THE BOTTOM LINE:
Friday saw lows close to piercing near support around 1330 in the S&P 500 (SPX), but the most pivotal technical support is still lower, at 1300. And, who would have thought that as ExxonMobile (XOM) goes, so goes the S&P? I recall hearing about a famous statement from 'engine' Charlie Wilson, then the GM CEO, that "as General Motors goes, so goes the nation". (That might still be true actually!)
This most recent weakness in equities and the bearish sentiment that's come out, suggests that weakness in oil and commodity prices is a 'bad' thing for the overall market. Since when are lower prices for consumers negative? Maybe for some of the affected stock groups only! And what's the big deal with Greece anyway as far as Market impact here? And I hope that the dollar gets stronger still, especially for me personally as I take off for Portugal and Spain, weak sisters of Greece, in 10 days.
I think the XOM chart was at least a 'bellwether' for this recent correction; leading to more of a sideways move in the tech heavy Nasdaq. Did you notice?
Where does the Market go from here? I wrote last week that: "There may however be another somewhat lackluster short-term rally, followed by another minor sell off before there's a stronger and more prolonged rally attempt."
I'm not as sure this week as to how prolonged any next rally will turn out to be. It can't yet be said that the major indexes have made an intermediate top. Technical 'evidence' for that comes only if the prior downswing low is pierced. Not the most recent low, which was only a minor pullback, but talking about the mid-April lows.
Some chartists would say that because the most recent rally peak was a new high, a downside penetration of the lowest intraday low made AFTER this top, becomes the key technical support. I take the view that, for example, 1300-1295 in the S&P 500 (SPX) at the mid-April lows, is key support for SPX, as opposed to the 1329 low of 5/5.
The aspect of current directional momentum is one thing, the other important forecasting note is the likelihood that we're in the SEASON, as we approach Memorial Day, where there are likely to be more two-sided trading swings. This view is based on the chart patterns involved AND a seasonal summer tendency for choppy back and forth price action. You will need to be more cautious about holding outright long or short positions without keeping closer tabs on the short (2-3 days) to intermediate-term (2-3 week) trends. Trading opportunities will come but the subsequent prices swings may not be as big.
Moving Average Watch:
The S&P and the Dow recent Closes have held in the area of their 21-day moving averages and intraday lows in the Nasdaq indices have held at this key average. Even more important is to see if the 50-day moving averages provide support on any further weakness. Piercing the 50-day averages in the major indexes would suggest more weakness than I'm anticipating currently.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart has turned mixed in the short-term as prices trend sideways. Recent lows have gotten near the March 5th reaction low of 1329. I consider the 1300-1295 area of the mid-April bottom to be the pivotal support. SPX has had one close below the 21-day moving average; a close back above this average would be a short-term bullish plus.
The SPX 50-day average, at 1323 currently, is even more widely watched; a couple of consecutive closes below this average would have bearish intermediate implications. The main chart consideration is whether the mid-April lows hold as support on further downswings.
Best trader advice repeated from last week: "Given that we're entering a seasonally choppy period, we should wait for trades with compelling technical aspects." Technically 'compelling' trade set ups on the long-side would include indicators at oversold levels like the 13-day Relative Strength Index (RSI) and my 'sentiment' indicator. In chart terms, a bullish set up would exist on a second low that formed around 1300.
I've noted resistance on my SPX daily chart at 1370, the up in the 1400 area. Support is noted (by the green up arrows) at 1320-1323, then at 1300-1295.
RSI and TRADER 'SENTIMENT'
The 13-day RSI is in a neutral area, after declining momentum dating from an overbought 70 in late-April. Around the same time, my sentiment indicator, also seen above, hit an 'overbought' extreme. The ideal for bullish options strategies is to see oversold readings on both along with bottoming action occurring in the chart patterns. Getting into this range for the RSI is less common but worth waiting for. When these indicators get to oversold extremes, accompanied by suitable bottoming or (upside) reversal type price action, helps identify favorable risk to reward trading opportunities on the long-side.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) hasn't held up quite as well as the S&P 500 in that OEX has already one recent intraday touch to its 50-day moving average. Of course, rebounding from this key average is a bullish plus, as long as this continues and there's not a future close or two below the 50-day.
To turn bearish in terms of the chart would be a close below the 577 low of 4/18; the rebound from this area was followed by a bullish upside price gap. Technical support implied by this gap area is at 589-586, although I noted initial support around 590. Must hold support for the bulls is 580-577.
While I didn't highlight it on the chart, 604 is immediate resistance, with 610-611 as a next selling overhang. Fairly major resistance begins in the 622-623 area.
DOW 30 (INDU) AVERAGE; DAILY CHART:
It's been somewhat downhill since the Dow 30 (INDU) average hit the top end of its uptrend price channel, accompanied by an overbought RSI reading. To nail down profits on long DJX calls was a likely good move at that juncture. I try to resist 'holding out' for more all the way up by thinking about whether I would take NEW index call positions at points along the way. If I wouldn't add to call positions, I will tend to exit if prices are also near projected resistance levels, especially if the index also is showing overbought RSI and/or bullish 'sentiment' extremes per my CPRATIO indicator seen with SPX.
If INDU rallies again up toward resistance implied by the upper channel line, which intersects around 13000 currently, I'd not only take call profits but may look to also buy puts based on a favorable risk to reward; e.g., risking 10 DJX points (100 points in INDU), with a downside objective to the Dow 12500-12465 area or lower.
Technical support is highlighted in the 12463 area, then at 12200.
Dow charts with bullish patterns or showing price consolidation only (so far) even after this past week's bearish action is seen with AXP, BA, IBM, INTC, JNJ, KFT, KO, MCD, MMM, MRK, PFE, PG, MMM, T, TRV and UTX. This is just over half of the 30 Dow stocks still in position to advance. The Industrials are holding up quite well here as can be seen with the limited downside seen so far after the recent 12876 top.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) chart remains bullish, although short-term momentum has slowed and turned sideways. As long as 2800 is not pierced, the Composite remains in an uptrend. A move above 2875, then 2887 is needed to achieve a further bullish breakout. An advance above resistance at 2950 would put COMP back above its longer term up trendline.
Key support as noted is at 2800 currently, extending to 2765-2750. The most pivotal support is the prior (down) swing low at 2706; piercing this level on a closing basis would suggest that the intermediate trend had reversed to down.
Overbought extremes in terms of the RSI and my bullish sentiment indicator were seen at the recent 2886 high. As of Friday, RSI is 'neutral' and there was a Friday dip in my sentiment indicator to near 'oversold' readings, showing a build up in bearishness. The chart pattern seen since formation of a line of recent highs, with prices to date holding above COMP's 21-day moving average, maintains a bullish chart. I wrote last week that formation of a possible bear flag suggested downside potential to around 2750, but there wasn't the downside follow through necessary to maintain that interpretation.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) remains bullish as is the case with the Composite. NDX does seem to be nearing a key juncture, as prices seem likely to either turn higher again or start to slide as in a new down leg. Given what we see here on the chart and knowing how much selling pressure was in some key S&P sectors, the Nasdaq is holding up quite well here.
Key resistance in NDX is at 2400-2417, with next resistance implied by the previous up trendline, currently intersecting at 2480.
Pivotal support comes in around 2350, extending to 2306, the low end of the big upside gap of 4/19-4/20. 2315 is support implied by a trendline drawn and extended from just two intraday lows, so it lacks the better 'definition' of a trendline drawn with at least 3 lows; the more such points the better in terms of how reliable the trendline as a guide to future technical support.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) of course has the same pattern (bullish, but with slowing upside momentum) as the underlying NDX index so I won't repeat what I've already said immediately above.
In terms of price levels in QQQ, the key 'line of resistance comes in at 59.2-59.3. Above this area, I've projected resistance at the previously broken up trendline, currently intersecting at 60.5. Key near support is at 58.0, with even more pivotal support at the up trendline, intersecting around 57 currently.
There's nothing noteworthy in QQQ volume patterns here. On Balance Volume (OBV) is trending sideways, reflecting the price pattern. Does a sideways move predict a top formation or consolidation only of the current uptrend? Usually, benefit of the doubt goes to the direction of the prior trend which remains up.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) has fallen back to its up trendline, which is also just above support implied by RUT's 50-day moving average. There's a little more to this picture, as even more key is support implied by the mid-April lows in the 816 area. Only a break below this level would suggest that RUT has turned intermediate-term bearish.
It's worth noting that the last (868) high was at the previously broken up trendline. It's not for nothing this trendline has been called by one analyst I respected for his technical expertise as the 'kiss of death' trendline. Return to what was prior support can be a potent forecast of where selling can come in earnest. What's the potential of the current up trendline to suggest support/buying interest? Not as great as it would be if this was a multi-month up trendline with numerous lows that 'defined' the trendline. So far lows are holding this line however.
Resistance is highlighted in the area of the prior high around 868, then at 883 which would be a return to the resistance trendline already noted.
I wrote last week that I saw "more likelihood for further weakness such as to 800-780 than I do for another immediate challenge ahead to the 880 area." That's still my best bet on how this trend unfolds given the chart pattern as of Friday. However, it really could go either way.
GOOD TRADING SUCCESS!