THE BOTTOM LINE:
Last week I suggested there's no reversal to a bear market suggested on a longer-term basis but enough panic was in the air this past week to feel like one. Fear factor VIX (CBOE Volatility Index) rose sharply. I made last weekend that the sell off was looking like a 'normal' bull market correction but this past week was all selling all the time. I see this panic as near to running its course. If so it suggests taking put profits. Going the other way and buying calls is risky too, maybe not so much that there won't a bounce, but any rally may be limited given the fear and loathing that's out there about euro-land.
Last week I suggested some 'likely' support levels (e.g., 1340, then 1320) in the S&P 500, but even 1300 gave way by week's end. As happens from time to time, the market has gone from an extremely bullish outlook to extremely bearish. Extreme to extreme, the never ending story of stocks.
This second down leg in the major indexes is now a bit more than a Fibonacci 1.6 times the first downswing. In the process the S&P is quite oversold on a daily chart basis as is Nasdaq. The (Nas) Composite is now also nearing an oversold extreme on a weekly chart time frame.
Those who bought puts even as prices fell off a cliff have profited, which is not a common occurrence in buying puts, EXCEPT in panic situations. I don't do well in crazy time predictions for a possible further downside. There are however strongly increasing odds of a rebound sooner rather than later.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart continues bearish; more so now with the waterfall type decline of this past week. I was looking for support in the 1340 area and this gave way, then at 1320. NOT! Even 1300 didn't hold up as a possible 'major' support. I suggested probing the long side around 1320 would warrant an exit point or stop just below 1300. I'm shying away from further crystal ball predictions on a next bottom!
I have been saying for awhile it's sometimes if not OFTEN the case with a SECOND down leg that it's more than the first. More by 'at least' a Fibonacci 1.6 times and SPX has now gone a bit more than that. The decline has also carried well under my lower 'envelope' line set at 3 percent under the 21-day average. No magic number in this but such oversold extremes don't last more than a few days typically.
I've estimated next support at 1280, extending to 1270. I'm looking for a near-term rebound either from the recent close or from the 1280-1270 zone. Near resistance is now at prior support at 1320; next resistance 1340. Needless to say that SPX is now 'fully' oversold both in terms of the Relative Strength Index (RSI) AND by my bullish/bearish sentiment indicator. Bears beware of a bullish rebound with a day or a few.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) index chart is bearish but with its second down leg having fulfilled some 'minimum' downside objectives. See above S&P 500 comments also.
I thought that OEX wouldn't get pushed under 610 for long, but that's now highlighted on my chart as near resistance. 600 as an 'obvious' support got pierced also. I thought that 600 was a potential objective but not so quickly as this past week already!
Those taking a flyer on calls around 600 would have exited at 595 by my lights. Taking put profits was good in my estimation. I don't suggest trying to stay in until everyone is short already, given the risk of a short-covering rally.
OEX may have touched some support at 590 already but if there's just more free fall ahead, its next lower support looks like 580-584.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) has a bearish chart and it got more bearish with the waterfall type decline of the past 5 trading sessions. This type action usually suggests that at least an interim bottom isn't far off. I use IBM as the current best S&P/Dow bellwether and it looks to have some support in the 195 area which it touched on Friday.
The well-defined double top in INDU was the tip off for a significant lid on the Average but that wouldn't necessarily suggest a rout from there. Still, there were a lot of instances where the Dow couldn't get through the 13300 area. If they can't take em up, they can take em down with a vengeance.
There are now just a handful of INDU stocks that don't have a continuing pattern of weakness or a pattern of breaking down of the prior uptrend. DIS, KFT, T, VZ and WMT still are holding up but that's not a powerhouse picture of leaders.
Potential support looks like 12300, extending to 12200. I thought last week that support was near at hand but the sell off has gotten extreme enough to project potential for an interim low.
Near resistance is at the last 'break-down' point at 12600, with next resistance at 12800.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
I noted that prior (island) top patterns in the Nasdaq indices but didn't see downside below 2900 but COMP fell off a cliff.
Where to from here? I've sworn off crystal ball predictions but have estimated support at 2750, then at 2700. COMP in this zone would have more potential for at least a dead cat bounce than another big further decline. I also thought that the low-2800 area would hold up as support too. Grain of salt on my downside expectations!
My best COMP and NDX 'predicator' has been Nasdaq Apple (AAPL) and I've been projecting a pullback to the $500 area and AAPL is getting close to that target; Friday Close: 530.
Near resistance: at 2850 and a prior potential support; next resistance is 2900 and this may be a strong lid on any rallies ahead.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index is in the second downleg of an a-b-c (down-up-down) correction pattern; one where the second decline has now carried to 'at least' (a Fibonacci) 1.6 times the first down leg. This doesn't of course mean that NDX is going to now magically be lifted from recent lows, but does suggest that one key downside chart expectation has been met. Moreover, as you can see from the COMP chart above, Nasdaq is now at a 'fully' oversold extreme given such low bullish sentiment.
Apple Computer (AAPL) is an even more key bellwether for big cap NDX. AAPL is now close to my initial pullback objective to $500 given its Friday finish at 530.
Near support or a next downside target is to the 2450 area, then to 2400. Near resistance now looks like 2550, extending to 2600.
NDX is about as oversold (judging by the 13-day RSI) as it tends to get at significant turning points. The Index can of course slide further but I suggest not getting complacent in puts. If NDX just levels out here and volatility decreases, you may not exit with the profit you hoped for. Still, I like 'worrying' about profits rather than being on the wrong side of the market!
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) is bearish for saying bearish given the recent acceleration in its decline.
Near support or a next potential downside target looks like 60, extending to 59.3. If QQQ touches 60 I'm anticipating evaluating buying the stock, with a 59.0 sell stop. The key unknown is whether a potential move to 60 would be a knife-like plunge through this level or where buying interest starts showing up. I don't suggest trying to 'catch a falling knife' but rather assessing bottoming action if or when it comes in.
Near resistance looks like 63, then 64, at two prior 'support' levels. Support, once broken, 'becoming' subsequent resistance.
Daily trading volume has jumped again on this latest sell off and it looks like more bullish 'long-term' holders of the stock have lost their conviction. Good time for a bottom perhaps on further weakness or from recent lows, although I thought buying interest might show up around 63 and here is QQQ under 61.0 on Friday.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart plunged after falling under the 'neckline' of a Head & Shoulder's Top pattern which is outlined below. Of all the major indexes save the Dow, RUT had the most clear cut advance warning of a top based on its chart pattern. As I've noted on the chart, the H&S top has a 'measuring' implication for a rule of thumb 'minimum' downside objective to around 723.
I didn't highlight support or resistance points but they look like a next potential support at 735, extending to 726. Near resistance, based mostly on the RUT hourly chart (not shown here) looks like 760, then 777-780.
Like the other indices, RUT is quite oversold which suggest the potential for a rally. Let's say the probability of a rebound grows or just a leveling off of prices.
GOOD TRADING SUCCESS!