THE BOTTOM LINE:
The Nasdaq Composite (COMP) eked out another weekly gain for the fifth week running. Quite another story in the S&P 500 (SPX) and the Dow 30 (INDU) as they just finished a 3-week period of lower closing weekly lows. The recent decline isn't dramatic, with SPX so far holding key near support at 1680 and INDU finding buyers around 15000 support.
Volatility, as measured by the CBOE S&P Volatility Index (VIX) has gone from a recent low of 13 to 17.7 on Thursday; over the prior 10 trading sessions we've seen VIX jump about 36%. I don't anticipate LESS volatility ahead, the way things are going with the Congress. We do now have an earnings focus ahead as Q3 numbers start coming out. Good earnings may help offset some of the worry about a continued government shutdown or, worst, failure to increase the debt ceiling. I'm not hopeful that a default will be averted, based on what I'm reading.
Voters in rural districts where much of the strength of tea party conservatives lies seem to think that the United States even defaulting on its debt is no big deal. They don't see how it will impact THEM. This kind of thinking will change if the U.S. again goes into recession. But, being 'wrong' in that regard on this issue won't undue the damage that could be done.
I mostly rely on the chart picture, big and small. As I wrote in my most recent Trader's Corner article (10/3/13), the major indexes like SPX and COMP are very 'overbought' on a long-term chart basis (monthly) and there is an historical tendency for major tops to be made in the Sept-Oct. timeframe. See the aforementioned article.
The multiyear charts don't predict a major top so to speak but the analysis shown in my aforementioned (Trader's Corner) article would suggest that a major downside correction, especially in the tech-heavy Nasdaq, is 'due' or overdue. However, predicting exact timing for WHEN a large correction/pullback will occur in a major bull move is tough. Long-term charts suggest a downside reversal COULD start in the current month and this IS the month when the default issue will be settled, or not. It all depends on how events external to the Market play out. Stay tuned!
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart pattern shows the Index in short-term correction. SPX has held at recent lows at support implied by its 50-day moving average but is now trading under its 21-day average, which suggests possible further weakness. Early week trading ought to clarify relative strength or weakness ahead.
Near resistance is seen in the 1695-1700 area, with next resistance at the prior recent top in the 1730 area, extending to the upper end of SPX's uptrend price channel around 1740.
Very near support is at 1680, with further implied support at the up trendline at 1660, with next support at the 1640-1630 price zone or the cluster of prior lows at the most recent bottom.
SPX looks like it could start to rebound a bit in the short-term but outside political events will also be key. 'Inside' the Market news will be on Q3 earnings releases. Technically, a decisive downside penetration of 1680 and certainly also trendline support in the 1660 area would be bearish. A move back above 1700 that was sustained would be bullish.
Bullish sentiment (see my CPRATIO indicator above) remains higher in my estimation than I would expect, given the current political stalemate. It may be that traders are 'too' complacent and figure that Washington will resolve their current impasse. I'm not so sure they will, or at least I don't have that optimism, but stay tuned as to how this plays out.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart looks to be a pivotal level. The short-term OEX trend is down but unlike big brother SPX, the S&P 100 is now AT support implied by its up trendline. If 745-743 gives way, especially on a Closing basis, then there's no 'obvious' chart support before the 730 area at the prior bottom.
I didn't highlight it, but key near resistance is likely to be found at a 'line' of prior OEX lows (support, once penetrated, 'becoming' subsequent resistance) in the 753 area. My first highlighted resistance, at the red down arrow, comes in at 760, then at 770-772.
OEX, along with SPX, also has had a pattern of moving from an overbought high to an oversold low as seen below. We don't have the oversold condition yet but stay tuned for this possibility.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) chart remains bearish but the Average has found some buying interest as predicted in the 15000 area. Below 15000 next key support comes in around 14800, at the cluster of prior lows made at the last bottom.
Near resistance is seen in the 15200 area, extending to around 15290-15300.
Given the double top that formed in early-August to mid-September, it would not be at all surprising to see the prior LOW re-tested in the 14800 area; if support developed in this area it could indicate a broad 15650-14800 trading range in the Dow. 'Confirmation' of an INDU double top would occur with a daily Close below 14800-14776 (at the prior bottom) that wasn't reversed the next day.
A good number of the 30 stocks in the Dow remain in corrective patterns relative to their prior uptrends. A handful only of bullish exceptions are seen with BA, NKE, UNH, MMM and V.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) Index chart remains bullish. The only potential bearish element is that upside momentum has slowed as COMP has reached some technical resistance at the high end of its uptrend channel. Resistance is highlighted in the 3830-3850 area, with next resistance likely at 3900.
Near COMP support is seen at the 21-day moving average currently at 3758, with next support at 3700.
As prices trend sideways to higher, this is occurring on less relative strength, as the RSI has been gradually trending lower. This divergence sometimes turns out to occur ahead of a downside reversal. Sometimes, a more or less sideways move is simply a way that an index or stock will 'throw off' an overbought condition. Take your pick.
Currently, it doesn't look like the tech heavy Nasdaq will ever come down. Bullish sentiment keeps popping back up. I'm too much of a contrarian to buy into this rosy view of tech and the current love affair with social media. Stay tuned on the battle of the bulls versus bears. So far the bulls are winning or at least those shorting these stocks are not gaining anything but heartburn!
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart remains bullish and the 'most' bearish thing that's apparent from the chart is that the advance has slowed at resistance implied by the upper end of NDX's broad uptrend channel. Near-term resistance is projected at the upper end of the channel line, currently intersecting at 3270, with resistance then extending to 3300.
Initial downside support is highlighted in the 3200 area, extending to 3150.
As in COMP, there is a potentially bearish RSI/price divergence as the RSI is trending lower as prices move sideways to higher. Such divergent trends sometimes forecast a pullback and sometimes mean little in terms of any substantial reversal or corrective action. I note this divergence as it warns me off from buying into NDX this far into a strong bull run until these stocks come off some. The march higher has slowed which is a slight warning note to bullish traders. Tech bubbles have been much in my past and when I was blinded by the bullish light it was usually trouble later. Stay tuned!
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 (QQQ) chart is bullish but again this week there's a slight bearish divergence with the On Balance Volume (OBV) indicator as OBV has been trending lower on balance while prices have trended sideways to higher.
Near resistance is highlighted at 80.1, extending to 80.6. Near support is at 78.5, then is highlighted on my chart in the 77.6 area; next support comes in around 76.
Daily trading volume spiked on Thursday as the Q's fell to support at the 21-day moving average. The subsequent rebound was limited but the next day and the end of the week saw some strength again. The bears are getting tired of shorting tech stocks and this stand in tracking stock for the whole Nas 100 index. It 77.6 is pierced expect the bulls to be racing for the exits as seen with a BIG jump in volume.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart is bullish but isn't following Nasdaq to ever new highs. It looks like RUT is stalled in the 1080-1088 level and this fact doesn't fill me with confidence for the Russell being a bellwether for a continued advance in Nasdaq. A decisive upside penetration of prior recent highs would suggest potential to as high as the upper end of RUT's broad uptrend channel line intersecting at 1122 currently.
Conversely, support is anticipated in the 1066-1060 area, then at the up trendline, currently intersecting at 1040.
I have no suggestion in terms of the Russell. Potential upside might be another 54-56 points from the 1066 Friday Close, versus potential downside of 26 points to trendline support. Of course, RUT has to pierce 1088 first before we could speculate on possible upside to the upper channel line. Meanwhile the RSI is trending lower as RUT goes sideways, which doesn't suggest an ideal bullish technical outlook.
GOOD TRADING SUCCESS!