THE BOTTOM LINE:
This past week's rebound that came after the major indexes retraced 33% to 38% of the last run up (plus the buying coming in when prices dipped under the 50-day moving averages), provides an initial indication that the recent correction has run its course. Looking particularly strong or resurgent is the Dow with some consumer/consumer cyclical stocks surging such as JNJ, KO, KFT, MCD, MRK, and PG.
The Nasdaq had the 'deepest' retracement to date but that's only been a 'minimal' Fibonacci 38% of the last run up. The correction in the tech heavy Nasdaq is pulling the index back from an overbought extreme and the 13-week RSI has recently gotten to more 'neutral' readings around 50. The MACD weekly indicator has retreated some to below 'overbought' extremes; a typical pattern with the longer-range MACD is to see 2-3 such extremes before there's a deeper downside correction or trend reversal.
As I noted last week "The Dow Average (INDU) most looks like it can break out to decisive new highs, possibly headed for the 13000 area next." 13000 is a longer range target; the Average could next hit resistance in the 12500-12600 price zone. Of course first there's the not so small matter of INDU's ability to pierce its prior recent high in the 12450 area.
If the Nasdaq Composite (COMP) gets into gear along with the S&P, it could eventually be headed for the 2950 area or a bit higher (e.g., 3000); at least that would be a 'measured move' objective, provided COMP doesn't fall below 2733-2700.
I am more bullish than last week as the major indexes (so far) have recovered where they 'needed' to in order to suggest that the recent market dip was a correction only and not part of a decline from significant double tops in the S&P 500 and Composite. I mentioned also last week that a decline to below SPX 1300 would be bearish; 1300 looked like pivotal support. The weekly SPX low was around 1302, with the Fri close near 1320.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) could have formed a double top but I discount that possibility and see this recent correction as a prelude to a move to above the previous 1344. A bullish outlook is enhanced by the ability of the index to stay above 1300. An eventual move to the 1400 area is possible. SPX rebounded from the convergence of the 21 and 50-day moving averages which is a bullish plus.
1340-1344 is the key resistance at prior highs, with fairly major resistance in the low-1400 area, at the current intersection of the previously broken up trendline. Near-term support begins in the 1300 area, extending to 1280.
RSI and TRADER 'SENTIMENT'
On my technical indicators seen above, bullish sentiment picked up only slightly in the late-week rebound, which is a bullish plus in a contrary opinion sense. The 13-day RSI fell to a midrange 'neutral' reading of 48 this past week. I would not have anticipated a fall to yet another 'oversold' reading such as seen with the mid-March relative low. In most any strong long-term uptrend, the major indexes only rarely pull back to 'fully' oversold readings.
As an added note, the CBOE Volatility Index (VIX) fell further this past week by Friday to 16.8. Low VIX readings are not necessarily correlated or well-correlated with declines, unlike very high VIX readings which tend to occur at significant bottoms; e.g., 29.4 at the 3/16 low.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) retraced a Fibonacci 38% of the last advance before rebounding some after a dip to a bit below under the pivotal 21 and 50-day moving averages. Retracements of 33 to 38% are fairly 'minimal' in terms of a rally pullback. In a strong trend, retracement amounts are often of the 33-38% variety and not usually even as much as half or 50% of a prior advance.
Key resistance is apparent in the 599-602 area, with next resistance above these prior highs implied by the previously broken up trendline, currently intersecting around 607.
OEX technical support is at 582-585, extending to 575. As with big brother SPX, the RSI fell to a 'neutral' mid-range reading, which is the most I would anticipate in a still-bullish trend.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) average remains bullish. The last high was above the prior peak and the pullback to the 12200 area was fairly 'minimal'. The various highs made prior to INDU's last upswing averages out to 12250, which suggests that prior 'resistance' had become new support. This is what someone technically oriented sees as keeping a bullish trend on track.
I was a bit surprised at good to strong moves in the more consumer driven stocks of HD, JNJ, KO, KFT, MCD, MRK, and PG. Kraft (KFT) was a stand out performer and an excellent example of how pullbacks to the 200-day moving average was a buying opportunity in every instance after the stock experienced an upside breakout move in July '09. Not your high-flyer, but a slow steady gainer. KFT's move accelerated big time last week.
Key support comes in around 12200-12250, with fairly major support in the 12000 area. Key resistance is at the prior high at 12451, extending to 12546, the current intersection of the previously broken up trendline.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) to date has experienced a 38% retracement of its advance off recent lows. This fairly 'minimal' retracement, followed by a minor rebound at the end of this past week suggests that the recent downdraft may have run its course.
I wrote last week that "The more bearish near-term scenario is for a pullback to support starting around 2750 and extending to 2730." Bingo, as the low was 2733. Fairly major support begins at 2700.
Resistance begins in the 2800 area, extending to 2815, then to the prior 2840 high. I've noted further expected resistance currently at 2889, at the current intersection of the previously broken up trendline.
The Relative Strength Index (RSI) and my CPRATIO sentiment indicator seen above are no longer at 'overbought' extremes; I now rate these indicators as 'neutral' by virtue of having pulled back to around half way in their ranges.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) pulled back to the 2300-2288 area, where support/buying interest was found this past week. I remain bullish on NDX's prospects from here. The initial strong rebound from the 2180 low, followed by a relatively modest pullback of around 40% of the prior advance, looks like a prelude to another rally.
If support in the 2290 to 2275 area fails to hold on future dips, then the chart turns more mixed. I'd rate the chart as somewhat mixed on an intermediate-term basis as the two rallies, after 2403 was reached, have each peaked at successively lower highs. On the other hand, the 2180 low fulfilled my downside objectives and the major trend remains UP. I anticipate 2400 being challenged again and possibly exceeded. NDX could advance to the 2500 area before strong selling interest came in again.
On a weekly chart basis (not shown), the major trend is clearly UP. The pullback to the 2200 area for the week ending 3/18 took prices back to the area of prior resistance (at the November '07 peak), after which NDX rebounded strongly. The most bullish looking charts often have such pullbacks to prior highs where renewed buying then surfaces.
Pivotal support is at 2300-2288, extending to 2275. Major support is expected around 2200.
Resistances levels are still 2359-2360, then at 2375, extending to the 2400-2403 area. 2490, on up to 2500, is the start of fairly major resistance at the previously broken up trendline.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock symbol has reverted to "QQQ" from QQQQ. Certainly anyone who trades the NDX tracking stock is aware of this by now.
QQQ has been drifting lower along its prior downtrend line as highlighted on my last chart. Daily trading volume has picked up recently on signs of QQQ's recent stabilization. On Balance Volume (OBV) continues to fall and this indicator needs to turn up before the stock will look like a renewed buy.
Key near support is at 56.1-56.0, then at 55.0.
Resistance levels to be tested: besides the most recent intraday high at 57.9, there's the previous 58.3 peak; next resistance is assumed to come in at the highest prior top, at 59.0. A move above 59 would suggest further upside potential of 2-2.5 points.
RUSSELL 2000 (RUT) DAILY CHART:
Somewhat predictably, the Russell 2000 (RUT) found support in the area of its 50-day moving average. The key moving average for RUT that suggests either key support or resistance is often seen with a daily chart moving average length setting of 50; I sometimes use a setting of 55, but there's not a big difference in the two levels.
I'd again note from last week that RUT built a major top at 850-856 back in June-July 2007; RUT then peaked again in October 2007 at 850. I try to keep this in mind as my shorter-term daily chart doesn't provide this comparison. RUT is one of the few major indexes that could make a major new high if it decisively clears its prior recent peak. There's a good possibility that RUT could climb above 853-855 and regain its longer-term up trendline with the next technical challenge then being to clear 859-860. If that happens, a next potential objective is to 880, extending to the 900 area.
Technical support is at 820, extending to 816 at the prior recent intraday low; I anticipate fairly major support/buying interest in the 800 area.
GOOD TRADING SUCCESS!