THE BOTTOM LINE:
Slowing upside momentum and recent overbought readings have led to the Indices moving sideways to a bit lower. How much this is a 'pause' or the start of some retracement of prior gains isn't certain but shouldn't surprise us.
As I noted in my most recent Trader's Corner article (2/26/15), vulnerability to a sideways to downside correction is suggested by nearness to my upper moving average envelope lines, overbought Relative Strength Index (RSI) readings and the level of trader bullishness.
An overall Market correction appears underway. A further dip ONLY back to prior highs (prior resistance), with this area acting as support, suggests a relatively minor correction. Specifics on key support and resistance levels are noted with my individual index charts.
As has been my recent practice, I'll begin with a look and analysis of what has become a favorite options trading vehicle, that of the S&P Volatility Index (VIX).
The S&P 500 Volatility Index (VIX) DAILY chart:
The liquidity of VIX options (e.g., Friday VIX options volume was 223,000) is significant but often unnoticed by individual traders, unlike funds hedging their stock portfolios. Besides good liquidity, VIX often trades very 'technically' with reliable TRENDS and with price swings between key highs and lows. Moreover, overbought/oversold indicators also provide clues as to the probability of VIX trend reversals.
A view by options traders has grown that sharp spikes in options volatility suggests potential opportunities in buying VIX puts or selling VIX calls. Conversely, if you anticipate a substantial increase in volatility, VIX calls can be bought or VIX puts sold. The contract 'multiplier' for valuation of a VIX option is $100.
I am increasing not trying to evaluate the VIX trend as opposite or inverse to the SPX price trend and to trade VIX accordingly, but to view the VIX hourly and daily charts as like any other index chart. Certain VIX highs suggest bearish strategies. Certain recurring VIX lows suggest potential bullish trading strategies.
Very near resistance in VIX is at 14, then 16, extending to the 17 area.
VIX may next be heading to 13 or lower, such as to next 'support' around 12. Call purchases or short puts look favorable in the 13 to 12 zone. An oversold RSI suggests potential for an upside reversal but the RSI can stay in a 'typical' oversold zone for some time; e.g., 3-4 weeks or more.
The S&P 500 Volatility Index (VIX) HOURLY chart:
The declining trend in VIX is shown in more detail with the hourly chart below. 13 is a next pivotal level for support or conversely where piercing 13 suggests downside potential to 12. VIX has repeatedly been getting oversold on a short-term basis, as highlighted by the 21-hour Relative Strength Index.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The S&P 500 (SPX) chart suggests slowing upside momentum and most recently SPX slipped below the current up trendline highlighted below. A key test of the current uptrend would be seen on a pullback to a line of prior resistance noted at 2092.
A decisive downside penetration of 2092-2090 would be near-term bearish as it would put SPX back into its prior trading range.
Next lower support then is suggested at 2075, at the 21-day moving average, with support extending to 2070.
Key support is in 2100-2092 price zone. Trade above the prior peak at 2092 is bullish and keeps the bullish trend intact. Near resistance next comes in at 2120, extending to 2136. 2136-2140 would be my suggested next 'maximum' upside potential without increased risk of a sideways pause or a pullback.
Bullish trading sentiment has tapered off lately which in a contrarian sense is bullish, but a recent 1-day peak in my CPRATIO indicator did precede, and possibly predict, at least a pause in the current advance.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is bullish but the rate of upside gain has slowed. Given that an overbought RSI reading preceded this slowing upside momentum, a retracement of the prior advance can't be ruled out. Pivotal support is suggested at the prior top in the 924 area. Prior resistance, once penetrated, should 'become' subsequent support if a new up leg is going to proceed.
I highlighted a next lower support below 924 in the area of the 21-day moving average at 912-910 but would also suggest 920-916 as possible support between these two points. Near OEX resistance looks like 934, extending to 940.
The big cap S&P 100 got 'overbought' according to its typical upside 'extreme' in the 13-day Relative Strength Index or RSI. I would rate further upside potential about equal to downside risk for a pullback; i.e., further upside, before selling pressure comes in, of 15 points to the 940 area. Conversely, downside risk of a pullback here looks like 15 points, to the 910 area.
Continued trade above the prior peak is bullish, which is a main consideration for OEX in terms of maintaining upside momentum.
THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:
The Dow 30 (INDU) Average is faltering some after INDU's move to new highs. Pivotal support is suggested by the prior resistance or the recent upside 'breakout' point, at 18100. If 18100 is pierced on the downside look for initial support at 17900, and then next at highlighted support (green up arrow) at 17800.
Support at 17800 is implied by the current 21-day moving average, which tends to more or less 'define' the intermediate trend. One close below this key 'centered' moving average isn't so critical if the next day's Close is back above the average and then trades mostly over the 21-day.
Near resistance is highlighted at 18225 at the up trendline. Next resistance I've calculated at 18400.
Dow stocks EITHER rebounding, in moderate OR in strong uptrends are by my count 16 INDU stocks: BA, CSCO, DD, DIS, GE, HD, JNJ, JPM, MCD, MMM, NKE, PFE, TRV, UNH, UTX and V. Based on my 'bottoms up' assessment of the 30 Dow stocks, I'd rate the likelihood of INDU holding above 18100 as reasonably good.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) continues in a strong uptrend but that uptrend has traced out a quite steep rate of gain and suggests a trend steepness susceptible to a corrective pullback. Potential for a pause or marking time, going sideways, or for a retracement of some of the prior advance such as a third or so giveback is relatively high. I would also note that 5000, just overhead, is a 'milestone' level that if reached could bring in some significant profit taking selling. We may have seen some anticipatory selling on this count already.
Resistance is definitely seen at 5000, then next at 5040, which is my current 'maximum' near-term upside target. COMP support levels are 4950, then highlighted support areas (green up arrows) at 4900, extending to 4850-4835.
COMP is tracking sideways recently after hitting an 'overbought' extreme in terms of the 13-day Relative Strength Index (RSI). Moreover this occurred after bullish trader sentiment climbed to somewhat 'extreme' expectations. Odds of a pullback has grown, but price action hasn't traced out a downside reversal either. Stay tuned!
NASDAQ 100 (NDX); DAILY CHART:
The big cap Nas 100 (NDX) is bullish but prices have gone mostly sideways after NDX reached the 4450 area. Near support is at 4400, then is assumed as lying in the area of the prior NDX high at 4347. Note the upside acceleration above 4350, making 4350-4347 pivotal downside support if a corrective dip develops and carries that far.
It would technically 'healthy' in terms of the longer-term bullish NDX trend to see a pullback to near the 4350 prior (upside) breakout point. An 'overbought' extreme RSI reading with a major index like NDX is not a great harbinger for a continued move ever higher. The Index could be seeing the start of a corrective pullback in the recent sideways churning. Stay tuned.
Near resistance is highlighted at 4462, then in the 4500 area. NDX hit an overbought RSI reading which suggests increased vulnerability of a pause or pullback. The low reading in the VXN, the Nasdaq 100 volatility Index also has some degree of correlation with a bump up in volatility and a possible retracement of some of the prior steep gain.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The QQQ trend is the same as NDX of course in the pattern. In terms of price levels, key near support is seen in the 108 area. A pivotal lower support comes in around 106.
Upside resistance is close overhead, at 108.9-109. Next resistance comes in at 110. QQQ is getting to the point of WHEN a correction will set in, not IF that will develop.
Volume has been relatively low on the recent advance, not surprising given the sideways trend of the past week. The On Balance Volume (OBV) line was trending higher, but has paused with price action.
A correction is due. My upper moving average envelope line is a strong reminder that QQQ is well above the 'centered' 21-day moving average or well above this center as a kind of mean. Prices like many things tend to come back toward their mean at some point.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) has had a strong advance above its prior high in the 1220 area. My next target of 1240 has been reached. 1252-1260 is a next target zone but RUT recently started to slip under its steep up trendline and may see continued slowing (upside) momentum.
Slowing upside momentum, should it continue, could take the Index back to near 1220 support which was prior resistance. This is a common pattern; a prior top once penetrated, 'becoming' support on a subsequent pullback. Next lower support is highlighted in the area of the 21-day moving average, currently at 1212.
RUT also has a pattern of moderate to more substantial pullbacks AFTER reaching an overbought 'extreme' in terms of the 13-day Relative Strength Index (RSI).
If you are hanging in for the last possible upside when in bullish strategies, ask yourself why. If it was because you only got in when RUT went to new highs for its move, take a profit before it escapes. If you bought 'right' when RUT was establishing repeated support in the 1160 area, take the money and run. End of my story but stay tuned!
GOOD TRADING SUCCESS!