THE BOTTOM LINE:
The Nasdaq Composite (COMP) had two days where it sharply broke below 3000 support but the subsequent rebound was impressive. The S&P indexes made double bottom lows which was impressive but SPX now may be challenged to move above 1400 at least near-term. The Dow held its weekly up trendline and moved smartly above the pivotal 13000 level, led by 10 of the 30 stocks in particular.
There are a couple of charts, one daily and one weekly of specialized interest that I'll feature here; all other daily charts are below per usual.
I wrote last week that it was possible that this past week would take the major indexes to new lows for the move and complete the common down-up-down or 'a-b-c' corrective pattern and that was how it unfolded. In the case of the S&P 500 (SPX) and the S&P 100 (OEX) bullish double bottom lows formed, which suggested taking a bullish trading stance. SPX should be watched closely ahead as there's come technical resistance suggested just above the pivotal 1400 level and the index is overbought now on a short-term basis.
First up is my SPX daily chart with the a-b-c (down-up-down) pattern highlighted below. The formation of a second low at the bottom of the 'c' down leg equal to the bottom of the 'a' downswing strongly suggested this as a place to cover puts and the like and to adopt or maintain bullish strategies.
The Dow 30 (INDU) pivotal low was found at the intersection of the current weekly chart up trendline as seen in my next chart. Now the question is of course whether the major stock indexes pierce their prior highs or not. I'm not ruling this in or out but it may be a struggle.
Nominal new highs, followed by a rally failure should be watched for. Of course INDU is now very close to its prior recent highs around 13280. If projected resistance for the Dow in the 13500 area is exceeded (see the daily chart below), on projection on the weekly chart here suggests potential resistance at the prior major up trendline coming in around 13800. As we go forward, that same 'resistance' trendline will intersect closer to 14000. Those big round numbers are often key benchmark levels.
In the Nasdaq indexes, the Composite (COMP) and the big cap 100 (NDX), more unusual island bottoms formed this past week as you'll see on those charts further on.
The strong move back up above the 21 and 50-day moving averages was also a bullish technical event seen on all the charts.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
Last week I suggested that the S&P 500 Index (SPX) needed to regain the 1400 area to put SPX back on a bullish track technically. SPX did close the week above this pivotal level and next up is a key test in the 1420-1422 area, at SPX's prior recent highs. On an hourly chart basis (not shown), the index is hitting some resistance and is overbought on a short-term basis. A minor pullback here shouldn't be any big deal, as long as SPX continues to hold above its key 21 and 50-day moving averages, as noted below as initial support.
The S&P made a double bottom low, which is bullish. Yet to come now is how it does at its prior recent highs. Resistance above 1420-1422 comes in around 1436-1440. I calculate major resistance up in the 1475-1480 area currently.
I'm anticipating at least a retest of prior highs and the index can probably go on higher from there, but there may be a minor pullback first. As it turned out, the one 'fully' oversold RSI reading was all she wrote. This has been common in all the major indexes. As long as this bullish trend continues, chances to buy calls at what turns out to be a 'bargain' level are few and far between. This contrary to my thought last time that SPX might get oversold again in RSI terms; instead, the RSI bottomed at higher high, which makes for a bullish RSI/price divergence.
Bullish sentiment shot up mid week, has moderated since but is gradually trending higher again. When my sentiment indicator rises to an upper extreme again, it will likely be time to get cautious again as happened last time this occurred.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) index also formed an exact double bottom low, providing a low risk trade in calls, given that an exit strategy would be appropriately placed just a few points under the prior low. Upside potential could be assumed at that point to be several times the few points 'risked' in an exit plan.
I wrote last week that a decline to 610-600 would likely 'complete' an a-b-c (down-up-down) correction but of course the double bottom low in fact completed that pattern AT the prior low. I'm used to seeing a LOWER low on a second down leg as was in fact seen with the Nasdaq. A double bottom low is always something that should be assumed as an alternative possibility.
Key resistance is still the same: 647-650, extending to 653-655 at the previously broken up trendline, which is true on both a daily AND weekly chart basis.
Key nearby support is in the 630 area. A pullback to this area wouldn't be any big deal as long as OEX Closes above its 21 and 50-day averages. Below that is more problematic for the bulls, especially if this continued into a second day.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) was led higher and back above the pivotal and well-watched 13000 level and the 21 and 50-day averages by very bullish action in AXP, BA, HD (continuing it's relentless rise), IBM, KFT, KO, PFE, T, TRV and VZ; a mixed bag of 2 consumer 'defensives', 1 consumer cyclical, 1 bellwether (and old line) tech, 2 telecommunications, 1 aerospace, 2 financials and 1 drug stock. The common denominator: earnings! If in real estate the key is 'location, location, location', it's 'earnings, earnings, earnings' in stocks.
Support in the 12850 area was suggested by a rebound from the weekly chart up trendline as seen in my initial 'bottom line' commentary above. Near support is gain at 13000.
Near resistance is suggested by the prior high just under 13300. I've noted a next resistance and a key one, as in the 13530 area, at the current intersection of the previously broken up trendline. Absent some renewed worries, real and imagined from the Eurozone (or, perhaps China or Iran), I anticipate higher levels in the Dow. There's nothing technically flashing a warning here.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
Weakness over the prior two weeks and inability of the Nasdaq Composite (COMP) to trade back above the pivotal 21-day moving average led not surprisingly to further weakness with the gap down opening and trade on Monday-Tuesday. The subsequent Wednesday gap UP opening left a 2-day 'island' formation that has the appearance of a classic island bottom. This pattern is highlighted on the Nas 100 (NDX) chart, one further on from COMP.
I wrote last week that "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." Indeed the completion of a common 'a-b-c' (a down, up, then another downswing) correction, where the second down leg carries further than the first is a 'textbook' corrective pattern.
Near support is again 3000, with further support at 2950. Near resistance is suggested by a line of prior highs around 3120, with resistance then extending to the 3150 area.
I thought that COMP would also again get to an oversold low in terms of the 13-day Relative Strength Index; it wasn't quite to the extreme area I consider 'fully' oversold but the lowest reading this past week equaled the prior (RSI) lows.
Judging by the 'basing' action that went on for two weeks, then the island bottom, I'm anticipating at least a re-test of the prior highs and probably at least a nominal new high. Short-term, on an hourly chart (not shown) basis COMP is overbought which suggests a possible minor dip early in the coming week. If COMP continued to trade above or mostly above the pivotal 21 and 50-day moving averages, the Composite will likely move higher.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index, which had been bearish in its pattern, appears to have completed an a-b-c downside correction and forming an 'island bottom' as highlighted on the NDX daily chart below.
Last week I wrote that "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." This seemed more 'obvious' than a brilliant observation on my part but the decline led to a call buying opportunity at support in the low-2600 area. I thought NDX could dip to 2600-2575 but the tip off for a possible bottom was Tuesday lows 'holding' Monday's bottom.
Near support looks like 2720, at the 21-day moving average and next at 2660, extending to the 2630 area.
Resistance is the same as noted last week, around 2750; with next resistance in the 2795-2800 area. Fairly major resistance then comes in around 2850 as NDX would be back at its previously broken up trendline.
I anticipate NDX working higher and at least re-testing prior highs. I think that the index could rally to around 2840-2850. Eventually, but maybe not until after the summer doldrums, NDX could get to, or near, 3000. That's likely a ways off if at all but is a longer-term objective. The rally to 2800 is quite an extensive move (off the late-2002 lows), as NDX has now retraced fully half/50% of the huge 2000-2002 bear market decline.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) has regained its bullish footing per my comments on the underlying NDX index above.
I noted support last week at 65.2, extending to 64. Near support is up to 66 now, at the 50-day moving average, with lower support suggested around 64.5.
Resistance is now up to 68, from 67.1 last week, with next resistance in the area of prior highs at 68.5. More major resistance can be expected if there's a further rally to 69.5-70.
Daily trading volume declined on the recent rally, about par for the Q's as the NDX tracking stock tends to see big volume on declines and lesser volume on rallies, just the opposite pattern relative to company stocks. What I look for instead is a steady rise in the On Balance Volume (OBV) line on rallies.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) completed an apparent double bottom and this bullish pattern was 'confirmed' so to speak with its gap higher opening mid-week and the breakout move above the 50-day moving average.
Support is at 800, then down at the prior lows around 785.
Resistance is the same this, first at 840 and extending to the prior recent 848 (up) swing high.
I wrote last time that RUT was probably not building an apparent 'rectangle top' based more on the Nasdaq pattern, which continues to lead the small to mid-cap Russell 2000. RUT should follow Nasdaq higher, or not, depending on the next move in tech stocks.
GOOD TRADING SUCCESS!