THE BOTTOM LINE:
As I've been saying, in summer trading range markets especially, the major indexes (with big cap tech a current exception) can get whipsawed as they say. Nimble traders can do OK in this environment but its also good to be able to do a price check every hour or so, especially at times of potential trend reversals. This is a lot easier with today's smart phones!
The Nasdaq 100 (NDX) has not resisted declining of course, but hasn't has seen (again) as much of a percentage loss as the S&P during the past week. It's a two-segment market with the S&P being weaker technically in the current cycle.
I favor executing bullish strategies on declines to the 1270-1260 area in the S&P 500 (SPX) as the index could have significant bounce back potential from this area.
If there was 'one' tip off this past week to the recent downside reversal, it was with the exact double tops made with the S&P 100 (OEX) and in the Dow 30 (INDU). Watching all the major indices will pay off in that one or more will 'set up' a strong technical signal; high downside reversal potential suggested by the double tops in OEX and the Dow.
In the Dow, the number of stocks that look to be in a position to mount a technical rebound are fewer in number this week, dropping from 18 to 13 or under half the 30 blue chips going into this week.
If the market continues to drop into the August 2nd 'doomsday' event, there should be a buying opportunity; there is nothing like impending catastrophe to create a solution for this debt ceiling political-impasse problem. The resistance of tech to significant further declines is a likely harbinger that a level is coming up where there's perceived value in popular big name stocks as they get cheaper again.
We'll muddle through this current impasse and if we DON'T the market is currently saying it won't be Armageddon. There's also less places to put major money to work with real estate in the skids; even less so if you are not inclined to play the commodities card with gold, silver, etc. I myself tend to like ideas of the mind rather than things of the earth.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart was at the top of its likely broad trading range a week ago then dashed toward the bottom of that same range. Old trader's saying: "They 'slide' faster than they glide".
In a trading range market, the major indexes often don't get right to their prior highs before coming down again; the OEX and INDU did in this case, but not SPX. The downside reversal 'trigger' event was the plunge through the 21-day moving average.
As indicated in my initial 'bottom line' comments above, I favor bullish strategies if SPX gets back to the low end of its prior range again, in the 1270 to 1260 area. When making a trade where I 'assume' that the low end of a range will hold I absolutely set up a 'stop out' point. This may or may not be a resting order, but should be adhered to. My rule of thumb on SPX call purchases on what I think is the low end of a trading range is to exit if the index closes below prior lows by 5-7 points. Prices in a favored area is one factor; I also like to see the RSI around 30 and my CPRATIO dip to at or under 1.1 on at least 1 day.
Resistance is assumed for the area of the 21-day moving average, currently at 1325, with next technical resistance at the recent 1347 intraday high. Technical support is at 1280-1277, with pivotal next support at 1260.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) index has resumed its mixed trading range pattern with the plunge below its 21-day moving average. From OEX's potential double top at 603 there's been a rapid break of 26 points (intraday peak to trough) so far. I'm anticipating wanting to buy calls if OEX dips to 570-565 again. If I got into that trade, my exit point becomes an OEX Close below 560.
I noted last time (7/23) that "I currently don't anticipate another major up leg without prices working sideways to lower again beforehand." The lower levels came with fast and furious selling rather than an easy glide, as is becoming more common with computer programs coming in with heavy selling when the bulls stop buying and there's not much to stem the slide.
Key technical support looks like 575-577, extending to 570 and lower, if a retest of the lows in the 562-560 area developed. Technical resistance is at 592, extending to the prior 603 high.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) chart continues to be consistent in that INDU is acting predictably for a broad trading range market. Once prices get at or NEAR prior highs, buying collapses and selling rapidly takes the Average lower. It's not surprising to see lower lows than the last downswing as is typical of an a-b-c or down-up-down correction as the 'c' down leg is longer than the first 'a' leg decline; often the point decline in the second down leg is 1.5 to 1.6 times more than the first downswing. The psychology of this is fear overcoming greed after a key rally fails at a prior high; buyers retreat if they're less sure of the ground they're on, less sure of a sustained bull market.
I was a buyer of DJX puts on the double top formation and would be a buyer of calls at the lower end of the current 12750-11900 broad trading range. Better to watch hourly charts along with the daily to see the formation of potential index tops. Such tops don't appear out of the blue when seen on a 60-minute basis.
Support is at 12083, extending to 12065 to 11978; major support should be found on dips below 11900.
NASDAQ COMPOSITE (COMP) INDEX, DAILY CHART:
The Nasdaq Composite (COMP) chart is now mixed, although on a Closing basis, the prior low has only been exceeded slightly. However the chart is mixed to bearish in the sense that COMP formed at least a minor recent double top. While I saw some further bullish potential last week, the odds of decline was also high in that the top end of the prior range was near to at hand.
My current worst case downside outlook is for COMP to again sink to the 2600 area, but in the near-term don't have objectives lower than to around 2700-2680 support. Technical resistance looks like 2808, extending to 2830.
NASDAQ 100 (NDX) DAILY CHART:
The Nasdaq 100 (NDX) index chart is the only major index still having a bullish chart pattern. While there has been no extension of the up leg that began from the last decline to 2318 beyond its subsequent 100+ point rebound, the prior lows also haven't been pierced either on the subsequent reaction to an intraday low so far of 3242. It wouldn't be surprising to see support in the low-2300 area retested. I've highlighted support at 2318, then at 2265. There's also technical support around 2250, so would call key support as being 2250-2265.
NDX may finally succumb to substantially more selling if the debt crisis gets worse. However, I don't currently anticipate another decline to as low as the 2200-2180 support zone. I would see 2250 as an area to exit puts and buy calls. I'd rather buy good-sized pullbacks in NDX rather than trying to play the short side. There was an excellent short/put play the last time NDX got above 2400, but I don't see the same potential yet with the current chart. For those who initiated bearish strategies above 2400, I suggest exiting on dips below 2300, especially if NDX gets to 2282-2270, or into the 62-66% retracement zone relative to the mid-June to late-July advance.
I've highlighted resistance beginning at 2400 and extending to 2420. Initial technical support is assumed to lie at 2318-2320, with lower support at 2265, at my lower 4% moving average (21-day) envelope line. I use the concept of technical 'support' loosely here; my lower envelope line can more accurately be described as a possible maximum extension of the current trading range and a PRICE zone where NDX would be oversold.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock has the same technical/chart considerations as the underlying NDX chart and is showing a recent slow down in upside momentum. The short-term trend is lower, but there's no intermediate trend reversal. There would be such a downside reversal if QQQ sinks to below 57.
Near resistance is at 58.8, extending to 59.3. Near support is seen in the 57.1 to 56.9 price zone. More major support could be found on dips to the 55.6-55.5 area.
Daily trading volume picked up on the last dips to and under 58.
On Balance Volume (OBV) is pointed lower as the Q's trade below their 21-day average. Volume activity leans bearish slightly.
RUSSELL 2000 (RUT) DAILY CHART:
The Russell 2000 (RUT) chart turned bearish on the break below 830, and remains consistent in its broad prior price range; i.e., between 855-865 on the upside and to 773-776 on the downside. The recent 843 intraday high for RUT was a secondary top and part of a down-up-down corrective downswing. I've highlighted current resistance at 824-820.
My downside objective for RUT is now mostly fulfilled. I could see a further dip into the 776-772 zone which would seem like an 'ideal' buy point and in the way of the indexes, may or may not happen.
GOOD TRADING SUCCESS!