THE BOTTOM LINE:
The S&P 500 and the Nasdaq Composite are drifting sideways below their 21-day moving averages and barely holding their 50-day averages. Nevertheless, the Dow and the Composite closed the above or at bellwether technical supports at 13000 and 3000 respectively.
The sideways move at this juncture keeps the major stock indexes below their former daily chart up trendlines but also is 'throwing off' the overbought extremes of late-March. On a weekly chart basis, all the major indexes have HELD at or above their up trendlines dating from their October lows.
It looks to me like one more decline to lower lows for the current move is possible but not inevitable. I envision another substantial rally ahead but how soon is hard to gauge. I discuss anticipated support and upside 'breakout' levels in my various individual index commentaries below.
The retreat in Nasdaq bellwether Apple Computer (AAPL) and in S&P/Dow star performer IBM, deflected from resistance implied by key trendlines, was important in seeing that the overall Market was likely to correct. I wrote about pivotal technical aspects involved with these two bellwether stocks in my most recent Trader's Corner column which also got out to you last weekend; see online by clicking HERE.
I've gotten into a new weekend routine of also writing my 'Trader's Corner' as a kind of companion piece to this Index Wrap, laying out whatever chart and indicator patterns look important in determining upcoming Market direction. Of course I do that in this Wrap also but the other column lets me go more into depth and details about which technical analysis tools and interpretations are looking relevant to trade entry, exit or standing aside.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 Index (SPX) remains below its December-March up trendline, which makes for a mixed chart. 1390-1400 is the key area that needs to be regained to put SPX back on a bullish track technically. Next resistance above 1400 is in the 1420-1422 area at SPX's prior recent highs. The pattern suggests potential for another decline to complete a down-up-down or 'a-b-c' type correction. That's the somewhat typical pattern for corrections.
Support is implied by the prior low in the 1357 area, with next support around 1340. In terms of the weekly chart (not shown), this past week's low at 1365 stopped right AT the October-December-April up trendline. SPX could continue sideways and mount another rally. It's possible this longer-term trendline will continue to act as support but I'm not maintaining bullish positions so am not banking on it. This is a great time to be out of the market and to watch how things unfold here.
I remain longer-term bullish but how long this current sideways to lower correction goes on is hard to say. The school of easy expectations that says after May is the time to be 'away' (end of upside potential) is unlikely to keep working as the dominant pattern year after year. The Market rarely is so consistent.
I'd like to see SPX get to an oversold extreme in terms of the Relative Strength Index (RSI) again. The second (or third) time may be the charm for the bulls to buy in again.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) index provides the same 'mixed' picture as SPX. The sideways to slightly higher rebound off recent lows in the 618 area looks like a pause in a correction that will 'complete' itself with another downswing. If instead there's another rally rather than a rout, watch the 632-633 area. If OEX climbs back above its 21-day average (633 currently) and maintains that pattern, it's bullish for another rally to 645-647, resistance implied by the previously broken daily chart up trendline.
I'd repeat my take on OEX from last week in that a decline to 610-600 would probably complete a second down leg pattern and be a likely buying opportunity.
618 is support suggested by the current intersection of the weekly up trendline (not shown), matching the recent 618 low. OEX could dip to 610 and rebound after that without suggesting a bearish breakdown. 650 is a major resistance implied by the previously pierced very long-term up trendline dating from the March 2009 lows, the June-Sept 2010 lows, extending to this past July's bottom. This pattern suggests 650 as a major resistance.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) managed to close above a key technical support at 13000 which was mildly bullish. If INDU can extend its recent rally to above 13130 and maintain levels above the 21-day and 50-day averages, upside potential looks to be back up the 13260-13300 area and possibly next to the 13400-13500 zone.
Near support is suggested at 12850, up from 12715-12700 last week. 12600 looks like fairly major support where I'd be a buyer of Dow Index calls.
As to the 30 individual Dow stocks, I rate 11 as in mostly longer-term uptrends; i.e., AXP, HD, IBM, INTC, KFT, KO, MCD, MSFT, PFE, TRV, and WMT. If another 5-6 flip up, that's enough to mount another good-sized advance. Buy some tech toys at Walmart, along with a side of Coke and Burgers, pay with your AmEx card and follow with a Pfizer antacid to help the bulls out here.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart and technical picture is mixed here as the index has drifted sideways recently. COMP's faltering upside momentum is highlighted by it trading under its 21-day moving average for the past two weeks and with its weekly Close below the 50-day average.
One more downswing, such as into the 2950-2900 zone would complete a 'typical' correction pattern and suggest a potential buying opportunity in NDX calls.
Near support comes in around 2975, extending to 2950, with next support in the 2900 area. Repeating from last week; a prolonged move below 2900 suggests a downside momentum shift.
Near resistance is at 3050, then 3100, extending to 3120-3130.
COMP has yet to get 'fully' oversold in terms of the RSI and in terms of more of a build up in bearish sentiment and if it does that I anticipate that this will occur at or near a tradable bottom.
NASDAQ 100 (NDX); DAILY CHART:
The initial Nasdaq 100 (NDX) Index bearish action was breaking below its previous up trendline and included trading below its 21-day moving average. With Friday's Close at its intraday lows, much influenced by a sharp decline in Apple shares this past week, NDX looks like it may next pierce its 50-day moving average, which will be more widely noticed in the Market than the dip below its 21-day average.
I rate the likelihood of a further decline in NDX that will go to a new low for the current move as greater than another good-sized rally. In terms of NDX's weekly chart (not shown), its very bullish long-term uptrend isn't reversed even with a dip all the way back to 2400. Just saying! Let's stick with the chart at hand; support is 2660, extending to the 2600-2575 area. I'd be looking for a tradable rally if prices got down to 2575-2550.
Resistance is at 2740-2750, then in the 2800 area.
As with COMP, I'm anticipating a bottom may correspond with the Index getting to what I consider to be a 'fully' oversold RSI reading. This last occurred in late-November. NDX may be due. It's been a very prolonged and strong advance and these cycles don't last forever, especially in a recovering economy versus say a tech bubble. At 2800 NDX retraced fully half of its monster bear market decline of 2000-2002. 50% retracements are common and often represent stalling points or significant tops.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) has stalled like the underlying NDX of course. We do see with the tracking stock an additional volume clue in that On Balance Volume or OBV has been in a steady decline since the first top made at 2794. The daily volume trend has been 'confirming' price weakness. QQQ here is also poised to break under its 50-day average, which would be an added sign of declining momentum.
I've noted support in the 65.2 area, then at 64, extending to the prior 63.2 low.
Resistance is first seen around 67.1, then at 68.0, extending to 68.5.
I'm anticipating another down leg in QQQ. The Q's could fall all the way to 60 and still maintain its long-term uptrend. I'm not expecting that kind of sell off currently, but it provides an idea of the longer-term bullish trend picture.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) is mixed in its chart/technical pattern in that it has continued to trade below its 820 'breakdown' point, which is also where the 21 and 50-day averages intersect. This key dividing line (820) makes clear the level that needs to be regained in order to forecast further upside for the Russell.
Key support is in the area of the two lows seen in the 785-783 area. Below 780, I've highlighted support at 760. I should note also, based on RUT's weekly chart (not shown) that 750 appears as a key support also.
Above 820, resistance is apparent beginning around 840 and extending to the prior recent 848 (up) swing high. Major resistance then lies in the 868 area, at the May highs.
It's hard to tell here if RUT is building a rectangular type top or not. I'd say no based more on the Nasdaq, which has been the market that has been leading the small to mid-cap Russell 2000.
GOOD TRADING SUCCESS!