THE BOTTOM LINE:
There's a chart question that I considered this week. Normally, I keep daily charts 'set' to reflect an open space for the occasional holiday. This past week, we had two days without trading, putting a bigger than usual 'hole' in the charts at the beginning of the week. I've elected to keep my daily charts reflecting the two lost days from hurricane Sandy.
The rebound in the S&P 500 was only to the 50-day Moving Average until renewed selling drove prices lower again. The correction continues; just don't figure it's a bear market. On the S&P side of things, only the narrow (30 stock) Dow Average, has retraced even as much as a (fibonacci) 38% retracement of the strong June to September advance. The Dow is lagging as a number of Dow stocks continue corrections. A number of the former laggards are looking like they've completed basing patterns and could take over some of the leadership when the next rally phase kicks in. It's my assumption that Dow 14000 will be challenged again; INDU has come all the way from the 6500 area in early-2009 to recent highs around 13600. It would be unusual that there won't be a full retest of such a major all-time peak. Doesn't have to happen of course. The Market is habitual in certain patterns but there's enough of an element of uncertainty and wild card outcomes to keep traders on their toes.
The Nasdaq Composite (COMP) hasn't to date retraced more than 50% of its June-Sept advance, so there's no change on that front.
Tech stocks had run up the most of course and are overshooting on the downside. Nasdaq bellwether Apple Computer (AAPL) has hit an interesting technical milestone as its now retraced 38% of its major rally from late-2008/early-2009 lows in the $363 area. From 363 to nearly $700 in 9-10 months. Not bad! Of course, we have to go back further to see how MONSTER the AAPL rally really has been since AAPL traded as low as 78.2 in January 2009.
It looks like the correction continues and I'm still looking for that dip in SPX to at or under 1395-1400. The Nasdaq 100 (NDX) could 'easily' fall next to the 2600-2595 area and where NDX would look like a buy in terms of a risk to reward calculation. The outside chance of seeing 2550 in NDX is relative to upside rebound potential to 2750.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The rebound in the S&P 500 (SPX) was only to near resistance implied by SPX's 50-day moving average, which had previously been an area of support. Once this key trading average was pierced, it then 'became' subsequent resistance. Appears so; SPX turned on a dime after hitting the 50-day average as it became a trigger point for concerted selling.
I still think that the 1400 area will be tested as it is key expected chart support. I've pegged support based on the chart and on 1395 representing a Fibonacci 38% retracement of the last big Market up leg. 1370, representing a 50% retracement, is another area of anticipated support.
Near resistance should come in around 1435, with next resistance in the 1453 area, as suggested by the current intersection of the previously broken up trendline. 1453-1460 looks like fairly major resistance at this point.
SPX hit a fully oversold extreme prior to this past week in terms of the 13-day Relative Strength Index (RSI); my Trader Sentiment model also showed 'extreme' bearishness. These levels may be seen again before this correction runs its course.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart remains bearish in its short to intermediate-term pattern and this statement continues to look true for another week. There was a rebound but the rally stopped short at prior support. As I've said, probably ad nauseam, support once penetrated often 'becomes' subsequent resistance. Near resistance is seen in the 656 area because of this factor. Next resistance is seen at 664-665, extending to 670.
Look for technical support in the 642-640 area again this week. If a 'measured move' occurred, the downside potential could extend to 630-628. 628 represents potential support suggested by a 50% retracement of the last big up leg (June-September).
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) is maintaining a bearish technical chart in that INDU highs didn't come up to more than the prior floor of technical support. Traders who previously might have bought the Dow in the 13300-13250 area remember full well that rallies to this same area puts them close to break even. This previously bullish group offered some concentrated selling at recent highs.
12850 continues to be an area to pay attention to simply because this level represents a full half/50% retracement of the June to September advance. It's very common for stocks to retrace around half of prior gains and still remain within a longer-term uptrend. The Dow is only an average of just 30 blue chip stocks. Well, actually not 'just' any group of 30 big cap stocks but the biggest names in a few areas from finance to tech.
Currently I rate 10 Dow stocks as having bullish technical patterns, whereas 15 that look bullish (or half of the Dow 30 universe) is a more comfortable situation to bet on a sustained run up. This is the time of year when its common to see many cross currents due to the seasonality of earnings in some sectors and portfolio adjustments with large funds as they rotate out of stocks that have bountiful gains to ones that are emerging.
I suggested last week that the Dow would be unlikely to crack the 13250-13300 zone. I'm still noting resistance for this area. Next big technical resistance then is back at the (previously) 'broken' up trendline, currently intersecting in the 13485 area. Call it resistance at 13485-13500. My work suggests a dip to the 12850 area over a move back above 13300 near-term.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart remains bearish as the recent rally failed handily. It remains to be seen if support in the 2962-2965 area continues to materialize. COMP looks like it may be headed lower than its recent lows.
I don't want to under report that the Composite has given back fully HALF of its gains from its last big up leg. In terms of just the chart pattern, it looks like one tracing out a downtrend price channel, with another potential dip to the low end of this channel. This kind of unfolding could take COMP to the 2905-2900 area.
Resistance is apparent at the line of prior lows around 3036. Next resistance then looks like 3085, extending to 3100.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index looks to be in a still-bearish pattern as NDX's most recent rally didn't get beyond nearest resistance at 2700. The 2700 area remains pivotal near resistance and longer range resistance looks to come in back up at the prior up trendline currently intersecting in the 2767 area.
Recent support came in around 2645-2650; I've noted next lower support at the 62-66% retracement levels at 2610 to 2592.
What I wrote last week of "looking for a leveling out, with a possible further dip to test the low-2600 area" and also that I'd be bullish in this area is mostly my unchanged view. I can't say that 2650 wasn't an area to exit short positions, especially taken with NDX in the 2850 area and topping action. It's tricky with downtrends to look for that last little bit lower and to expect a 'fully' oversold RSI extreme.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock's (QQQ) chart remains bearish and the pattern suggests a downtrend channel is being traced out. There was a rally to the upper end of the downtrend channel and now the next price swing looks to be down toward the 64 area. Stay tuned on that!
I've pegged near technical resistance at the 21-day moving average at 66.5, with next resistance at 67.7 at the prior up trendline.
I'd like to see if a next downswing brings in daily volume spikes again. A fall to the 64 area on above average daily trading volume might be a final volume 'climax' low and offer a favorable risk to reward in buying the stock; or, purchases of at the money or slightly in the money calls. I especially like counter-trend trades after completion of retracements in the 62-66 per cent area and especially when accompanied by an oversold RSI extreme (such as would be seen above on the NDX chart).
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart remains bearish given the recent rally failure in the area of the former up trendline. I've highlighted resistance at 827, extending to the 835 area. It would take a sustained move above 835 to suggest that RUT was back on bullish track.
Near support is in the area of recent lows in the 811 to 808 area with next support highlighted at 798, representing a 50% Fibonacci retracement of the June to September run up. I've also noted potential support for the 785 area.
GOOD TRADING SUCCESS!