THE BOTTOM LINE:
The Market continues to be in a whippy indecision pattern that could be a bottoming process or one that's setting up for another down leg. Bottoming potential looks iffy if the S&P 500 plunges through 1150 and the Nasdaq Composite pierces 2400.
If the major indices are in a broad trading range that is setting up a bottom, then the S&P 500 (SPX) will eventually break out above 1220, retest likely strong resistance at 1260 and recover to perhaps the low-1300 area. If the Nasdaq Composite achieves a decisive upside penetration of tough resistance at 2600, it could recover to 2750.
On a technical basis, the most bearish looking formation is seen with SPX and COMP weekly charts as forming bear flags in recent weeks, after the sharp plunge of the week ending 8/5; the weekly SPX chart is my first chart. The possible bear flag pattern is highlighted on the chart.
If there is a decisive closing downside penetration of 1150, it could set up a new down leg that could carry as much as 200 points lower, to the 950 area. Assuming COMP plunges below 2400, there's potential to as low as the 2060 area in a retest of the early-July low of last year. If this kind of sell off occurs, it would get traders and investors extremely bearish and probably set up a good sized recovery rally.
The big cap Nas 100 (NDX) index has been holding up fairly well compared to the rest of the market, but it has been hitting resistance the past two weeks. How so? You'll see on NDX's weekly chart that recent weekly highs have come up to, but not been able to penetrate, resistance implied by the previously broken up trendline; a trendline an early Wall Street mentor of mine called the "kiss of death" trendline. We'll see on that score but I've noted 2268 as the key upside resistance in NDX in the coming week. A weekly close above this level would suggest further recovery potential for big cap tech stocks like Apple, Cisco and the like.
I'll move on to an examination of the daily charts of the major market indexes.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) has had the most whipsaw action as the index appears to recover, then plunges on bearish news and perceptions related to the big banks and the financial sector in general lead to renewed selling and yet another sharp 1-day plunge. We see on the SPX daily chart my highlights of the stair step higher lows that have been made in SPX to date. However, this pattern may not continue and the ability for SPX to hold its 1140 to 1120 support is a key to whether SPX will retest 1100 support. A plunge below 1100 would be suggest the possibility of a next downside leg that could carry to as low as the 950.
I was thinking of what would get traders and investors REALLY bearish again and any eventual 1-day close below 1000 would do so. That speculation on my part relates to the fact that a sustained rally might not come until after there is an extreme bearish outlook for stocks.
Near resistance is at 1180-1200, then at 1220-1230. Near support is 1140 to 1120, then at 1100. Next 'support' below 1100 in SPX is probably around 1040.
Each time the 13-day RSI has gotten back up to a 'neutral' 50 reading, the index has sold off again. SPX may have to get to an oversold extreme again before there's a recovery rally that has as much upside potential as the 130 points the index regained after plunging to 1100 early last month.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart has a mixed pattern. On one hand the index remains bearish on an intermediate-term basis as long as the index is below tough resistance in the 560 area; on the other hand, OEX could remain in its current 500-550 trading range as part of a possible basing formation.
If OEX has formed the same weekly chart (not shown, but see the SPX weekly chart in my initial 'bottom line' comments above) bear flag pattern as SPX, a plunge below 510-500 suggests a possible next down leg that could carry the index to as low as 440.
Last week I wrote that I would "anticipate more weakness ahead so would short rallies..." The kind of downside I was anticipating was back to the 500 area again. Key support continues to be the 508-500 area, but key near resistance is lower this week, at 540, down from the 550-560 price zone.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) has a continued bearish chart as long as the Average can't climb back above strong overhanging resistance in the 11500 to 11700 price zone. Bullish longer range possibilities are seen if the Industrials continue to trade in its current broad 10800 to 11700 price range which could be basing action; this range could be extended down to 10600 again however.
The 10600 area as the last intraday low still looks like must hold support for the bulls and 10000 the start of major support. Last summer's INDU bottom made in the low-9600 area is another important milestone. A weekly close below 9600 would turn the long-term trend down.
INDU resistance begins around 11400 and extends to 11600 to 11700.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart remains bearish as long as the index can't climb back above the supply overhang at 2600, where COMP bottomed twice previously several months apart. This had looked like strong support and now appears (not surprisingly) as strong resistance as we saw this past week.
Key near resistance looks now to start at 2550 and extends to 2600. A decisive upside penetration of 2600 that was more than a single day affair would activate further upside recovery potential to around 2750 to 2800.
2330 to 2350 on the downside and 2600 on the upside is the current broad trading range for COMP. A break below 2400 activates bearish potential (as noted in my initial 'bottom line' commentary) to as low as 2060 in a retest of last summer's low.
I wrote last week that it "Looks to me like 2400 will be tested (again)"... not surprisingly this looks increasingly likely. Below 2400, next support is in the 2350 to 2330 area. Major support below this area looks to be substantially lower, at 2100.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) index chart remains bearish overall as the recovery rally has not done more than retrace half of its prior decline, after which the index continued to see weakness as potential buyers largely stepped aside. Key near resistance is at 2250-2270, extending to around 2300, at my upper trading 'band' or envelope.
I wrote last week that "2215 may offer initial resistance when the (price) gap is 'closed'." NDX got to 2245 and then plunged over the next two days.
I also noted last time that 2100 looked like a downside target again, and if current volatility continues (and it increased this past week), we could see NDX drop below 2100 and go on to retest prior support in the 2035-2050 area. Below this area, a next significant support looks like 2265, with major support implied by last summer's lows in the 2100 to 2065 area.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) which last week looked headed lower, did manage a recovery rally to just above 55, but then turned lower again on bearish news out of Europe. When indexes hit resistance, so often bearish news comes out after that. Makes you wonder if the market sees 'all' ahead.
The high end of QQQ's price range is 55.2-55.7, with near support at 52, extending down to more major support around 50 and it looks like the Q's might be headed down to this area again.
Below 50, I anticipate next support to lie in the 48.6 to 47.7 area, which represents a 62 to 66% retracement of the July (2010) to July (2011) advance.
Trading volume in the NDX tracking stock has been low and suggests that those holding long positions are in for the longer haul. Trader types appear to have exited. A volume spike would next occur I believe if the 50 level is pierced. Then I think we would see more sellers come out of the woodwork so to speak.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart is back to trading within its 5% price bands or moving average envelope lines. Key near resistance is at 712, extending to 737. 772-773 is probably the beginning of current major resistance.
Support is seen in the 650-640 area. If there is a daily close below 650, this could be the start of a new down leg, with potential to reach the 600-588 support that developed during July-August of last year.
I wrote last week that 650 looked like a downside target and that still is on the table, but with the possibility of slippage below this area. The most bullish outlook is suggested by the possibility that this whippy price action between the 730 area on the upside to 650-640 on the downside is basing action for an eventual rally that is more steady and sustained. Stay tuned on whether this market ever rises again!
GOOD TRADING SUCCESS!