THE BOTTOM LINE:
When price swings extend well below the norm relative to 21-day moving averages, the next move is often to swing back up sharply.
Most of my analysis this week centers on how high is 'high' or where next 'resistance' might be.
One of the good tools to use for figuring out the extent of a next index price swing (not in stocks, but in indices) after an 'extreme' low, is to look for the SAME percentage peak ABOVE the 21-day average look as was seen BELOW the Average at the bottom.
I hope I haven't made my charts too complicated but in some I wanted to show a 'normal' percent range in prices above and below a 21-day moving average VERSUS the recent wider ranges of the envelope lines.
Moves to new highs are great but if you bought calls at the recent extremes of price, RSI and trader sentiment you have a terrific trading profit. There's that versus riding the trend which seems to have picked up a lot of bulls all of a sudden. Panic over, resume the bull market anyone?
Lastly before the charts, bullish 'sentiment' was relatively modest when it should have reflected a heightened bullish chart then shot up to quite bullish by the end of the week. It takes awhile to wake our trading universe up as this is a BULL MARKET as I keep saying.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The chart shows that the 'extreme' downside move is being followed by an equal extreme powerful move on the upside. This is fairly typical in a bull market when prices get pushed well below the mean in terms of trading envelope lines that track the 'normal' 3 percent range that occurs in the S&P. When the envelope line grows to 5 percent under the (21-day) Average and is oversold and sentiment is bearish, it's time to look for a bottom.
The subsequent rebound will then often carry to the same WIDER envelope value as was seen on the downside. See the chart for where a 5% envelope line would intersect above the current SPX price; i.e., around 2050 currently, which is noted as potential resistance. That is assuming the prior intraday high at 2019 is pierced.
Support is highlighted at 1960, then in the 1935 area of the 21-day moving average.
The RSI is climbing strongly of course with price but the indicator hasn't hit an overbought extreme nor has the 5-day average of daily trader sentiment 'readings' in terms of being at what I measure as 'extreme' bullishness (overbought).
S&P 100 (OEX) INDEX; DAILY CHART
The OEX has resumed its strong uptrend. It seems now in hindsight an 'overdone' extreme on the downside, followed by what now looks almost like a runaway bull move.
This picture is exaggerated by how far the panic selling took OEX before it made a V-bottom and climbed steadily almost seeming to 'mirror' the steep decline. Not an accident this as waterfall declines, once bullish momentum in earnings is seen again, can be, are frequently, followed by EQUALLY strong recovery moves.
Key support is highlighted at 870, then (still) at 60
Near resistance is anticipated at the milestone 900 level, then extending to the 5 percent upper envelope line currently intersecting at 912.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The normal 'range' in price swings is that the Dow trades from about 3 percent above its 21-day moving average and down to about 3 percent below this Average. In the case of a panic sell off and a correction 'long overdo', a downside dip to 5 percent under the 21-day is an extreme in a bull market. And the RSI confirmed the extreme.
Not surprisingly next, the bears then ran for the hills in the face of still pretty upbeat economic and earnings news. What might be the 'range' when the upside is getting extreme in terms to how far prices are above the 21-day? My rule of thumb is to look for the potential for the Dow to get to a level equal to 5 percent ABOVE its 21-day average price; just as the Dow fell to 5 percent below it. As below, so above to poetically name this concept in trading.
Near INDU resistance is highlighted in the 17600 area, representing a value that would be 5% above the current 'centered' (21-day) moving average. Next resistance then is projected in the 17850 area. The Dow has potential to 18000.
Chart/technical support looks like 17000, then 16700.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) has regained its bullish upside momentum and then some so the chart is again rated bullish in all time frames: short, medium to long-term.
The downside 'extreme' in COMP can be seen as a low that was around 7 percent under its 21-day moving average. Following the strong recovery move as seen by several bullish upside price gaps we no longer can expect a more normal range of rallies such as ones that get to around 3% above the 21-day average.
My rule of thumb honed over some decades is that moves per this current pattern often see a move on the upside to equal the downside. If the index fell to 7 percent UNDER the centered moving average, look for a next peak at 7% ABOVE the 21-day. Stay tuned for that result - it may be overoptimistic but it 'measures' potential resistance in a useful way for planning an all around strategy.
Resistance is broadly highlighted at 4670 up to 4750. 4750 would be a move that would put COMP 7% over its 21-day average, thereby squaring the circle so to speak. Stay tuned on that much of an advance.
NASDAQ 100 (NDX); DAILY CHART:
The NDX chart not only as I wrote last week "regained its bullish momentum and chart pattern" but the Index NO LONGER needs to retest its prior high as of course NDX sailed through that 'trouble' like a knife through warm butter as my grandmother used to say!
Potential 'resistance' looks like 4200 next then to 4270 if NDX were to go as far ABOVE its 'centered' 21-day moving average as it went BELOW. Seems like a stupid way to 'read' the Market? Yes, it is a 'stupid' market in some crazy ways. The Market does things that make up simple cyclical patterns that repeat and repeat and you say that it can't be that simple!
Near support, not surprise either, is 4000, what was long-standing and tough resistance. Support extends to the 3960 area and to 3900 after that.
I've projected potential resistance, or a next upside target, to 4200, then possible on to 4770 and I'm repeating myself. No reason technically to suggest NDX isn't going still higher, maybe after a short-term pause or pullback.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The QQQ tracking stock is bullish in its strong move through 100. 103 looks like a next possible upside target, then to the 104 area. Near support is seen at 98, then in the 96.6 to 96 zone.
On Balance Volume (OBV) continues to point strongly up as it was showing (bullishly) last week.
A move to the 104 area seems quite possible as we head into November. However, 100 should hold up as support on any pullback to suggest that kind of continued upside.
RUSSELL 2000 (RUT); DAILY CHART:
Lo and behold, the rising tide does tend to LIFT all boats as the Russell 2000 (RUT) pierced a key down trendline as it lifted itself above 1160. Near support is suggested now at 1160 but I've highlighted 1140, then 1120, as key chart support points. Most bullish would be if RUT can now stay ABOVE its recently penetrated down trendline; what was a 'line' of resistance, once pierced, 'becoming' new support is the principle.
RUT could have potential to the 1200-1210 area in the current move. That's an optimistic target.
Downside potential again looks like the Index could see some further gains, but not so much if RUT can't hold 1120 on a pullback. How well RUT does will be 'captive' to the current rip roaring bull move continuing.
GOOD TRADING SUCCESS!