THE BOTTOM LINE:
The correction came sooner rather than later this time. A bear flag pattern that's especially apparent on the daily Nas 100 (NDX) chart seen in that commentary suggests a further decline ahead. This is the shorter-term picture. Long-term charts remain bullish.
I featured the long-term monthly chart of the S&P 500 (SPX) last week but the month wasn't over with yet and with the weakness of last week, September didn't finish out quite as bullish as seen in the snapshot of that chart a week ago.
Nevertheless as can be seen on the updated monthly SPX chart here, September saw a substantial bullish breakout above prior (monthly) highs.
While the S&P charts don't have the same 'bear flag' outlines, it's often the case that one market will trace out the more defining chart pattern. And, if Nasdaq heads lower, such as to near 2700 in NDX based on the measuring implication of the aforementioned flag pattern, the S&P isn't going to just go its separate way.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
After drifting sideways for more than a week in the 1460 area, the S&P 500 (SPX) starts its 'overdue' correction; overdue that is based on a long-standing overbought extreme as was being seen with the 13-day Relative Strength Index (RSI) indicator.
I did note last week that "If the Index starts closing much under 1460, this suggests a test of 1440 support; lower technical support implied by the up trendline is in the 1410 area." This week the 1410-1400 area looks like a potential downside objective. 1420 is support implied by the current intersection of the up trendline.
Key overhead resistance is at 1460 and extends to around 1475. Major resistance begins in the 1500 area and extends to 1550.
INDICATORS: The 13-day Relative Strength Index (RSI) seen above is now down to 53 and a 'neutral' reading. I think we'll see RSI falling still lower, such as closer to an 'oversold' level.
My bullish/bearish sentiment indicator continues to fall on a 5-day moving average basis. This suggests to me that the Market is not going to have a major decline. The peak recent CPRATIO reading from mid-September did occur ahead of an actual correction setting in, which is typical of this 'leading' indicator.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) remains within its bullish uptrend channel but is in a short to possibly intermediate-term (2-3 week) correction. To date in the current correction, the 21-day moving average has represented key near support as can be seen on the chart. A first indication of further weakness would come from a decisive downside penetration of this key trading average.
Near support is at 660-658. Next technical support should come in around 650, with support extending to the 642 area. I think a correction could wind up with a low near 640.
Resistance is apparent at 670. A couple of closes above 670 would suggest that OEX could challenge its recent intraday high at 675. Major resistance comes in around 690.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) is correcting along with the rest of the market. After repeatedly churning around in the 13600 resistance area, INDU finally succumb to selling pressures and fell to 13400 support. Next lower support looks like 13290 at the current intersection of the up trendline. Support extends to 13200, with major support beginning at 13000. A dip to the 13200 looks possible.
Resistance is in the 13600-13650 price zone. If INDU got up through this resistance, there could be a move to 13800-13900, which would put INDU closer to major resistance around 14000 and the area of the October 2007 top.
I see more likelihood of further near-term selling pressure than a sizable new up leg. There are however around 11 of the 30 Dow stocks still in strong uptrends, so I don't rule out an upside surprise either. I'm basing ideas of further weakness more on what I'm seeing currently with the Nasdaq index chart patterns.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) is in correction move and the decline below the 21-day moving average, with resistance now seeming to come in AT this key average, suggesting there's a second down leg coming. Downside objectives based on a bear flag pattern measures to the 3050-3020 zone. 1320 is support implied by the current intersection of the up trendline. 1300 is fairly major technical support.
As I wrote last week about the Composite: "It's also true that COMP appears to be hitting resistance at the upper boundary of its uptrend price channel." This was seen on the touch to resistance implied by the upper trend channel line; i.e., at the 9/14 intraday high at 3195. Resistance is at 3195-3200. Fairly major resistance then looks like 3250 currently.
INDICATORS: The 13-day Relative Strength Index (RSI) seen above is now down to 50 and a 'neutral' reading. I think we'll see RSI falling still lower, such as closer to an 'oversold' 35 level.
My bullish/bearish sentiment indicator continues to fall on a 5-day moving average basis. This suggests to me that the Market is not going to have a major decline when looked at in terms of contrary opinion analysis. The peak recent CPRATIO reading from mid-September occurred ahead of an actual correction setting in, which is typical of this 'leading' indicator.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index turned short-term bearish after intraday highs repeatedly hit technical resistance implied by the upper trend channel boundary which was THEN was followed by an overnight downside price gap. Not surprisingly, prices accelerated to the downside with a minor rebound that followed.
The overall daily chart pattern however now looks like a bear flag as I've highlighted on the NDX chart. This pattern suggests further weakness to come such as a test of support at the up trendline currently intersecting around 2738. If there's a move to this area stop-loss type selling could carry prices under the trendline but I'd be watching to see if NDX Closed back above its up trendline. NDX bellwether Apple Computer, symbol AAPL (not shown) has the same bear flag pattern as NDX which is not surprising.
Near resistance is at 2830, with next resistance at 2870. Major resistance begins around 2950 and extends to the important 3000 level; important technically and chart-wise from being a big round 1000-level number.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
I wrote last week, that "NDX and QQQ remain vulnerable to a correction ahead, ranging from a sideways move to more of an actual retracement of the last run up." More of a retracement than sideways is how it's played out this past week. The Nas 100 tracking stock reflects the same bearish chart picture as NDX. QQQ's bear flag pattern suggests a potential downside objective to the 67 area.
Near resistance is at 70, extending to 70.5. Very near support is at 68.0, with lower trendline support in the 67.2-67.0 area.
The recent decline has been on low volume. Look for volume to jump if there's a plunge below 68. Such a spike in volume could set the stage for a rebound.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart has turned bearish near-term, albeit still within a broad uptrend channel. RUT looks poised to fall further, such as to a test of technical support implied by RUT's up trendline, currently intersecting around 815. Support then extends to 800.
Near resistance is at 842, with next resistance back at the 860 level.
GOOD TRADING SUCCESS!