THE BOTTOM LINE:
As noted last week, the Nasdaq Composite (COMP), which has been 'leading' the Market mostly for months, was hitting some technical resistance and a further pullback was anticipated. The pullback was not huge on the week, but it was significant; just not quite as much as the start of a 3-week correction that began in late-January.
For the first time since June of last year bullish sentiment fell considerably this past week. It seems that trader's and investors have 'discovered' (duh!) that stocks have downside risk as well as unrelenting upside potential. The recent increase in trader bearishness (a drop in equities call volume relative to puts) bodes well for a correction bottom. A rebound becomes somewhat more likely as we get out of the common seasonal doldrums of March. Beware the "Ides of March"!?
I've noted the common 38 and 50 per cent Fibonacci retracements on my charts that follow, as measured from the last downswing low (early-Feb.) to the rally high around 3/4/14. Only the Dow 30 (INDU) has to date retraced as much as 38% or its last upswing.
38% tends to be a 'minimal' retracement amount and strong stocks and indices often don't retrace more than this. 50% is a common retracement for a stock or index that's having 'average' gains within a bull market.
An index or stock that's lagging the overall market will sometimes see a Fibonacci 62% retracement. INDU had a correction of this magnitude in the late-January to early-February downside sell off; I've noted what would hit that deeper (62%) correction amount (just) on the Dow chart.
I don't have a strong take on where our current correction might end, but if the current weakness in the major indices retraces around 50% of the last advance, gets to an oversold reading with the 13-day RSI and if bullish sentiment continues to drop, I would be primed for an upside reversal ahead.
The aforementioned conditions don't have to occur to 'signal' an upside reversal, or 1-2 may. My most favored condition to establish a bullish position after a pullback still within a dominant bullish trend, is when the indexes get 'fully' oversold and/or experience key upside reversals; e.g., a fall to a new low, sometimes a decisive new low, followed by a strong rebound that exceeds the prior 1-2 days high(s).
VIX, the S&P 500's implied volatility gauge has jumped recently to 18. VIX daily readings in the 20-21 zone tend to mark areas where corrective lows tend to occur.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) index is in a short-term bearish correction within an overall bullish uptrend. The dominant trend remains up/bullish, and the extent of a further decline in SPX looks to at most to somewhere between 1830 and 1800, the two levels highlighted (with the green up arrows) as anticipated technical supports. I'm not anticipating another decline to as low as SPX's up trendline at this juncture.
As noted in my initial 'bottom line' comments, bearish sentiment as increased or I could state the reverse in that bullishness has fallen off after being on the high side for weeks and months. On a contrary opinion basis, this is an indication that the current correction may not go on for an extended period. March tends to see some givebacks of prior gains from early in the year.
Near resistance is seen at recent highs in the 1880 area; next resistance in the 1907-1910 area is implied by the upper end of the uptrend channel that I'm working with currently for SPX.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is bullish but a short-term bearish correction has developed recently. OEX could get back to 807, at the 38% correction level or to 800, which would be a 'nominal' 50% retracement of the prior advance.
785 should offer significant technical support, at the current intersection of OEX's up trendline. The overall trend is bullish as long as the prior 770 low is not pierced and exceeded.
To get this rally in gear again would require recent highs in the 830 area to be penetrated, with support then showing up on any subsequent pullbacks to this area. I've calculated next OEX resistance as coming in around 842.
Downside momentum is seen in the Relative Strength Index (RSI) indicator chart. If OEX should get 'fully' oversold again, as suggested by RSI readings in the 35-30 zone, I'd be looking at any time for an key upside (price) reversal to suggest getting into bullish positions.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
Within an overall bullish trend, the Dow 30 (INDU) chart shows the short-term trend as down. This after INDU got into its congestion (resistance) zone in the 16455-16600 area. I could also note near-term resistance at 16300, then at 16400; on the daily chart below I've just highlighted the upper resistance range.
16000 is an initial anticipated support area I've highlighted, with a next key support coming in around 15800.
Of the 30 Dow stocks, we're down to 7, DD, DIS, JPM, MRK, NKE, UNH and V showing still-strong bullish trends and little giveback of prior gains, whereas last week this list included 13 stocks. Not for nothing has the Dow, among the other bellwether or major indices, retraced more of its prior advance; i.e., at just over 38% currently.
If the RSI gets down to the 30 area again and, at that juncture or thereafter, there was a decisive upside price reversal, this pattern would suggest a compelling reason to get into bullish strategies in the Dow Index options.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart has given back less of its prior gains on a percentage basis than the S&P and also remains bullish on a intermediate and long-term basis. COMP's downside correction came in picture-perfect technical fashion so to speak, as the most recent pullback occurred AFTER the Composite hit resistance implied by the high end of its uptrend channel.
Resistance at this upper channel line is now seen at 4400. Selling pressure/resistance at the recent high is at 4371. Immediate overhead resistance is suggested at 4300.
Near support comes in at 4200 and falls inside the zone that lies between a 38 to 50 percent retracement of COMP's prior upswing. I'd be a little surprised to see MORE than a 50% retracement but have noted a 'lowest' support at 4100, at the current intersection of COMP's up long-standing up trendline.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart remains overall bullish as it continued to trade within its well-defined long-standing uptrend price channel. The Index is experiencing a short-term bearish pullback. NDX is close to having retraced a Fibonacci 38% retracement of its last advance as highlighted on the daily chart below, which sometimes is about as much retracement as will be seen in the strongly bullish index leaders.
Near resistance is suggested in the 3700 area, extending to recent the recent 3736 intraday high; next resistance looks to then come in around 3800, at the high end of NDX's uptrend channel.
Near support comes in at 3600, more or less at the mid point of the 38 to 50 percent retracement levels relative to the NDX's last run up. Support implied by the 50% retracement level is at 3578. Support suggested by the current intersection of NDX's up trendline is highlighted at 3550.
I'm anticipating a low to this current correction at not more than a dip into the 3600-3580 area. If a key upside reversal (e.g., a new low for the current pullback, followed by a strong rebound to above NDX's prior day's high) occurred, especially if that pattern occurred in conjunction with a 13-day RSI reading at, near or under an 'oversold' 30, I anticipate looking to be in bullish positions such as long April ATM Nasdaq 100 calls.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nas 100 tracking stock, QQQ, is bullish on an intermediate to long-term basis but is experiencing a short-term downside/bearish correction. I anticipate a new support coming in around 88 even. Support implied by a 50% correction of the last advance is at 87.5, suggesting support at 88, extending to 87.5. Support in the 86 area is implied by the current intersection of QQQ's support/up trendline.
I anticipate support coming in on a further pullback, especially if the NDX 13-day Relative Strength Index (seen above) got back to the 37-35 area again.
On Balance Volume (OBV) is in a decline but that can of course turn on a time. We don't typically see a big volume spike on an upside price reversal but the OBV line can be expected to turn up.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) is bullish longer-term and bearish on a short-term basis. A bullish turnaround would start to be suggested if RUT rebounded back above near resistance at 1200; resistance then extends to 1210, then to the 1225 area, at the upper channel line.
Near support is anticipated in the 1165-1158 area; support implied by completion of a 50% retracement of RUT's last advance comes in at 1147, with support extending to 1140.
IF the Russell 2000 got into its RSI 'oversold' area again near 35, this kind of low reading could again be associated with an upside reversals at that time or soon thereafter. RUT actually hasn't often seen its 13-day Relative Strength Index in the current bull market get as low as 35, only it did hit such an 'extreme' at the early-February bottom.
GOOD TRADING SUCCESS!