THE BOTTOM LINE:
The Dow peaked yet again in the 13300 area and identical type top formations occurred a second time in the S&P and Nasdaq. It's unlikely we'll see new highs anytime soon.
The Dow 30 (INDU) has now formed a well-defined line of resistance by topping out three times in the 13295-13300 area. If you were looking to short this market by using Dow Index puts, risk to reward looked quite favorable by setting an exit/stop point at 1335 (INDU: 13350).
INDU has not pierced its longer-term weekly chart up trendline, but the S&P indices and the Nasdaq Composite have closed just under their weekly support trendlines. The early warning tip offs to the weakness that developed this past week were the major indices breaking UNDER their 21 and 50-day moving averages; this, versus the prior week with rallies above these averages.
The market pattern here looks like a repeat of 2010 and 2011 when interim tops formed during the weeks of 4/30 and 5/6 respectively. This year the S&P and Nasdaq made highs to date in late-March/early-April. It's unusual to see the market acting in such an identical fashion for 3 years running. Winter and spring blooms fade before summer; seems a sign of the great recession.
Last weekend in my column I focused on the apparent bottoms that were made in the prior week, but by Monday 4/30 when I sent out my Trader's Corner piece (serving as a kind of 'adjunct' to this column), I was looking again at Nasdaq and described its apparent earlier island top, suggesting we might be seeing only a short-term rebound.
The same 'island' top pattern repeated again as highlighted in my first chart of the Nasdaq 100 (NDX). Moreover, prior support (green up arrow), once penetrated, 'became' subsequent resistance (red down arrow) and which is a common technical chart pattern.
The S&P 500 (SPX) also formed an identical pattern on its hourly chart, with the formation of a second Head & Shoulder's (H&S) Top as seen in my second chart:
Using the SPX example seen above, the 1360 level is a pivotal support. I don't see huge downside basis SPX; maybe to 1340, but also anticipate limited rallies only as the market sorts out the start-stop nature of the current economy. More on support levels in my various index commentaries next up.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
I made the point last time regarding the S&P 500 Index (SPX) that another short-term reversal would be indicated if SPX couldn't hold above the key 21 and 50-day moving averages. Friday's plunge put SPX well under this level (now noted as near resistance) and has turned the chart mixed in its pattern and looking like a significant top has formed intermediate-term.
There was the one SPX rally that looked like it was headed to a retest of key resistance around 1420, but no headway was made. The rally to retest the old highs was only seen in the Dow but ITS rally failure was key to seeing the overall market top.
It looks like SPX will retest 1360 support and the index could dip to next support at 1340. Longer-term, rallies may be short-lived and an eventual retracement more in the 38 to perhaps 50% range of the prior extended advance. Such retracement possibilities suggest eventual downside potential to the low-1300 area, perhaps to a retest of 1300.
Key near resistance comes in around 1385, extending to 1400-1415.
Bullish sentiment hit its single day peak 4 days before prices topped out and consistent with extremes occurring 1 to 5 days before a possible top. Instead of a further buildup of bullish sentiment, the one extreme reading was all we got.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) index chart is now mixed with high potential that the index has formed an intermediate-term top. The prior double bottom low is at risk of being penetrated. Maybe it just gets retested of course and a trading range forms. Hence, key support is in the 618 area. If 618 is pierced, sell stop orders can get triggered intraday but Closes hang in around 618.
I was looking for the prior high to get retested and the intraday peak was only a few points shy of that so I consider the prior top as effectively retested and found wanting! (The Dow chart shows an exact test of prior highs; that chart is next up.)
Near resistance is 630, then comes in at 640-643. Key nearby support is 618 with next support in the 610 area.
I don't see OEX being pushed under 610-609 near-term, at least not for long. Longer-term we could certainly see 600 retested, with a possible dip to 596-595.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) was looking up, with bullish charts coming into this past week in AXP, BA, HD, IBM, KFT, KO, PFE, T, TRV and VZ, but with the recent rally failure in the 13300 area there's a significant top that's formed. Depending on whether you assess the prior highs as ONE cluster (I do), INDU has formed a double top. For sure the 13300 area is what Charles) Dow would call a strong line of resistance. Of the prior 10 Dow leaders, only 5 (AXP, HD, KO, TRV, T) and maybe IBM, INTC and PFE, are NOT currently showing top-heavy or reversal patterns.
Key support is still the same, at 13000, with next support at 12850-12800. A weekly Close below 12900 pierces the weekly chart (not shown) up trendline. Near resistance is down to 13200, with next resistance at 13295-13300.
In terms of 'Dow Theory' the lagging Transportation Average (TRAN) is what is preventing a renewed or we could say 'refreshed' all-clear buy confirmation. TRAN needs to Close above 5560 to give that 'signal'; prior recent Closing high was 5368 and weekly TRAN Close, 5227. Bearish sentiment should start to build again if INDU closes below 13000 for an extended time.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The prior 'minor' island bottom I described last week with the Nasdaq (minor, because that pattern didn't form near a major bottom), led to a limited rally before a second major island top formed; this top pattern was highlighted above in my initial 'bottom line commentary with the NDX chart.
I had forecast the decline into the 2950-2900 zone which happened of course, but I also thought that it was up, up and away to 3100 or above after that. NOT quite! Now it looks like we might see a retest of 2900 support after all AND for the 13-day RSI to finally also get to a 'fully' oversold reading again.
COMP was looking good only as I wrote last week, only if COMP continued to trade above the pivotal 21 and 50-day moving averages. The break under those averages Thursday set up the gap lower Friday opening and the weak close at intraday lows.
From here? 2900 is my near term target, with potential to 2850 but I don't lower near-term. Bullish sentiment nose dived but don't look for a bear market. Jobs, jobs, jobs yes, but earnings are still quite healthy.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index, which I had last week calculated had completed an a-b-c (down-up-down) correction hadn't in fact completed its second down leg. This is happening now it seems and typically, eventually, the second down leg drops further than the first. The first decline went from 2800 to 2630 for 170 points peak to trough. If the second is as deep, look for an eventual downside target to 2580; or lower, if the second down leg goes further than the first decline, as it often does; e.g., 1.5 times the extent of the first sell off or to around 2500.
Apple Computer (AAPL) is a key bellwether for NDX. AAPL could see a retreat to $500 from its most recent close at 565, so more downside for NDX suggested in that case.
Key near resistance is now at the moving averages intersecting around 2700; next resistance is 2750. Near support comes in around 2630, extending to 2575, then to 2550.
If you skipped over it, my initial 'bottom line' commentary above has another NDX daily chart with TWO island top formations highlighted. This first chart shows the pattern(s) outlined; i.e., after a prolonged rally, there's a final upside price gap, then a cluster of highs in the same area, followed by a downside gap, leaving the isolated 'island' formation. This is a type of exhaustion pattern where a rally gets overextended and volatile. A correction follows.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ), which looked bullish again when it crossed above the two shorter-term moving averages (21 & 50-day) prior to this past week, has lost that status as only a relatively minor rally followed. The break below 66.2-66 turned the chart mixed and suggested an intermediate top is in place.
Volume spiked on the recent break as the nervous types fled the Q's. Next up looks to be a retest of prior lows around 64.5, with next support at 64, extending to 63.5. I'm anticipating lower levels ahead, with an eventual decline possibly to the 62 area.
A short-term rally wouldn't surprise me, such as back to the 65 area, especially if the prior 64.5 low is left intact. From 64-64.5, we could see a rebound to the 65.2-65.5 area but a struggle to reach next resistance around 66.2, at the 21-day average.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart has turned bearish with the decisive downside penetration of 800. Next support is 785-783, extending to the 770 area.
I was seeing a possible 'rectangle top' but discounted it as I didn't see Nasdaq charts in the same way. OPPS!
Key near resistance is at 805, then 820, extending to the prior 830 high.
GOOD TRADING SUCCESS!