THE BOTTOM LINE:
On the decline, two of the major Indexes (COMP and RUT) reversed and rebounded from their up trendlines, maintaining bullish charts. Still, the likelihood of another downswing to complete the recent correction looks like more than 50 percent.
After prolonged run ups that reach overbought RSI extremes, corrections are often two-pronged. The first downswing is often short-lived, with a snap back rally to the area of prior highs or a bit higher. From there a second decline ends up carrying farther than the first sell off.
Absent a decisive upside penetration of near resistance levels seen on my major stock index charts, I'm anticipating lower levels than seen at Tuesday's (3/6) lows.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart remains bullish in terms of its major uptrend, but an intermediate correction looks to be underway. I don't anticipate that this recent correction has run its course.
As I note above in my initial comments: After prolonged run ups that reach overbought RSI extremes, corrections are often two-pronged. The first downswing is often short-lived due to a snap back rally to the area of prior highs or a bit higher. From there a second decline ends up carrying farther than the first sell off. That's the general pattern. How might this go with SPX?
If an extension of the recent snap-back rally again gets capped in the 1375 area OR goes a bit higher such as to around 1385, there's some likelihood of another decline developing; one that could take SPX to below 1340, such as to near 1300.
Above 1385, next resistance is 1400-1410, with further resistance at the high end of the highlighted uptrend channel at 1433.
Support levels are the 21-day moving average at 1360, then around 20 points lower at 1340, with further support extending to the low-1300 area.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart had of course been in a very strong uptrend. However, once OEX pierced its up trendline, a sharp but short-lived sell off followed. As with the broader S&P 500, OEX might not be able to climb above the line of prior highs in the 623 area; or, the index goes nominally higher, such as to 630 and resistance implied by its previously broken up trendline, then comes down again in a second down leg. A second downswing in a pattern like this one often carries lower than the first and implies that 610 may not be a 'final' low for this correction.
While the 21-day average was briefly pierced, I would count the average, at 615.8, as initial support. More pivotal support is implied by the recent 610 low, with support extending to 605. A break below 605-600, could carry to 590.
Very near resistance is at 623, then at 630, extending to the 650 area.
DOW 30 (INDU) AVERAGE; DAILY CHART:
I noted last week that the Dow 30 (INDU) continued overall bullish in terms of its chart but also noted that "the recent sideways trend formed a minor sideways rectangle formation which could warn of an interim top. The rectangle formed after INDU fell under its prior up trendline."
In a 'bottoms up' technical approach with the Dow, since there are relatively few (30) charts to peruse, I only see still-strong or very strong uptrends in AXP, HD, IBM, INTC, and KFT. These 5 probably can't pull the Dow higher, or much higher, than INDU's recent line of highs at 13000-13050. An extension of the most recent rally could carry to 13100, maybe 13150, with the Average possibly starting another decline from this area.
A key point is that we can't trust that the recent 12750 low is a 'final' low for the recent sideways stall and downside correction. I've noted 12750 as potential support of course, being the prior low, with next support highlighted at 12600 and extending to 12500.
Resistance is at 13000-13050; 13150; then around 13300.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart remains bullish as the index rebounded from the low end of its uptrend channel or from its bullish up trendline. To continue to 'hold' its up trendline, COMP would need to find support around 2920 in early trade in the week coming. Next support is assumed at the prior 2900 low, with further technical support at 2850.
As with the other major indexes, I anticipate another downswing ahead to complete a 'typical' down-up-down (or, 'a-b-c') correction; one where the second downswing carries lower than the first. This expectation is based on the recent rebound not being able to pierce prior highs or by much; e.g., COMP goes a bit higher (and bullish sentiment rises), but with the index having another decline after nominal new highs that 'completes' the common a-b-c corrective pattern. Stay tuned on this outcome!
The 3000 level is a key resistance for COMP, although I've noted resistance extending to 3030. The last time COMP traded above 3000 was late-2000. 3000 is a benchmark big even round number level in COMP, like 13000 is currently in the Dow. I've highlighted next resistance in the Composite approximately a 100 points higher, at 3115 per its intersection at the upper end of COMP's uptrend price channel.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) pierced its steep up trendline finally this past week, falling to the area of its 21-day moving average, after which the index rebounded. The rally from Tuesday's (3/6) low carried the index back above its up trendline. I don't want to discount this being bullish action. However, the key test is still ahead as NDX needs to climb above the line of its recent highs at 2645-2650. Above 2650, resistance looks like 2700, extending to 2730.
As corrections are so often have two down legs, one shallow and short and the second deeper and longer, I don't consider the Nas 100 to be out of the bearish woods. Another sell off to the 2600-2580 area is a possibility, and then perhaps lower still, such as to support in the 2540 area or even to a retest of 2500.
While it's bullish that the index rebounded quickly and strongly, the pattern for bull market corrections is often that the first rebound is not the last simply because the first low is not the last. This is especially true after an index has gotten to overbought extremes. If this view isn't the way it's going to go, then NDX will continue higher WITHIN its uptrend channel.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) has key near resistance at 65.1; a move above this level keeps QQQ above its up trendline again. If instead, the Q's fall to the 64 or below, this could be on the way to lower correction lows, such as to support at 63.2-63.0. Fairly major support begins at 62.
If QQQ continues on its merry way again and again following its prior trajectory within the highlighted uptrend price channel, there's potential for a next move up toward the 67-67.2 area.
With QQQ, we have the added input of daily volume levels that can be easily charted and compared. On Balance Volume (OBV) is pointed higher but daily trading volume on the rebound this past week didn't also climb; not surprisingly, as bullish sentiment has been falling off.
I don't currently anticipate buyers chasing prices higher here and foresee a better than even chance of another downswing ahead to 'complete' a correction that began after prices stalled around 65 recently.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) stalled in the 833 area and started trendline gradually lower, culminating in a decline to 796 this past week but which found support at RUT's up trendline. Solid bullish action as far as RUT rebounding from technical support.
However, I'm not convinced that the small-cap index is done correcting. It depends on whether RUT can now climb above 833 resistance. I base this on the common pattern of a first decline not being the last just as it was the second downswing in RUT that formed a final correction low back in Oct-November. The common down-up-down ('a-b-c') corrective pattern could be unfolding here.
Conversely, if RUT achieves a decisive upside penetration of the line of prior highs (833), it would suggest potential for the Index to carry up to the 870 area next.
GOOD TRADING SUCCESS!