THE BOTTOM LINE:
In line with what I wrote last week, namely that: "The indexes could now have a period of back and forth choppy action before they're in a position to mount a sustained rally." That idea has proven to be quite true this past week as the rally fell apart once the S&P and the (Nasdaq) Composite got near the upper moving average envelope lines I've been using. The rapid pullback was to the 21-day average. This type action is typical of a market that goes sideways or what some would consider to be 'trend-less'.
Then there's also the technical and fundamental question as to whether we are in transition to a bear market. I don't think that but jobless recoveries can go on a long time and without more spending, the economy is going to sputter along. That's not bear market material exactly but it could work against any prolonged upside moves. We could be in prolonged period well into this fall where the Dow trades in a 10700-11700 range.
I continue to suggest that 1125-1100 in SPX and 2330-2300 in COMP continue are must hold areas for the bulls, especially on a daily and weekly chart Closing basis. If these key areas don't hold up as support, another down leg could carry SPX to the low-1000 area and COMP to 2100 in a retest of the July lows of last year. The potential upside looks limited in the Composite to 2700 or the S&P (500) to perhaps 1250.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The chart continues to be bearish. The S&P 500 (SPX) had a nice run up from the 1120-1125 area and got above 1200 briefly. The fact that SPX got near but not above its 4% trading 'band'(part of the moving average envelope study or indicator) was typical of what to expect after a big waterfall type decline has knocked the sense out of sensible. Don't be surprised to see another low set up a bit above the last one. And, watch the 21-day moving average for a sense of direction. Closes below this key trading average suggest downside momentum predominates; closes above the 21-day suggest upside momentum as we saw coming into Thursday. Prices trading close to or at the 21-day average suggest a non-trending market.
Key support continues to be the 1100 to 1125 area in SPX. Below 1100, major support doesn't really look to begin until 1030, extending to 1000 even.
Key resistance is at 1230-1250 currently. A weekly close above 1250 is needed to suggest upside potential back to retest the prior 1350-1370 highs.
It looks like another period ahead where a failed rally and probably some more price weakness will build up bearish sentiment; a more oversold RSI also. This before SPX would develop some rebound potential again. Meanwhile, look for a further downside drift.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart has a key resistance around 560. No surprises that our last rally failed at 552 and couldn't quite reach bigger sellers. Why 560 as the biggest supply (of the basket of stocks) overhang? 560-562 was a previous support 'floor', the begin point of the last two major rallies. Buyers in this area will turn sellers if OEX comes back to this area as it gets them out 'whole' or even.
The 21-day average as 'acted as' both prior resistance and prior support. It becomes a pivotal level in the coming week. Trade below this key trading average suggests that the path of least resistance is DOWN. Trade above the 21-day, as was the case at the beginning of the week just ended, suggests further upside potential. As always, the second day of a moving average penetration is a key test as to follow through.
I anticipate more weakness ahead so would short rallies with preset objectives. Don't get in and 'see' what the market will bring you, rather exit at your targets instead.
Key support continues to be the low-500 area, key resistance at 550-560.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) had a good rebound from the 10800 area of 1300 points, which is a good sized rally for a market that saw a 2 thousand 100 point drop, peak to (intraday) trough, from 7/22 to 8/9. The retracement to 11675 became a 'normal' 50% retracement; MORE than that a 50% retracement suggests stronger underlying conditions for stocks than the one I've been watching the last 3 weeks! Friday's sharp decline suggests more disappointments ahead to the bulls and some further downside weakness; I anticipate short-lived rallies only as the market digests our latest dismal jobs number; rhymes with 'bummer'.
While the drop was fast and furious on Friday, I did take note that some support finally did come in around the 21-day moving average. More than a 1-day drop to below this key trading average suggests further downside objectives to the lower band even, at 10600 currently. I've highlighted initial support at 11200, then at 10900-10800; I considered whether to note 11000 as a next support but was less sure of that number. I'd consider the 10600 area as a must hold support for the bulls. 10000 continues to look like the start of major support.
INDU resistance is at 11600, extending to the 11700 area. 11800 begins fairly major resistance in my estimation.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
2600, the area of the most recent (up) swing high in the Nasdaq Composite (COMP) represented a rebound of half of the prior decline. A retracement of MORE than 50% is mostly characteristic of a market where, because of many still perceived bullish qualities, the prior decline was thought to be OVERDONE. This wasn't the case in our current market cycle as the investing public got quite bearish on the further outlook for stocks. Or, rather we could also say that the public got really spooked. Money managers were willing to come in buy cheap but when prices retraced half of what they were, the market was vulnerable to a bearish shock.
Bearishness rules this transitional segment of what is probably still a long-term bull market. While tech stocks could be building a major top, I don't see it yet. You do have to wonder however as the October '07 top was in the SAME area as at our May 2011 peak. If no higher highs are seen in the foreseeable future, the weekly charts are showing a huge double top.
Looks to me like 2400 will be tested and is where I've highlighted a first support.
Resistance comes in initially at the top of the (downside) price gap in the 2540 area. 2600 is more of a resistance point than you might think. Precisely because COMP saw important bottoms in this area, makes for a certain amount of stock (inventory) overhang as prior buyers in the 2600 area become willing sellers in the more bearish climate we're in currently.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) index chart is mostly bearish given the recent rally failure. This after NDX retraced a little more than 50% of its big prior decline. This looks about right for this market at this time as this most recent advance hasn't been a powerhouse rally on heavy heavy volume.
We may be in a longer term bull market for stocks in general and tech in particular but we're in the bearish doldrums for a few more weeks at least I think. The 5% trading bands have been helpful. Prices were under the lower band for some time and now prices will not repeat the same with 'above the line' action. The simple visual of more time below the line, and no time above the line, that the price skew will continue to be bearish; i.e., rallies are shorter, take what you can get, declines carry farther and faster.
2100 looks like a downside target but I've noted first support at 2150, suggesting the possibility that support is going to be found at the average.
2215 may offer initial resistance when the gap is 'closed'.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) looks headed lower and that it has established the high end of its range for a while. Resistance begins at 54.0 and extends to the area of the recent (55.7) high. It would take a move above 55.7-56.0 area to suggest a possible new up leg, such as to 58-59.
Support is highlighted as starting in the 52 area, with fairly major support at 50. A daily and certainly weekly Close below 50 would suggest a new down leg with next targets to the 48-47 area.
The recent decline was on relatively low volume which is a mild bullish plus if it means that sellers have dumped all they need to unless QQQ dives below 50.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) almost reached my upper trading 'band', otherwise known as a upper 5% moving average envelope, relative to a 'centered' moving average of 21 days; meaning that the upper line is a value equal to 5% above the closing 21-day moving average on a daily chart basis. 'Almost' is about as good as it gets in a recovery rally from such a steep waterfall type decline as was seen in late-July/early-August. Rallies are going to often be to below the line, not above it.
Speaking of the envelope bands, the lower one suggests a support target for the 650 area. Looks about right to me.
Resistance is at 706, extending to around 730.
GOOD TRADING SUCCESS!