THE BOTTOM LINE:
We got another shot down instead of prices stabilizing at the prior week's lows as a big 'domestic' negative shoe fell, not just more bearish European news. The drop was enough to pierce the 200-day moving averages in the S&P 500 and the Nas Composite.
Rather than the 50% correction we had already, we got another down leg in the alternative scenario I put forward last week in noting "potential for another shot down (ahead of a tradable bottom) such as to 2700 in COMP and 1260 in SPX." One further decline and COMP and SPX may hit these targets.
The weekly close at the lows suggested there's more downside ahead as did the fall in the S&P 500 (SPX) and the Nas Composite (COMP) to below their 200-day moving averages. Piercing the 200-day moving averages is something that fund managers take note of, whereas they might not pay attention to other technical aspects.
It was hard to anticipate the Friday slam except for a couple of points; one with the Dow and the other coming out of left field a bit, with the Russell 2000 (RUT). Since I don't update a daily commentary these days, I make an effort to point out such factors for the next time you see a similar pattern. The things I noticed was that the Dow 30 (INDU) rally 'failed' at the prior 12600 breakdown point at 12600. It was a beginning of the week tip off that the rebound was running out of steam.
IBM is a current S&P bellwether and mirrored the price action described in the Dow; its weekly chart is seen next. $195 formed a line of prior highs that, once pierced, could have offered support on the pullback. NOT! In terms of lower support, $180 is the current intersection of this bellwether stock's major up trendline; this chart is one to follow in terms of whether potential trendline support holds up.
As to the Russell 2000 (RUT), sometimes this Index is quite good at forecasting what happens with the overall market. The RUT Head & Shoulder's top pattern I highlighted last week suggested that there was considerable more downside there. I couldn't quite reconcile its more bearish pattern with what I was seeing as possible lows forming already in the S&P and Nasdaq. You'll see this chart in its usual place at the end of my regular Index commentaries.
A bearish contrarian aspect is seen in the fact that bullish sentiment didn't drop all that much this past week. It could just be that the job creation numbers were expected to be good and there wasn't a lot of put buying to hedge stocks ahead of the report. Or, traders are complacent that stocks will recover soon. This coming week may tell more on that front.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
1300 support gave way in S&P 500 (SPX) but the decline from recent highs started at the beginning of this past week so it shouldn't have a been too much of a surprise. When SPX couldn't get back above 1340 resistance, the path of least resistance was down.
Once again SPX has fallen below its 3% lower envelope line and is another way of seeing that the Index is oversold. The dip in the Relative Strength Index (RSI) to below 30 again says the same. This doesn't mean that there won't be a further decline but possible further downside could be more limited from here. A bearish note that will reverberate in the market is the Close below the 200-day moving average, suggesting a possible starting shift in the long-term uptrend.
I found it noteworthy that bullish sentiment didn't really tank as much as prices. In a contrarian sense, this suggests that SPX has further to fall. How much further?
I've noted anticipated 'support' in the 1260-1258 area, same as last week, which was my bearish take then on a possible next down leg based on 1258 representing a Fibonacci 61.8% retracement of the last advance and the bearish look to a possible up sloping 'bear' flag pattern. 1245 is highlighted as a potential target or next 'support' so to speak as this level represents a 2/3rds or 66% retracement of the late-November to late-March advance.
Near resistance is noted at prior 'support' at 1300, with next higher resistance at the prior 1335 upswing high. You could as well now point to the 200-day moving average (currently at 1284) as a very near-term resistance.
S&P 100 (OEX) INDEX; DAILY CHART
Last week, while thinking OEX might have put in low, I also noted that "I'm not ruling out another retest of 590 and the potential for a further shot down to 584-580 support." I also wrote that a prior buy of the Index when it dipped below 600 wasn't a "bad move on a 'risk to reward' basis". But, the 2nd shoe dropped given the scare of a double dip recession given the jobs numbers.
OEX fell to below suggested support at 590-591 in OEX, but not to next lower support estimated for 584-580. We have an interesting different position of the big-cap S&P 100 Index in that OEX hasn't fallen below its 200-day Average unlike the more inclusive S&P 500.
What happens to OEX (and big cap Nas 100, NDX) in regards to the 200-day moving average may provide a clue to potential for the overall market to stabilize. If OEX doesn't also achieve a decisive downside penetration of the 200-day average like the larger S&P and Nasdaq indices, this suggests that could hold at or above 580. If 580 is penetrated, OEX may see 570.
Near resistance is down to 590 this week, which was seen a prior support; next resistance is then suggested in the 600 area.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
After the sharp panic dumping of Dow 30 (INDU) stocks this past week, there are few INDU stocks still in strong up trends; I'd count only DIS, HD, T, WMT and VZ as in that camp, with 2 more, KFT and KO, holding up fairly well so far. Fundamentally it all comes down to whether there's might be the dreaded 'double dip' and it ain't ice cream.
Some stocks will do relatively ok even in a downturn. Car company sales have held up quite well so far, but if consumer confidence takes a nosedive consumer spending may also take a fall. Oil prices are sliding lower which helps on fill ups but people have to have money coming in also of course.
I wrote last week that "It still remains for the Dow to make a move above near resistance at 12500-12560. I was a little low on the KEY resistance, as it was more like 12600. I'm a big advocate of watching hourly chart action (in addition to the daily and weekly charts) and it was clear on a 60-minute intraday chart that the Dow was topping out early in the week.
I also noted "the possibility that INDU will fall to the 12000 area" and I've still got 12K as next potential support. Stay tuned on that. Next support then looks like 11900.
Resistance levels were the ones needing serious revising and what was support at 12400, now is seen as a first key resistance; next resistance then looks like at and just under 12600.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart is bearish and with what looks like the start of a new down leg below 2800. With the weak close at intraday lows and to below COMP's 200-day moving average, my lower target for COMP in the 2700 area now looks like it could be realized. I've suggested potential support for the 2700-2670 price zone.
Near resistance is at 2800, 2850 and then back at the prior recent highs at 2873-2882.
COMP is of course again showing an oversold RSI extreme which warns of the potential for an oversold type rebound or just a leveling off of prices, maybe after another dip. It's hard to say where this current decline will end. 2704 represents a Fibonacci 62% retracement of the late-November to late-March advance; another common retracement when prices slip a little beyond the 62% level is for a 66% retracement, which for COMP would be to 2671.
Beyond and below 2670 and a 2/3rds retracement, I start thinking of the possibility for a round-turn 100 per cent retracement back to the late-Nov lows around 2440. I don't figure COMP will retreat this far since the market has likely over-reacted, but of course the market may (also) be right on this possibility.
As I noted with the S&P, I was a bit surprised that bullish sentiment didn't fall further than it did this past week. This coming week should tell us more. Further weakness should bring in more put activity in equities and lower my CPRATIO further.
The 13-day Relative Strength Index (RSI) as seen above and below hit a 'fully' oversold extreme. On an 8-week basis (not shown here) the recent RSI low in COMP and NDX was just over 30; low, not quite as 'extreme' on a longer-term chart basis.
My sentiment indicator seen above bottomed in an almost 'classic' leading indicator manner, just BEFORE there was a rebound once the Index found some support.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index had a pattern of possible completion of an 'a-b-c' or down-up-down correction. 'Possible' turns out to the operative word. I wasn't anticipating a big further decline and that was, how should I put it, WRONG! Like the market itself pretty much, I didn't put a lot of thought into how quickly US economic contraction might show up on THIS side of the pond; unless recent numbers are a fluke. But recent jobs numbers could be part of a US slowdown trend which is what is being priced into stocks currently.
I did temper my view (last week) that one more decline, such as one that carried to as low as the 2400 area, would be a possible buying opportunity, with a favorable risk to reward; as in 'risking' to 2350, with a target back up to 2600-2630. That's still pretty much my view.
I'm watching also to see if 2435, at the current intersection of the 200-day moving average, is going to contain further selling. As I say about the Russell 2000 as the bellwether it seemed to be as its chart pattern was suggesting a deeper down leg, the ability for the big cap NDX (as well as the big cap OEX) to hold the area of its 200-day moving average, may suggest that the recent decline is nearing completion; at least for now.
I've noted NDX 'support' as potentially at the 200-day average at 2435, extending to the 2400 area. Near resistance now looks like 2500, then around 2540-2545, extending to the recent 2570 high.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) is bearish on an intermediate term basis. This most recent sell off brought in a jump in daily trading volume and suggested that there were further holders of the stock that were bailing. On Balance Volume (OBV) continues to fall, consistent with prices.
I've noted resistance on the QQQ chart at 61.6 and at 63, where the current 21-day moving average comes in. Between 61.6 and 63, I anticipate resistance around 62.6 also (not seen on the chart)
Support is suggested potentially at the 200-day moving average, currently intersecting at 59.8; next support is estimated at 58.8, representing a Fibonacci 62 per cent retracement of the run up from late-November into early-April.
RUSSELL 2000 (RUT); DAILY CHART:
For the past two weeks and now for a 3rd, I've shown a Russell 2000 (RUT) Head and Shoulder's top pattern along with the 'minimum' downside objective suggested by the break below the 785 'neckline'. The last rally back toward this line of resistance failed and the Index retreated to new lows for the move. I've estimated next support for the 734 area.
A target for the H&S top is for the 722 area. RUT had the clearest indication of not only a top but a suggestion in that top formation for a 'measured' target substantially lower than I would forecasted based on chart patterns for the S&P and Nasdaq. This isn't unusual for the indexes as there is often one (the Dow, the Nas 100, etc.) major Index that shows the 'way' things will or could go; suggesting a beyond what is commonly expected.
RUT upside resistance I noted last week for the 770 to 780 area turned out to be where increasing selling came in. I've lowered what I think is near resistance now to 760, extending to 765 but should also note potential resistance at the 200-day moving average, currently intersecting at 756.
RUT doesn't often fall to oversold RSI readings (see above) below 30 on a 13-day basis but it's nearing that again. The fact that the RSI is higher than it last was when prices were also higher is interesting; in a 'normal' market this pattern could be a bullish divergence. I point this out but prices have to level off to suggest this potential. Stay tuned.
It is remarkable how often downside objectives are met or exceeded based on the formation of a Head & Shoulder's (H&S) pattern. At a minimum, this type 'triple peak' formation suggests a significant top. Hey, we're in the summer doldrums. It's equally amazing that 'sell in May and go away' continues to reward. It should actually be 'SHORT in May and go away' or watch from afar, like the beach.
GOOD TRADING SUCCESS!