THE BOTTOM LINE:
I think that the market achieved its volatility peak on 5/21 and then bottomed three trading days later (5/25). The process of bottom 'building' from here could take awhile, especially if bullish sentiment heats up like it was already this past week into Wednesday at least. I'm anticipating the market will settle down with less volatility than May. There's enough bad Euro-zone news that has come out already. Market influencers will start to also turn back to domestic economic news and earnings prospects. June tends to not have strong gains or declines; unlike May sometimes.
On a personal note, I'm back in my old Pacific Coast haunts for awhile on a visit and I swear that the salt air helps me with an objective take on the market. Or, it could be that I just like the environs! My time is a bit shorter today due to attending to some other duties late-afternoon. As always, your e-mails are appreciated.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
Still bearish in its pattern, the S&P 500 (SPX) is coming back up toward its 200-day moving average and a first key technical resistance. Another couple of closes above 1100 will turn the short-term trend up. The intermediate trend remains down absent a close above 1172.
I was anticipating the 1157 low to remain the low but SPX slipped to around 1040; before rebounding 43 points into that day's close. This formed a 1-day upside reversal, just not a 'key' reversal (i.e., the same conditions as to decisive new lows, but with a close then above the prior day's High). It smells like a bottom is forming but basing action can take a while. Not as long as building a top but it can stretch out (e.g., 2-4 weeks or more), especially as summer brings more things to occupy us, not just financial. I anticipate some further back and forth price swings within a possible sideways trend as a bottom gets better 'defined'.
Near resistance is 1105, extending to 1120. Fairly major resistance begins around 1150, on up to the 1170 area.
Near support is in the 1066 to 1056 price zone. Major support begins at 1045-1040.
In terms of market sentiment, the lowest 'oversold' reading (in the way I keep options data) was reached on 5/20, the same date as what I think will be the volatility peak for the current correction. Time frames BEFORE such single-day lows in bullishness translate into an absolute low tend to be 1 to 5 trading days later. In this case it was 3 days, into this past Tuesday's low; I'm assuming that SPX won't see lower lows than seen already this past week.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) is bearish in the same ways as big brother SPX but is also showing a possible double bottom formation relative to the February low.
I wouldn't get too focused on May being such a negative month as this is in the nature of corrections. When valuations get stretched to the upside and when a correction does finally come, the market can easily retrace a prior 3-4 or more months' gains. Hey, it's a fun time with you have index puts!
Sometimes, a V-bottom forms (much more than V-tops, at least in the major indexes), sometimes a bottom takes the form of what Charles Dow called a 'line' formation; i.e., basically a sideway trend for more than just a short few days. I think a period of 'basing' will occur which is when it becomes clear the areas where the market will be supported, mostly funds and the like.
Key near resistance is still at 500, extending to 510. Fairly major resistance begins around 530-532.
Near support is 482-480, extending to the prior 473 low.
DOW 30 (INDU) AVERAGE; DAILY CHART:
It is looking like the Dow 30 (INDU) will bottom above 10000 which keeps it long term uptrend intact. To date for this correction there has only been one Close below 10000. Dow, when he came up with this stuff, didn't consider intraday highs or lows, only the Close for charting purposes. He understood the market very well, including the trading manipulations that were common in his day, as in ours. 10000 continues to be a key support. A weekly close below 10000 would turn the long-term trend in INDU to down.
We did see at the end of this downswing a slightly lower intraday low (9774) occurred relative to its prior 'flash' crash low to 9870, proving again the importance of the number reached not HOW is got there. The rapid strong rebound from this past Tuesday's low is what I'd expect from a low caused by running stops and final panic selling.
I'm anticipating near resistance at 10260, extending to the key 200-day moving average (currently, 10282) Next resistance is expected at 10500-10515.
Near support is 10000, then 9870, extending to Tuesday's 9774 intraday low.
I should also note the flat out bottoming tendency when the 13-day RSI gets into oversold territory in the 30 to 33 zone. It can take awhile to build but a moderate counter-trend rally looks to be setting up after our recent over the cliff sell offs. Maybe some follow through selling to Friday but odds favor buying dips toward 10000 at this juncture.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
Last week I speculated that the Nasdaq Composite (COMP) Index was setting up a potential double bottom low. It still looks that way to me, although of course a couple of days recently saw dips BELOW the prior 2186 intraday low, although no closes below 2200 support. If I was a betting man and I am, I'd want to own the COMP basket at 2200 and under, with expectations for a rally ahead (maybe not just ahead in this holiday shortened week) that carries back into the 2350-2400 price zone.
Very near resistance is suggested around recent highs at 2276-2277, extending to 2300, then to 2350. Next resistance then begins around 2350.
Near support is anticipated in the area of the prior 2186 low and extending to the most recent low in the 2150 area.
Bullish sentiment recovered FAST this past week, and it seems TOO fast not to expect another downswing to put the fear of the market in people another time. How quickly we forget!
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) chart is the one that most resembles the formation of a possible double bottom low. For this reason and the prime reason that this index most accurately pinpoints the market's stand out performers, the double bottom possibility stands out more than usual. A double bottom tends to be 'confirmed' so to speak when a rally after the hypothesized double bottom, pierces the previous upswing/rally high, in this case 1983.
An early-May/late-May double bottom is not a major double bottom. It becomes more technically significant the more months separate the two lows. For example if a low on this decline ended up being made in the area of the early-February bottom when NDX dipped to the 1730 area and under for a short period.
I anticipate support coming in on dips back toward 1800, with support/buying interest below that having been shown by lows made at 1752 and 1757.
Very short-term resistance is suggested at recent hourly highs in the 1868 area. Pivotal or key resistance is at 1900 as rally successes or failures at this level is key to any shifts or not in the bearish intermediate-term trend. Major resistance begins at 1940, extending to the last rally top in the 1980 area.
The NDX barely paused in Friday's sell off, and Friday highs and lows were above the prior day. A rally to test 1900 may not be far off. If you want a racehorse this is the one to own!
NASDAQ 100 TRACKING STOCK (QQQQ); DAILY CHART:
Assuming there will be no corrections to the prior Nasdaq tracking stock (QQQQ) low (at 4155), the most recent sell off in QQQQ was to a low comfortably above this (at 43.2).
Near support is assumed to lie on pullbacks to the 200-day moving average, currently at 44.6, with next support at 44.0. I don't think we'll see 43.5 on the Q's.
With the usual red down arrows I've highlighted near resistance at 46-46.15, then at 47.0 on the QQQQ daily chart.
Support is at 44, with next support at 43. Resistance begins at 45.5 and extends up to the 47 area.
The On Balance Volume (OBV) line is not showing us anything market making as its been flipping up and down and going mostly sideways. Price wise, another sell off back toward 44.0-44.6 support would support my contention that Nasdaq (and the Market) will undergo a basing/sideways period in June.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) managed one Close back above its long-term up trendline. As usual with these things, a single close can be an anomaly; a second such close tending to confirm a change of trend or renewal of the prior trend momentum. I've kept the trendline on my charts, just not emphasized. A move back above the trendline would suggest RUT should continue to be a hot sector or, in this case, an investment 'theme' based on company size; i.e., small to mid-cap companies.
I've noted support first at 640, then at 620. Near RUT resistance is still seen at 670, with more pivotal resistance starting at 700 and extending to 720.
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 tend to 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.