THE BOTTOM LINE:
2600 was the key level in the key tech index (COMP) and when selling overwhelmed buying the rally was dead. Hello increased volatility again as hi-frequency trading propels both rallies and selloffs further than they would go otherwise.
If this Market seems unfamiliar to you in terms of its temper and tone, then I suppose you haven't traded the commodities markets. At least for the cycle we're in, if not forever, the Market has become another 'commodity' and another source of computer driven bets relating to price momentum.
Myself, I think it's time for some controls on what these computer driven funds can do as it scares away public investors from stocks at a time when there are stocks worth buying. Not that there aren't bearish-looking scary things out there. Anyway, we can't live without volatility and we are hard pressed to live with too much of it!
Some technical measures or models are starting to 'work' again such as envelope resistance measures and the 'centered' 21-day moving average alternatively 'acting as' support and resistance.
Not working are 'standard' technical pattern recognition tools. I don't recall that I ever saw a Head & Shoulder's TOP formation that formed AFTER a lengthily and steep decline. Nevertheless, the recent top pattern looks like the classic H&S Top, as seen on both daily and hourly charts. When the 'neckline' was pierced the fall was sharp such as we've come to expect with the H&S type top.
My first chart is of the hourly S&P 500 (SPX) hourly but the pattern is clearly seen on the SPX, S&P 100 (OEX) and Dow 30 (INDU) daily charts. NOT SO on Nasdaq; the same bearish H&S top pattern isn't there, just 3 slightly higher highs. Suggesting that, as we've known for a long time, tech is and will hold up better on declines and outdistance SPX on the upswings. MacDonald's has little sex appeal compared to Apple's luster.
In my regular commentaries on the different popular indices, I'll be again updating or reconfirming my assessment of major support levels in case this most recent collapse in prices is the first part of another down leg, such as to the low-1000 area in SPX (currently at 1136) or to the 2200 area in the Nas Composite.
I don't accept the premise just now but do prepare for the possibility of a big further downswing in case we collectively scare ourselves into another recession.
Market sentiment is showing extreme bearishness in some ways of measuring it particularly among investors, but trader sentiment as I look it from a ratio of daily call to put volumes, wasn't bearish enough on Friday to suggest any sustained rebound anytime soon.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) turned bearish on its sharp downside penetration of an up trendline that had developed over prior weeks. It only took two days to go from trading over 1200 back to support in the 1120 area. There was warning in that highs in the 1215 to 1220 area were hit on 3 days running. In this kind of high-volatility market, 3 days not going through the same resistance makes it high risk and here, wrong to be long.
Given the sharp break below SPX's up sloping trendline (the 'neckline') break, the pattern assumes the improbable of a Head & Shoulder's Top. It's got all the requisites including a sharp break of the H&S 'neckline', although this kind of pattern almost always forms after rallies or at tops, NOT as a consolidation after a sharp prior sell off. However, if I take the H&S pattern in the way the pattern usually 'measures' a next downside target, that would be to 1040 or lower.
We can't overlook either the strong support that has come in before on dips to near 1100. The chart pattern leans to a more bearish interpretation of another down leg ahead. The key is buying that comes in or doesn't if SPX dips toward 1100.
Where the previously pierced trendline intercepts is a possible early or near resistance; at 1172-1175, with next key resistance around 1220.
Near support is at 1120, extending to 1100, with next support in the 1050 area. Major support remains 1000.
S&P 100 (OEX) INDEX; DAILY CHART
In 3 weeks the S&P 100 (OEX) chart has gone from 'mixed' to one suggesting upside potential, to the bulls getting carpet bombed this past week.
The break of the up trendline was the key technical trigger that said look out below. I find it hard to believe that we won't see 500 or lower on some upcoming low. A key is where OEX Closes; on the bearish side, it's two days running below 500. Below 503-500, there's only 'air' down to the 470 area. Below 503-500, there's only 'air' down to the 470 area.
Bullish potential is suggested if the index 'bases' in the low-500 area as suggesting that OEX remains more or less locked in a 500-550 trading range. If we could only predict how long an index or stock would REMAIN in a trading range! There are some models, they just don't work all that reliably.
Near resistance is at 525, at the intersection of the previously broken up trendline, extending to around 532, on up to the cluster of prior recent highs at 546-547.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) broke layers of support quickly once there was no headway above 11500. A fall to below the 21-day moving average
brought in more selling as did a break of the psychologically important 11000 level; a sharp decline the next day quickly took the Dow to what seems like a successful test of prior support at 10600 that stopped the waterfall decline of late-July into early-August. If INDU continues to find support in this area, exit puts, profit in.
A next down leg is the scenario that has the bulls sweating bullets, with a decisive downside break of 10600 setting off another big round of selling and a possible retest of major support around 10000.
Resistance is suggested at 11258, then at 11530.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) had looked like it was experiencing a bullish breakout above key resistance at 2600; instead, the area above 2600 was where COMP went to die. If you can't churn through what looks look to be considerable supply (as in lots for sale at that level and above), you are going to lose the bullish investment battle; you cannot push the ball up that steep of a hill. Then the market plays whack a mole and the bulls, now timid milk cows, play duck and cover.
The most bullish outlook is suggested if COMP holds at or above 2400. Bullish in an overall chart sense occurs with a successful retest of support around 2333; breaks to 2300 notwithstanding as long as prices come back by the Close. A next down leg is the most bearish possibility as suggested by a move that extends to at or near 2200.
Resistance is at 2532 to 2537; next resistance is at 2600 and selling pressures/resistance extends to the 2640 area.
NASDAQ 100 (NDX); DAILY CHART:
From this past week's action in the Nasdaq 100 (NDX) index it seems that the 5% moving average envelopes are again showing the areas on the upside that are 'extended' for NDX and where the index is vulnerable to a pullback. Predictably, the break below the 'centered' moving average
(21) marked the average as representing at least immediate 'resistance'. What most often happens on these kind of breaks is a kind of a pull toward the lower envelope line and sometimes of course a dip to well below the lower line, but this is more rare than commonplace.
If NDX holds mostly at or above 2150 in the coming week, this diminishes a bearish next down leg scenario.
I've pegged near support at 2150, but also find reasons to see more downside than this ahead; if not to 2100-2080, then back to a retest of support at 2040-2037.
Near resistance begins at the 21-day moving average (2221) and then extends to the top end of the recent downside price gap at 2257, with increased selling on up to 2300 and beyond; e.g., the 2337 high and on to around 2350.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) fell from the high end of its uptrend channel to the low end and this either represents a place to get long the stock or a way-station for another decline, perhaps even equal to another down leg that carries another 4+ points like this past week.
One objective suggested by a break below 52.8 is for a move to near 49. That would imply the stock hits 50 and then some. The intraday lows are typically under key numbers, like 50 would be in QQQ. Bullish potential is for a move back up to 58, but another downswing just 'looks' like it is next in this pattern.
To give the benefit of the doubt to a bullish rebound, I'd say it's important to mostly see trading above 52.
Key near support is 52.8-53, with more major support beginning at 50. If a significant down leg develops here, we could see a move to the 48.5-47 price zone. Resistance is suggested by the top end of the recent downside price gap, at 55.3
Daily trading volume spiked on Thursday sharp decline, suggesting that there are still holders that can get 'flushed' out of their positions if prices break enough. Not exactly a bullish omen.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart which previously had traced out a pattern of higher pullback lows suggesting a pattern with bullish potential. Unrealized, it turns out as prices plunged below trendline support at 675, which I've noted now as initial key resistance. I was commenting on the 'commodification' of the stock market, but if this was a commodities chart, I'd be forecasting another down leg ahead. It just looks so.
640 is near support, with more major support beginning at 600 and extending to 587 or so. Near resistance is seen at 675; then back at 715-718 area again, extending to prior highs in the 735-738 area. Major resistance begins around 770.
I wrote last time that ..."if RUT broke under 672, it would suggest a further test of support, in the 650-640 area." RUT got to 635 intraday on Thursday and has rebounded a bit but the recent low doesn't look to be rock solid support. Stay tuned.
GOOD TRADING SUCCESS!