THE BOTTOM LINE:
The weekly close on its lows was definitely bearish technically as was the retreat from the 1200 in the S&P 500 (SPX). Tech is not putting a floor under the overall market this time and if SPX pierces 1100 it looks headed to the low-1000 area in a retest of the early-July lows of last summer.
I don't have any overarching vision of where the market is headed as investors have gone a bit crazy in panic and fear, making any rational predictions difficult. Irrational fear is as nuts as 'irrational exuberance'. The key level to watch in SPX is the pivotal 1100 level. The CBOE S&P Volatility Index (VIX) hasn't spiked as high as it did before, at 43 at week's end versus a daily prior peak at 48. I can't say that this is a bullish omen or anything, like suggesting a possible turnaround, but it's better than a kick in the head.
Investors seem to have also finally thrown in the towel on the prospects for tech stocks on this latest free fall and the Nasdaq Composite (COMP) has Closed at a new low for this move. Next pivotal support in COMP below 2350 is down in the 2100-2060 area where the index bottomed in July of last year. Near support in the big cap Nas 100 (NDX), below its 2038 weekly Close, is in the 1980-1945 zone; major support is more likely around 1750-1700.
In terms of the long-term trend, Dow Theory which can have some varying interpretations would suggest that we're in a major bear market on a weekly Close in the Dow 30 (INDU) below 9686 (versus Friday's 10817 Close) AND a weekly Dow Transportation Average (TRAN) Close below 3932; TRAN finished the week at 4221.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The chart is bearish and no longer has what looked like a 'V' type bottom from the prior week. The most the bulls can hope for is that SPX holds 1100 again and sets up a minor double bottom. The inability to get back above 1200 was the key bearish chart event. The fact that prices only rebounded back to the area of my LOWER envelope line (at 4% below the 21-day 'centered' moving average) also suggested a weak rebound only.
As written above in my initial 'bottom line' comments, the weekly close on the SPX weekly low was definitely bearish as was the retreat from the 1200. Those even-1000 numbers are key levels usually; bullish if penetrated on the upside, bearish on the downside. Tech stocks are not lending overall market support on this latest sell off and putting a floor under the overall market on this decline.
If SPX pierces 1100 it looks headed to the low-1000 area in a retest of the early-July 2010 lows. 1100 represented a 75% retracement of the prior major advance. A move to below a 3/4ths retracement suggests a round turn 100% move back to where the last rally began.
As noted last week, with my anticipation of resistance coming in at 1200, the same level is key resistance this week, extending to 1125, the current intersection of the 21-day moving average.
OVERBOUGHT/OVERSOLD AND BULLISH/BEARISH 'SENTIMENT'
Not much to say here either as RSI is back in the oversold zone as seen above. What will be interesting and possible insightful is if RSI does not 'confirm' prices going to a new low by doing the same.
My sentiment model, based on the daily CBOE equities call to put volume ratio, is again retreated to an oversold 'extreme-bearishness' area. Once again the overriding technical consideration is to see if price action suggests any upside turnaround. Any upside chart reversal would be 'supported' by the fact of a very oversold market.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is bearish and looks headed to another test of the 500 area at a minimum. It's hard to predict where the index will bottom. What I would predict is that if 500 gives way, there's a 30-40 point further downside potential.
Key resistance is in the 540-542 area, extending to 552. The 580 area looks like major resistance.
Near support comes in around 505, extending to 500-499. Major support is assumed to substantially lower, in the 460 area, where OEX bottomed in July of last year. There was secondary support that developed on a pullback to 471-472 during late-August of last year that should be mentioned as support although I didn't highlight that area on my chart.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) has resumed it's seemingly relentless decline and is back to the price zone where support developed between 10873 to 10716, although the intraday low got to nearly 10600 on a downward thrust to the lowest intraday low to date for the current INDU decline.
Major support looks like 10000 and that area may get retested if 10600 is pierced. The lowest lows made last summer, before the rally that took us all the way to the recent double top around 12750, was in the 9615 to 9660 area. I suspect that if there's a sizable new down leg such as to 10000 again, that will be enough to bring in buyers again. Fear and panic have taken over and the market has become the punching bag for every bout of bearish news out of Europe or here.
The market decline may have become a self-fulfilling prophecy for a bearish stance on the economy, but tend to reflect fear and uncertainty and not the current reality. This isn't too surprising actually as price levels tend to reflect forecasts out about 6 months. The uncertainty of those forecasts makes for the yo-yo market.
Resistance comes in around 11500, extending to 11642 or at the shifting 21-day moving average. I continue to use the same simple moving average envelope indicator (reflecting 4% values above and below the 21-day moving average) to give some perspective of our current price movements relative to what's been true for many months prior.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) got only to the 2550 area and began to churn there over 3 days, giving a good indication that COMP wasn't going to make further headway. It barely got to the lower envelope line, whereas in previous months 5% under the 21-day moving average had marked tradable lows.
A break of the recent low in the 2330 area suggests to me a next target to around 2250. Major support probably begins around 2100, extending to around 2060, a low from which the index rallied beginning just over a year ago.
Pivotal resistance is at 2550, extending to 2600. Closer by resistance implied by the top end of the recent downside price gap could also be noted at 2488.
Investors first dumped the most economically sensitive stocks that predominate in the S&P indexes and when the panic to go to cash (or gold or Treasuries) got strong enough they started dumping what was left, often stocks of tech-related businesses.
OVERBOUGHT/OVERSOLD AND BULLISH/BEARISH 'SENTIMENT'
This commentary today is the same as for the S&P 500, the other major market index where I feature my Trader Sentiment model.
The COMP RSI is back in its oversold zone as seen above. What will be interesting and possible insightful is if RSI does not 'confirm' prices going to a new low by also going to a new relative low.
My sentiment model, based on the daily CBOE equities call to put volume ratio, is again retreated to an oversold 'extreme-bearishness' area. Once again the overriding technical consideration is to see if price action ahead suggests any upside turnaround. Any upside reversal would be 'supported' by the fact of this being a very oversold market.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) index has finally cracked and is looking nearly as weak as the rest of the market. Not quite (as weak) in that NDX has to date retraced less of its prior 13-month advance than the other major indices. Specifically, NDX hasn't yet retraced a Fibonacci 62% retracement of its prior year long run up; or, reached a 2/3rds retracement level, which would happen if NDX reached 1980.
It appears that the prior low at 2035 may not hold up on this latest decline and the Nas 100 may be headed to the aforementioned 1945-1980 price zone. Major support is expected at 1750-1700, where the index bottomed last summer.
Resistance was apparent on the last limited rebound to just over 2200. I anticipate resistance then extends to the area of NDX's 21-day moving average, currently at 2250.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) is bearish; especially so as the last rally attempt fell apart. It's interesting to note that volume hasn't spiked quite as much on this recent decline as on the last time QQQ reached the 50 area.
If the 50 level is pierced, I anticipate that a next downside target is to the 48.6 to 47.7 area, representing the same 62 to 66% retracements in QQQ as discussed as with the underlying Nasdaq 100 index. Major support is expected if the Q's get back to last summer's lows in the 43.1 to 41.8 price zone.
Resistance/selling pressure came in over a 3-day period and 3-day highs in the 54.4 area definitely point to strong selling pressures and/or a lack of buying interest. Resistance extends to 55.0
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) has now retraced just over 80% of the rally from the early-July/late-August double bottom low to the recent 860 top. This much of a retracement often suggests that an index or stock will retrace ALL of that distance for a 100% round-turn back to retest that low. A further decline of that amount would put RUT back in the 587-590 area. 600 is probably the general support area where buying interest might come back in again.
However, I'm a little ahead of myself as there may be support/buying interest in the 650 area extending to 640, that could still come in here. However the chart looks quite bearish and the index couldn't even make it back up to my lower envelope line at 5% under the 21-day average. Stay tuned on what happens on any test of the prior intraday low at 640. I think I can forecast the outcome on the street of dreams that is Wall Street, as 600 or so looks like the next downside target for RUT.
Resistance begins just under and around 700, extending to 715 and then on up to the current 21-day moving average currently at 738.
GOOD TRADING SUCCESS!