THE BOTTOM LINE:
The S&P 500 and 100 have now retraced approximately 50% of their June-Sept advances and have met my anticipated downside objectives. The Dow 30 (INDU) had retraced more than the S&P but not as much as 61.8%. It was apparent by looking at the 30 stocks that there were a number of them (the 30) that could fall further than the broader S&P Indices. However, INDU at 12750 would reach technical support implied by the low end of its weekly chart uptrend price channel.
The Nasdaq Composite (COMP) has retraced just over a Fibonacci 61.8% of its summer run up and has also met my downside expectation. The big cap Nas 100 (NDX) has fallen a bit more than a 2/3rds or 66% retracement and weakness in stocks like Apple (AAPL) would have suggested that the biggest tech stocks had 'more' to give back than the run of the mill COMP stocks. Bellwether Nasdaq stock AAPL has now retraced 50% of its November 2011 to September 2012 gains and may find support around its recent 534 lows; next support looks like the 493-476 zone for Apple. Another Nas bellwether, Google (GOOG), has reached technical support in the $650 area; there's potential for GOOG to fall to $600 and my current 'worst case' objective.
My forecast last week was a dip to at or under 1395-1400 in SPX and for NDX to decline to the 2600-2595 area, "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." 2572 has been the intraday low on this move to date. I'm still thinking that 2550 would be technical support in NDX
Last but not least, the major stock indexes are now 'fully' oversold judging by the Relative Strength Index (RSI) on a daily chart basis in all major indexes and also at an oversold weekly chart RSI extreme in Nasdaq, both in COMP and NDX. In terms of bearish (trader) sentiment, my indicator has hit two prior daily 'oversold' bearish extremes or close to them. Enough so that a bottom may not be far off; a rebound soon wouldn't be surprising.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart is bearish in its pattern but the index has fallen to an area of anticipated technical support in the 1380-1370 zone. If SPX were to fall further, to the 1346-1336 area, the index would fall into support implied by the 62-66% retracement zone.
I also noted last week that "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."
The 13-day RSI falling to what I consider to be a 'fully' oversold extreme is what I've been anticipating would occur at or near the end of the current correction.
SPX resistance is at 1400, then in the area of the 21-day moving average around 1422. Near support is at 1370 which was almost touched this past week. Next technical support is at 1350-1346, extending to 1336.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart fell further this past week as could be anticipated by the last sideways consolidation that had little to no upside follow through. Once OEX decisively pierced the prior line of support around 643 another substantial down leg could be anticipated.
This coming week I look for near-term support around 628 at the 50% retracement level (of the June-Sept advance). Further support just a bit lower is in the 623 area, the low end of the weekly chart uptrend channel (not shown). Support implied by a Fibonacci 61.8 per cent (rounded to 62%) retracement is at 616.
Near resistance is at 643-645, then in the 650-652 area, extending to 660.
As with the S&P 500, OEX has hit a fully oversold (13-day) RSI extreme and has fulfilled my expectation for this recent correction; one that looked like it was going to be in the neighborhood of a pullback of at least half of the prior advance
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) is bearish in its pattern and has fallen below the 50% correction level at 12850 by a bit. INDU found recent support in the 12800-12750 area. I've noted 12750 as technical support as this level is the low end of a broad and longstanding weekly chart uptrend channel (not shown). While a move to the 12500 area can't be ruled out, I'm pegging next Dow support in the 12600 area.
Recent resistance held in the 13250 area and I've noted my upper resistance now at 13235. (Big deal: 15 Dow points!) Initial resistance and a pivotal one is at 13000 at what had been a key prior support.
At this point I consider that INDU on its last dip to 12750 may have reached a bottom to the current correction; I'm not betting on a further down leg. The Dow could decline to the 12600 area ahead, but probably not to longer range support beginning at 12400.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart remains bearish in its pattern but the index has also reached support implied by the low end of its downtrend price channel in the 2900 area. I've noted COMP support just a bit under 2900, at 2882. Next support is highlighted at 2800, although my expectation has been that COMP would not retrace more than a Fibonacci 62% to 66% retracement of its June to September advance.
Most of the time, I find that downside 'retracements', as opposed to intermediate trend reversals, tend to stop at no more than 2/3rds of the last major run up. Stay tuned on this outcome.
Pivotal COMP resistance is at what had been key support in the 3000 area. Major resistance comes in at 3100 currently.
As noted with SPX, COMP has fallen to what I consider to be a fully oversold RSI extreme on a daily chart basis. In terms of the weekly chart (not shown), the 8-week Relative Strength Index has ALSO fallen to an oversold reading.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index is bearish in terms of its chart but has reached downside objectives I had for the index. Big cap tech bellwethers AAPL and GOOG have fallen to what looks to be areas of at least interim technical support also.
My forecast last week was for a decline in NDX to 2600-2595, where I wrote "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." Adding to my prior week's comment, 2572 has been the intraday low on this move to date. I'm still thinking that 2550 will prove to be a key technical support in NDX.
NDX like the Nas Composite has fallen to the low end of my projected downtrend price channel. Further support implied by the low end of this channel is at 2550 with a next projected support at 2535, extending to 2500. 2530 is also a technical support implied by the low end of NDX long-standing weekly chart uptrend channel (not shown here). Technical/chart resistance is seen at 2650, extending to 2682.
NDX has finally registered a fully oversold RSI extreme at 30 basis the 13-day Relative Strength Index. Moreover, NDX is now at an oversold extreme on an 8-week basis, in terms of the RSI applied to the weekly chart.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock's (QQQ) chart has of course the same bearish pattern as NDX so not much to add there; or to the idea that the Q's may have reached an interim bottom. QQQ has fallen to an area of expected technical support at the low end of its downtrend channel. This doesn't mean that the tracking stock won't just continue to work lower within the highlighted channel.
I've noted expected next chart support around 62.4, then at 61.8. Major support begins at 60. Pivotal resistance looks like 65.0, with next resistance a point higher at 66 even.
Per its usual pattern, daily trading volume spiked on the last down leg, but had tapered off by the end of this past week, suggesting a possible interim bottom.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart remains bearish and RUT has finally fallen a bit under the pivotal 800 level and a 50% retracement of its summer advance (June-Sept). Next technical support levels implied by the 62-66% retracement levels, are seen at 781, then 774. I don't currently have lower projections for the bottom of the current correction than to the 780 area in RUT.
Near resistance in the index is estimated at 812, extending to 820. A close above and ability to maintain trading above the 21-day moving average (currently at 820) would suggest that RUT might rebound to 837-840 area and resistance implied by the previously penetrated up trendline.
GOOD TRADING SUCCESS!