MAILBAG QUESTION:

"How do you see the outlook for the s&p and nasdaq after today's rally? Seemed like a lot of bearish talk when the rally stalled after a strong august".

MY RESPONSE:

I see the overall trend pretty much as I've been saying (in my regular weekly Index Wrap) where I figured the recent sideways move or lateral price trend was 'marking time', or in chart terms, a likely consolidation ahead of another move higher. Moreover, sideways moves after a prior strong rally (August) also tends to 'throw off' an overbought extreme, which in turn can set up, so to speak, a next advance.

I tend to assume a trend in motion will CONTINUE unless there is a bearish price pattern like a key downside price reversal, a double top, rounding top, etc. If these type downside reversal patterns occur along with an overbought RSI extreme and/or with extreme trader bullishness, it's added evidence for a possible big pullback; i.e., a downswing that I'd like to be in for a trade such as in index puts.

One tried and true chart method to use in assessing the trajectory of a trend, up or down, is by use, in the case of an UPTREND is: 1.), the dominant UP trendline and 2.), a line drawn PARALLEL to the up trendline that intersects of touches one or more high. This upper channel line often is where significant resistance/selling pressure will come in. OR, the upper channel line will be a line that prices will follow higher, slowing down the rate of ascent.

WHY? If an up trendline represents the 'base' line of how fast prices will tend to ascend (average percent gain over time), the upper channel line represents a potential 'maximum' rate of gain. After achieving this implied maximum rate of gain, prices will often then eventually pull back into the middle OR lower end of the projected trend channel.

PRICE CHANNEL - NASDAQ COMPOSITE - DAILY CHART:

The lower (support) end of the Nasdaq Composite (COMP) price channel, which equates to its UP trendline, intersects just over 4400 currently. The line parallel to the up trendline which equates to the upper price channel line (intersecting one or more prior highs) intersects just over 4700 in COMP currently. This area represents potential longer-term resistance.

Back to the question as to how I see today's rebound relative to the recent sideways to lower correction, I'd point out that support in the 4485 area is anticipated as it represents the prior high, a double top actually and a prior high, once pierced, will tend to act as support on subsequent pullbacks. So, this most recent rebound, while by no means 'conclusive' for a bottom, is interesting as today's intraday low, neared implied support by the trading axiom just described. An 'axiom' is a 'self-evident truth'. I don't know if I'd go that far but it's a good rule of thumb.

Another way to see potential major technical support would be IF the Composite were to pullback to its up trendline or the low (support) end of COMP's uptrend channel.

PRICE CHANNEL - NASDAQ COMPOSITE - WEEKLY CHART:

Looking at the below highlights of the projected weekly chart uptrend price channel for COMP, a minor support trendline suggests today's low was significant for a possible near-term bottom, but long-range technical/chart support is implied in the 4270 area currently. A major resistance area is implied at the upper end of COMP's broad uptrend price channel, currently intersecting in the 4800 area.

Back to my point on the major market trend being UP. And, the recent pullback in the Nasdaq Composite is quite minor in terms of the bigger picture. Of course you can continue to ponder what the Fed will do/not do and drive yourself possibly crazy that way as to their action derailing this bull market or not, but actual price action continues bullish.

PRICE CHANNEL - S&P 500 - DAILY CHART:

Today's price action in the S&P 500 (SPX) continues within the context of its broad UPTREND price channel with the low end of the channel intersecting around 1940 and the high end around 2060.

On a small or micro picture here, SPX's pullback to date didn't yet retrace even a 'minimal' Fibonacci 38 per cent of the Index's prior advance. Today's rally was from support I projected previously in the 1980 area and by today's Close, SPX was back above its 21-day moving average, which puts the Index back on a bullish near-term track. Stay tuned for tomorrow and the next day however, but today's action was bullish, if not yet conclusive for the END of the recent correction.

PRICE CHANNEL - S&P 500 - WEEKLY CHART:

I don't have much to add to what is seen on SPX's weekly chart below as it relates to its long-term uptrend channel. It's been a powerful multiyear trend and it's a minor mistake to evaluate this market, as the media talking heads tend to do, based on the gains seen from the START of the current calendar year.

The broad multiyear SPX uptrend price channel suggests major support comes in around 1940 currently and major resistance around 2120 currently.

Of course, the longer a bull market goes on, as seen in the multiyear chart above, there is naturally more speculation about when the bull market will end; especially if the bull market has had much to do with cheap money supplied by the U.S. central bank. If the cheap money era comes to an end, the market will adjust of course. But, since I don't think anyone has an accurate fix as to WHEN this is coming, I take what IS to be the current price trend. Projections about this trend out into the future is speculative of course.

So, we ALL speculate, whether on what the Fed will do in the future or on a projected price channel in technical analysis terms, but I've found the chart picture to have a better record of suggesting where prices may be headed still.


GOOD TRADING SUCCESS!