THE BOTTOM LINE:
The rebound from mid-week lows put the S&P and Dow back above their 'normal' volatility range of trading within 5 percent of their 21-day moving averages; with Nasdaq, 6-7% as you'll see on the charts.
A week ago Friday, with the declines to 5 percent under the 'centered' 21-day moving average, my last thought was we'd see a further 'waterfall' decline from there. WRONG!
The Market didn't see it coming in mid-October 1987 either with the Dow down one Friday some 4-5%. Surely I thought after the weekend, prices would stabilize and stem the strong downside momentum. NOT! What became known as 'Black Monday' saw the Dow down 508 points, but that then was a whopping 18 percent!!
This day, by the way (10/19/87) also saw the advent of computerized sell programs as they made a major impact on the major indices, driving them lower; something then called 'portfolio insurance'. It was a mess is what it was.
Within the past few days on our most recent bout of extreme volatility, the indices rebounded back into a more Market 'normal' volatility range as suggested by the Dow and the S&P back above their 5 percent moving average 'envelope' lines relative to a 'centered' 21-day moving average.
In the case of the Nasdaq, their rebound has been to back above 6-7 percent moving average envelope lines relative to the 21-day average. See the charts for my further take on the various index patterns. I'll start with a brief look at the S&P 500 Volatility Index (VIX) chart.
The S&P 500 Volatility Index (VIX):
VIX shot up into its 'extreme' volatility zone between 30 and 40, then quickly came back down. Resistance is seen at 30, then 35 and I assess VIX as coming back down gradually.
Support so to speak or where VIX might pull back to next is seen at 20, then at 15.
A long 'base' building process in the sideways trend from February on. The better, so to speak, to support this recent major spike up in Market volatility.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The S&P 500 (SPX) is bearish, except for very long-term charts. Showing the limits of a prolonged deep decline, SPX rebounded within 3 days this week back into a more 'normal' range in terms of moving average envelope lines that normally 'contain' 90-95 percent of all declines to below SPX's 21-day average.
The lower (moving average) 'envelope' value on the downside has rarely exceeded 5 percent below the 'centered' average. BUT (there's always one!), there are also occasional 'black swan' or exceptionally rare events where panic selling drives things to sharp downside extremes; these can be once a decade type event as with the '87 crash I referenced in my initial 'bottom line' comments remembered for years as 'Black Monday'.
The recent SPX low is a likely intermediate bottom and support is now pegged above these lows; a good case for at least an interim bottom in that over 3 trading days the index failed to break to a new bottom. Support looks like 1950, extending to 1900. I think SPX will hold for the most part at the lower (green) line set to float at 5 percent line UNDER the 21-day average; that lower envelope line currently intersects at 1920.
Near resistance is seen at 2000, extending to 2050, which is a pivotal resistance overhang as buying interest was seen in this area on multiple occasions. Those who bought there will, on the return, SELL there so that's selling that must be absorbed for SPX to churn through 2050.
Bearish 'sentiment' and the RSI got to oversold type extremes, which provides support for the idea of a bottom but not that buyers will be in a hurry to bid stocks back up again!
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX), as I discuss with the S&P 500 above, has probably hit bottom for the foreseeable weeks ahead. Some further rallies can be expected but also continued volatility.
880 looks like near-term support and 840-845 may be a 'maximum' downside ahead. Lows should hold for the most part at the lower (green) 'envelope' line at minus 5 percent under the 21-day average, with that envelope currently intersecting at 845.
Near resistance, a pivotal one, is seen at 900, not only because of it being a prior line of support now 'become' resistance but also because the 21-day moving average will often if not usually 'act as' as fairly strong resistance, especially after a sharp sell off. Upside from recent lows maybe to 900, not as likely for a strong move above 900. Resistance above 900 looks to come in around 925.
THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:
The Dow 30 (INDU) led on the way down but hasn't bounced back more than the S&P has percentage wise, but even staying equal is a plus for INDU. As with OEX and SPX, I think that recent lows will not be re-tested and see near support/buying interest at 16200, with next pivotal support in the 15800 area.
INDU is back into its 'normal' range relative to a 'centered' 21-day moving average and envelope values above and below the daily Closing average as seen below; i.e., at 2.5% (can easily expand to 3%) ABOVE the 21-day average and to 5 percent BELOW the average on 'normal' type corrections, but NOT sell offs on flow blown panic attack lows! However, as with most markets, prices tend to snap back to a 'mean'.
Tough resistance is anticipated on a further advance to 17000-17200. A prolonged move above 17200 is needed to suggest that prices won't be under pressure again in the fall.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) is bearish in its pattern given the sharp break below the line of key prior support in the 5000-4900 zone. Lows are likely in for the recent move and there will be further attempts to rally with bouts of selling driving COMP lower. How much lower? I look for support initially on pullbacks to 4700, with even stronger support/buying interest at 4600.
Near resistance is projected at 4875-4900, with next resistance and an even more pivotal one, at 5000. Ability for COMP to sustain a rally above 5000 is need to suggest that the Index had regained its prior upside momentum.
COMP, like the other indices, got to DEEP downside indicator extremes in the Relative Strength Index (RSI) and my CPRATIO 'sentiment' indicator consistent with the view that a climax low was made this past week. This is not to say that its up, up and away again for tech. Investors are still quite cautious and there are further unknowns with the Fed and with China.
NASDAQ 100 (NDX); DAILY CHART:
The big cap Nasdaq 100 (NDX) is bearish short and intermediate-term given the extreme break below NDX's prior line of support in the 4400 area. Of course, dropping like a STONE after that made for a panic early going to the week. Support was found over a 3-day period and in major downside corrections in bull markets you rarely get more than three days to see that there is in fact a BOTTOM for the index in question.
Near NDX support is seen at 4200. The snap back rally of this past week puts the Index back into what I consider to be a more normal volatility range as measured by percentage envelope lines set relative to a 'centered' 21-day moving average. A pullback to the 4100 area, at the lower (-7%) envelope line wouldn't be surprising but not another sharp break below 4000.
Key near resistance in NDX is seen at 4400, extending to 4480-4500. It would take a solid move above the 21-day moving average to suggest that NDX had regained its prior upside momentum. 4400 may be a 'lid' on recovery as it represented the recent 'breakdown' point. Stay tuned!
The NASDAQ 100 ETF STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) is bearish but the Q's also may have traced out a 'final' low for the recent steep sell off. The long-term Nas 100 index trend remains up so it's not surprising that there is a value area where stocks will see buying.
QQQ support/buying interest could come in on pullbacks to the 102 area, extending to 100. I anticipate fairly major support at 98.
Immediate overhead resistance is at 106, and a key 'breakdown' point. Next resistance/selling pressure could come in around 108, but with potential to 110 if 108 is pierced.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) dipped below its lower (minus 5 percent) envelope line as the rally went to 'hyper-extreme' oversold. Now, the snap rally puts RUT back above my lower envelope line. The picture provided by the lower envelope suggests a possible support 'floor' at around 1120; see the lower (green) envelope line. Near support highlighted at 1140 is also an area to watch.
I see upside potential to perhaps the 1180-1200 area before serious selling might erupt again. Anyway, 1200 was a key 'breakdown' point and now is seen as pivotal resistance. RUT would need to manage a sustained rebound to above 1200 to 1220 to suggest the Index could challenge the various prior highs on the stair-step decline seen on the chart.
GOOD TRADING SUCCESS!