THE BOTTOM LINE:
My technical targets for all the major indexes had been substantially met coming into this week. I shouldn't say 'my' objectives so much as I was merely following common measuring implications for key chart patterns. Summing up various downside objectives based on a pattern's technical 'measuring' implications for a next or further move include:
1.) The tendency for the second down leg of an a-b-c (down-up-down) correction in Elliott Wave theory; i.e., the second down leg often is a Fibonacci 1.5 to 1.6 times (or more, such as double), the price distance carried in the first decline. Check.
2.) The bearish rising broadening wedge pattern. Besides suggesting a top had formed, the formation also suggested that a break of the lower trendline should lead to a decline back to the 'apex' or beginning of the pie-shaped wedge formation. Check.
3.) The 'minimum' downside objective implied by the Head & Shoulder's top pattern seen on hourly charts was met, and exceeded. Check
You can view a summary of the details related to the aforementioned 3 chart patterns and the downside objectives implied by those patterns per my most recent (3/21) Trader's Corner article by clicking HERE.
I wasn't fully confident, but I could have had great confidence in there being a quick snap back rally once all the major indexes got 'fully' oversold according to the (13-day) Relative Strength Index (RSI) and according to a low level of bullishness on my sentiment indicator. Besides the two oversold indictors, on the same day VIX spiked to 31. So, key downside objectives were met (check), the market got 'fully' oversold, as I had been looking for (and looking for and looking for some more) in terms of RSI, Sentiment and the VIX.
That's the easy part. Yes, it looks like a bottom is in place. Where do we go from here? Timing wise I think we've got a few more weeks of upside; e.g., into a seasonal type top, perhaps in May. It's tough forecasting how soon the major indexes could challenge their prior highs. I think they will and probably go on to at least nominal new highs. This forecast is a bit tricky as the weekly overbought/oversold indicators are closer to overbought than oversold levels. However, the daily chart RSI has been pulled up to 'neutral' from oversold readings.
Near-term, I anticipate a pullback as the major indices are now at an overbought extreme in terms of their hourly charts; I measure overbought/oversold in terms of a 21-hour RSI with hourly charts; I suggest setting up charts that have at least 3 months of hourly price history; even more hourly history if possible. I'll look at some pullback possibilities with my usual index chart commentaries below.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) index has rebounded off its recent lows and the chart has resumed its bullish chart possibilities on an intermediate-term basis. I think SPX will see new highs. That said, SPX also has to prove itself so to speak by moving through what will probably be tough resistance at prior highs in the 1332 to 1344 zone.
Last week, I said pretty much all that was pertinent as far as our recent market bottom: "..."an ideal index buy 'signal' is: #1) prices bouncing from a key support; coupled with 2), an oversold extreme in the RSI; with the addition of 3), a significant level of bearishness as reflected in my CPRATIO indicator especially if seen on a 5-day moving average basis."
1260 was a key support. There was some 'slippage' below this but only on the day SPX bottomed. You can also see that RSI and my CPRATIO ('sentiment') indicators finally hit oversold extremes. You think a correction in a bull market is NEVER going to happen but finally it does.
We could easily see a pullback to the 1300 area, maybe to 1280, but I don't currently envision more downside than that. Resistance is still assumed to be the same, at the prior highs at 1332 and 1344.
As you can see above with my highlights on the 13-day RSI chart AND my bullish/bearish sentiment indicator, these finally got to an 'oversold' extreme; this event was coupled with the fact that SPX reached a key price support area (1260) and fulfilled downside objectives discussed in my initial 'bottom line' comments.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) completed a bit more than a 50% retracement of its last major advance from the 527-530 area to 602 and then rebounded smartly. I think we've seen the lows for this correction. Near-term, the market is overbought on a short-term basis and will likely pull back. Somewhere between 578 and 570 is a possible target. I'm bullish here, so would adopt bullish strategies on pullbacks, but not chase prices higher.
As noted last week, "for the first time since August lows (2010) in the 475 area, the 13-day Relative Strength Index (RSI) has registered a 'fully' oversold reading..." This was on the day that prices hit their closing low for this move below 565. If this is still a bull market, which it is, just such a 'fully' oversold reading suggested bottoming action ahead of an upside reversal. Sometimes in bottoming action, another such oversold reading is seen, but I believe we may have a 'V-bottom' here.
Key support levels are now 584, at the 21-day moving average, with support extending to 580. Next key support is in the 570 area.
Near resistance has to be assumed to lie at the prior highs, in the 599 area, then at 602.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) average has regained its prior up trendline, which I didn't expect, at least not quite so quickly. The strong rebound of this past week is a good sign for the bulls. The Average fell to good support around 11600. I thought INDU might hold 11800, but per usual the bulls panicked at the last.
I've thought for some time that the Dow was headed to at least 13000, so I think it's a matter of time, not if, the Dow takes out prior highs in the 12283-12391 zone. However, on a short-term hourly chart basis (not shown), the Dow is overbought. A pullback to 11900 is about the worst case I see and represents a 50% retracement level of the recent rebound.
I've noted possible close by technical support at 12175, at the prior up trendline, with even more pivotal support at 12000; and finally, support at 11800 is also highlighted by the lowermost green up arrow.
Resistance is assumed to come in around 12283, at the most recent intraday high for INDU, with next resistance in the 12391 area, at the mid-Feb peak.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) chart has regained some of its bullish footing, but I'll be looking for an ability to stay above its 21 and 50-day moving average as seen on the daily Dow chart. To regain a bullish chart, COMP needs to get back above its prior highs at 2802 and 2840, which are the key resistances.
By its move to its 2603 low, COMP completed a Fibonacci .618 (commonly rounded to .62) retracement of its November to February advance. I wrote last week that I didn't anticipate a much deeper retracement and with this past week's action, even less so.
Support is suggested at 2700, then at 2650. A move to 2683 would retrace half of the recent rebound and if that area is seen again, it may be as good of a buying opportunity for bellwether tech stocks or the Nas 100 calls as we'll see.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) rebound this past week suggests that we probably won't see lower lows. The recovery to date doesn't yet 'confirm' a bullish turnaround, as a future rally needs to pierce the prior highs at 2275 and then at 2403, to suggest that NDX has regained its intermediate upside momentum. 2275 is also showing up as resistance at the current intersection of the previously broken up trendline. I've highlighted 2350 as a first resistance.
I think there's a good possibility of NDX clearing prior highs; this would offer a 'confirming' technical indication of a resumption of the intermediate trend.
I've noted chart support at 2300, extending to 2275. A short-term correction looks due in the days ahead. I doubt NDX will pull back to lower than 2260, or not much below this area for long.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock symbol has reverted to "QQQ". Why the Amex changed it to 4 Q's (QQQQ) back when is beyond me.
QQQ appears to be 'stuck' between minor trendline resistance at 57-57.1 and trendline support around 54.7. Nearby support is suggested for the 56 area, extending to 53.7.
I anticipate an eventual breakout to the upside and a challenge to prior highs at 58.4 and then at 59. Near term look for a pullback, such as to 56-55.85; perhaps back to 55, but I doubt we'll see the stock this low again.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) chart is mixed. A strong rebound yes! Nice trade if you bought calls on the dip to the 580 area. However, the rebound so far has been deflected from an attempt to again take out a line of resistance around 830. Next key resistance then is of course at the peak level hit in mid-Feb at 838.
I think RUT is headed for new highs but it may chop around for a while and in the near-term, a correction is due, such as for a pullback to the 800-795 area. I don't anticipate lower lows on a correction currently. 780-776 is likely major support.
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.