaq Composite (COMP) chart is my first featured graph, as it reflects a possible major double top. Along with the break of the steeper up trendline, these two factors point to a possible bear market ahead; that is, for the balance of this year. A bear market would be 'confirmed' so to speak, with a weekly close below 2600 and/or a downside penetration of COMP's major up trendline, currently intersecting at 2540. Fundamentally I would assume such technical action would coincide with the dreaded (by the bulls and those looking for work!) 'double dip' recession.

The similar pattern to COMP is seen in the weekly S&P 500 (SPX) chart shown next. The prior weekly SPX low suggests key weekly support at 1250; next support is seen at the current intersection of the up trendline around 2540. Unlike the COMP weekly chart, there's no similar potential double top; SPX's May 2008 highs (not shown on this chart) are in the 1425-1440 zone.

MAJOR STOCK INDEX TECHNICAL COMMENTARIES

S&P 500 (SPX); DAILY CHART:

The S&P 500 (SPX) is bearish in its pattern, as the rebound above the previously broken up trendline, was short-lived (two consecutive daily tops at the same level was the tip off) and SPX ended up falling to a new closing downswing low relative to the 4/18 closing low which suggests an intermediate-term trend reversal from up to down. Only the long-term trend remains up.

Of course it's possible that buying interest in the early part of the coming week could pull the index back up before the index pierces its 1295 intraday low. I've said for some time that I thought 1300 was a key support in SPX and that we might see this area become the low end of a possible trading range.

Another chart/technical factor is whether SPX stops at support implied by the 62 to 66% retracement zone. If so, then this recent sell off looks like a potential retracement-only. If the S&P 500 continues lower instead, then there's a potential for a retest of implied support around 1250, as suggested by both the daily and SPX weekly charts (seen above).

Resistance implied by the previously broken up trendline is at 1332 currently, with next resistance indicated in the 1360 area.

RSI and TRADER 'SENTIMENT'

The 13-day Relative Strength Index (RSI) seen above is showing downside momentum but also is nearing a 'fully' oversold reading. An oversold RSI as well as 'oversold' sentiment readings has been a good forecaster ahead of a rally, especially if support developed in at a prior low; e.g., 1295 OR significantly lower, at or near the 1250 area.

In terms of my sentiment indicator, we've seen a couple of daily readings in the 1.3 area (daily equity call volume at only 1.3 times daily put volume) and I suspect that there will be (5-day) moving average lows in this oversold (1.3 or under) area also before this market is ready to mount any sustained rebound.

S&P 100 (OEX) INDEX; DAILY CHART

The S&P 100 (OEX) this past week came within a hair's breath of closing below its prior 577 intraday low; OEX touched support implied by a 66% retracement of its mid-March to early-May advance. The Close at 578.5 was a new low relative to mid-March's low close at 582. Technical analysis lore would suggest that this action 'confirmed' a reversal of the intermediate-term trend to down. I'm not so sure that there won't be at least a short-term rebound from recent lows. This market is nearing an oversold condition.

However, if the recent decline continues and OEX exceeds 2/3rds of the prior advance, there's an increased likelihood for a full round trip or a 100% retracement of the prior advance; i.e., a return that retests the prior 559 low. This is how double bottoms might 'set up'.

Support below 576 is in the 560 area where the OEX bottomed in March. Near resistance is at 595, extending to the 600 area.

DOW 30 (INDU) AVERAGE; DAILY CHART:

I wrote last week how that I could "only point to real strength in a couple of (Dow) stocks such as in JNJ and KFT." I can't say that I made a definitive suggestion to short the recent rally, one that carried into Tuesday-Wednesday of this past week, but the Dow charts last week looked 'terrible' as far as pretty universal bearish looking charts. A bottom up approach of looking at the 30 charts on at least a weekly basis often works well in predicting the trend of the Dow 30 bellwether.

The Dow (INDU) chart has turned bearish in that the weekly Close fell below 12200 closing low dating to 4/18. INDU hasn't yet reached support implied by the Fibonacci 62% to 66% retracement zone at 12060, extending to 12000. A close under 12000 would suggest that INDU had potential to fall back to the mid-March intraday low at 11555 or the closing low at 11613.

I've projected near-term resistance at the previously broken up trendline, currently intersecting at 12260. Pivotal resistance then comes in around 12570-12600.

NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:

The Nasdaq Composite (COMP), as with the S&P, has closed under its prior Closing low of mid-April, which suggests a shift of the intermediate trend to down. However, there's still the intraday low of 2706 that is yet to be re-tested. The decisive break of a prior intraday low is usually definitive for a trend reversal.

COMP support in the 2710 to 2697 area is implied by the Fibonacci 62% retracement level, extending to a 2/3rds 66% retracement. It's common to see retracements to this 62-66% zone, followed by a rally attempt. As long as a retracement doesn't exceed 66%, it's still considered a 'retracement' of the prior trend as opposed to strict reversal of the prior trend; i.e., the prior uptrend. A Close below 2697 would suggest the potential for a round trip retest of the previous 2603 intraday low or to the lowest prior 2735 low Close.

I've noted resistance at the previously broken up trendline, currently intersecting at 2803. Next resistance is in the 2828 area; then, at the line of 2876 resistance, extending to the prior 2886 intraday high.

NASDAQ 100 (NDX) DAILY CHART:

The Nasdaq 100 (NDX) chart formed an 'island top' that I highlighted last week. This bearish pattern was 'confirmed' so to speak by this past week's rally carrying right to the line of prior lows; those lows 'acted as' subsequent resistance as highlighted on the NDX chart.

Unlike the Composite, NDX has not closed BELOW its prior closing low; rather, NDX closed AT this level. Moreover, keeping some bullish potential alive, the previous intraday low at 2255 has not yet been retested. Stay tuned on what comes next.

Support suggested by the 62-66% retracement zone is at 2276 to 2265. It would take a close below 2265 to suggest potential for NDX to retest its prior closing low at 2203 or the prior intraday low of 2189.

Technical resistance is apparent in the 2350 to 2373 area, then around 2400, specifically at 2417, where there was a cluster of prior intraday highs.

NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:

The Nasdaq 100 tracking stock (QQQ) went from a 'mixed' picture chart to one looking more bearish. I wrote last week that it "would take a break below the prior downswing low at 55.3 to suggest there was a reversal in the intermediate uptrend." That hasn't happened yet, but the QQQ close made a bottom at the prior Closing low of 56.3. In that sense the stock has retested its prior low but is unconvincing as more price action ahead will suggest that its headed still lower or not.

I've noted near support at 56.3, then at the 62 to 66% retracement zone of 55.8-55.6. A close below 55.6 looks to be 'definitive' for still lower prices, especially for an eventual retest of the March lows in the 54.0-53.7 area.

Immediate overhead resistance is at 57.6, extending to more pivotal resistance at 58.3. It would take a close above 58.3 to suggest that NDX was regaining its bullish footing.

RUSSELL 2000 (RUT) DAILY CHART:

The Russell 2000 (RUT) saw further weakness last week along with the rest of the major indexes when the early rally of the week reversed course. The chart is mixed. RUT closed almost at support at 808, as implied by a 66% retracement of the mid-March to early-May advance. If RUT starts falling below 808, this would imply the potential for a re-test of the prior lows in the 780 to 776 area.

Near technical resistance looks like 838 currently, with next technical resistance at 848; extending to 856 at prior upswing highs.



GOOD TRADING SUCCESS!