THE BOTTOM LINE:
The S&P and Dow finally broke out of their relatively narrow trading range to the downside. I had been leaning bullishly still (looking for more upside) and still am on a longer-term basis, but corrections after a lengthily rebound in what had been a bear market are also to be expected.
Meanwhile, the pullback in the Nasdaq indices have been WITHIN its uptrend channel and presents a still bullish chart picture. However, I donâ€™t believe that tech will resume a strong advance if the S&P falls further which it looks like it may.
Impatience, as reflected in recent polls, as to why the economy is not suddenly flourishing is unrealistic. At least it's contrary to every past recession where the first signal of a turnaround is when things stop getting worse; except for unemployment unfortunately, which is a lagging indicator.
There can be a tendency for an initial push over the 200-day moving average that is followed by a slip back below this widely followed benchmark in the weaker market, as is seen with the Dow.
Long-term charts remain bullish in their patterns; at least pullbacks are mild to date relative to the weekly/monthly charts. The longer-term 8-week RSI is however pulling back from an overbought extreme as you'll see on my 'chart of the week' selection, suggesting further weakness. The same pattern is more extreme in the Nasdaq 100 (NDX), which is not shown; in the NDX the 8-week RSI hit 75 in early-June.
CHART OF THE WEEK: S&P 500 (SPX) WEEKLY
The S&P 500 (SPX) is still a good gauge of the overall market because it reflects the overall consumer economy.
I'm featuring the weekly SPX chart this week. The multimonth rally hasn't been able yet to achieve a decisive upside penetration of the prior weekly high seen at 944. Given the 'overbought' extreme seen in the 8-week RSI, it would have been unusual for a breakout to new highs WITHOUT the typical pullback that commonly throws off an overbought extreme. SPX doesn't have to fall a lot to do that: sideways to slightly lower over several weeks will do.
I suggest keeping an eye on the SPX weekly down trendline that I've highlighted. A pullback to this line, previously representing resistance, should now act as support in the 857 area. It 'should' that is if SPX is in fact in the longer-term recovery mode I think it's in.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
I'd rate the S&P 500 (SPX) chart as overall bullish as long as it doesn't pierce its prior (down) swing low at 879. Moreover, so far at least the Index has rebounded from support implied by the 200 day moving average. There is some key near-term overhead resistance at the 'line' of recent lows however as noted at my first (red) down arrow; i.e., support once penetrated, 'becomes' resistance later on.
Bottom line here is to not rule out a retest of prior lows around 880. If those prior lows are pierced on a closing basis however and for more than a day, it would suggest a deeper correction is underway than I'm currently anticipating. Initial support however should be noted as in the 900 area.
Resistance is apparent around 925-926, then at 950. A close over 950 that is maintained beyond that day would show renewed upside momentum. Major resistance begins in the 990 to 1000 price zone.
The 13-day RSI has fallen off, moving toward at least a more neutral reading, although not yet to an 'oversold' reading. Bullish sentiment dipped sharply by Thursday, which is positive for a recovery rally further on.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) Index pattern looks a bit different than that of SPX in that there was a well-defined up trendline that has now been pierced. The relative importance of this line will be seen if OEX can't rebound back above it. If so, look for further weakness, such as back to 420 or lower, or toward a retest of prior lows around 412. Major support begins at 400.
I didn't note on my chart, but a next resistance zone is in the 440-445 area of recent highs; next resistance is at the prior 448 high from early this year. Major resistance begins in the low 460's.
Bullish sentiment had at least a 1-day sharp dip this past week, indicating that traders were buying put protection in individual stocks. If bullish sentiment continues to fall, which it should on further weakness in stocks or just an inability for the market to make upside progress, then this indicator should be its typical harbinger for another rally attempt.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) looks like it will continue its recent correction and head lower, such as back to a retest of support around 8400-8370 or down to prior lows around 8215.
Resistance is at 8635 currently, then at 8838. A close above 8838 is needed and for more than a day, to suggest that upside momentum was resuming.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) chart remains bullish and within its bullish uptrend channel so far. If you start to see closes under 1800 then look for further weakness, such as for a retest of support implied by the 50-day average, currently intersecting at 1740.
The key chart support in terms of a trend reversal is at prior lows in the 1660 to 1677 area. As long as COMP doesn't close below this zone or at 1660 specifically, the uptrend is intact.
On the upside, key resistance is seen around 1870, at the line of prior highs. Next resistance comes in the 1900 to 1907 area in my estimation. Major resistance begins at 2000.
The RSI has recently at least fallen to a 'neutral' reading near 50. An oversold reading may not happen but I'd buy a pullback into technical/chart support more readily if it did.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) chart remains bullish as is especially seen in the rebound from the top end of its late-May upside price gap (the gap was 'filled in' and buyers came in: bullish) AND by the rebound seen from the low end of its uptrend channel. Key tech stocks are so far holding where I would expect in terms of support.
If 1435 is pierced then I'd look for further weakness, such as for a pullback to support at 1400 or perhaps even to the 1350 area. I'm not anticipating this deep of a dip but perhaps 1370 might be seen. Key big cap tech stocks are perceived as having value in this market and dips in them should continue to find buyers, absent some unexpected bearish news. Well that's always the case with 'unexpected' news! Stay tuned.
Resistance is quite apparent at 1515, then not so apparent at 1550. Major resistance begins above 1600.
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQQ) remains overall bullish in its pattern like the underlying NDX index of course, as long as the Q's up trendline is also not pierced on a closing basis.
Volume patterns and the On Balance Volume (OBV) indicator is neutral and in a sideways trend.
Near QQQQ resistance: 37.2
Key next overhead resistance: 38.0
Projected major resistance: 40
Near QQQQ support: 35.8
Next support: 34.3
First area of major support: 33.0
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT), like the Nasdaq which it most closely tracks, remains bullish provided that the Index doesn't start closing below 505-500. Next key support is suggested at 480, at the moving average. The critical chart point to suggest a downside reversal of at least the intermediate trend is at the prior 470 downswing low.
Key technical resistance is in the 532-535 area, then at 550. A close above the line of prior (532-535) highs would suggest renewed upside momentum.
GOOD TRADING SUCCESS!
NOTES ON MY TRADING GUIDELINES AND SUGGESTIONS
1. Technical support or areas of likely buying interest and highlighted with green up arrows.
2. Resistance or areas of likely selling interest and notated by the use of red down arrows.
I WRITE ABOUT:
3. Index price areas where I have a bullish bias or interest in buying index calls, selling puts or other bullish strategies.
4. Price levels where I suggest buying index puts or adopting other bearish option strategies.
5. Bullish or Bearish trader sentiment and display the graph of a CBOE daily call to put volume ratio for equities only (CPRATIO) with the S&P 100 (OEX) chart. However, this indicator pertains to the market as a whole, not just OEX. I divide calls BY puts rather than the reverse (i.e., the put/call ratio). In my indicator a LOW reading is bullish and a HIGH reading bearish, consistent with other overbought/oversold indicators.
Trading suggestions are based on Index levels, not a specific option (month and strike price) and entry price for that option. My outlook often focuses on the intermediate-term trend (next few weeks) rather than the next several days of the short-term trend.
Having at least 3-4 weeks to expiration tends to be my guideline for trade entry choice. I attempt to pick only what I consider to be 'high-potential' trades; e.g., a defined risk point would equal in points only 1/3 or less of the index price target.
I favor At The Money (ATM), In The Money (ITM) or only slightly Out of The Money (OTM) strike prices so that premium levels are not as cheap as would otherwise be the case, which helps in not overtrading an account. Exit or stop points, as well as projected profitable index price targets, are based on my technical analysis of the underlying indexes.