THE BOTTOM LINE:
This past week's correction took all the major indexes under support implied by long-standing up trendlines. The charts suggest there's more downside ahead but not necessarily a major rout.
Most of this week's commentary is part and parcel of the various individual index commentaries seen below.
This past week's correction not only led to a decline from the area of prior highs, at least in the case of the S&P, but all the major indexes closed UNDER their up trendlines; this isn't quite true in the case of the Nasdaq 100 (NDX), in that its Friday Close was AT its up trendline.
I anticipate potential further weakness; e.g., to a test of 1400 support in the S&P 500 (SPX), 650 in the big cap S&P 100 (OEX), possibly back to the 13000 in the Dow, perhaps to a retest of 3000 in the Nasdaq Composite (COMP), to the 2600 area in the big cap Nas 100 (NDX) and to around 800 in the Russell 2000.
It's quite common for a market correction to have a down leg (part 'a'), a rebound ('b'), followed by a 'c' wave decline that carries further than the first down leg. Near-term the major indexes are oversold and it won't be surprising to see a rebound that develops in the early part of the coming week.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The rally in the S&P 500 (SPX) back to prior intraday highs quickly reversed and was followed by a decisive downside penetration of the key 21-day moving average, typically a sign that a full-blown correction is underway.
A decline to below the low end of the long-standing uptrend channel followed at week's end, turning the chart intermediate-term bearish. October is a common period where there's a seasonal tendency for a correction, especially when the market has had a summer-early fall rally.
Now that 1440 support has been pierced, next support is in the 1420 area, extending to 1400.
Near resistance comes in around 1450 at the current 21-day moving average; next resistance extends up to the 1470 area again. The RSI could fall lower before suggesting an EXTREME oversold condition. Bullish/bearish sentiment suggested by my CPRATIO indicator is back to a neutral reading.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) has turned near to intermediate-term bearish. The long-term trend remains UP as long as the prior downswing low at 642 doesn't give way with a Close below this prior swing low; especially not for more than a single trading day.
I wrote last week that "The pattern in OEX looks like there could be another decline ahead and one that could carry further than the last sell off from 676 to 660." Well, I also thought that the 660 area would offer support but it didn't so far. I see further bearish possibilities, such as OEX dropping to the 650 area or perhaps to the low-640's.
Near resistance comes in around 667, at the 21-day moving average and at the previously broken up trendline as, what was support, once penetrated, tends to 'becomes' subsequent resistance; this is a well-known technical (analysis) observation or principle.
Big cap IBM has been a key Dow and S&P bellwether stock and I wrote last time that IBM should hold above 210 to suggest that OEX would stay on its prior bullish track. IBM closed the week at 207.8
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) turned bearish with its decline under its 21-day moving average; however, the Dow to date is holding at/above its 50-day average. I anticipate near resistance at this trendline which currently intersects at 13400; resistance then extends to 13500 at the 21-day average. Fairly major resistance then comes in at 13600-13650.
Near support and one that looks like it could be tested, is 13250 with a next identifiable support well under this level, in the 13000 area.
All the prior 'powerhouse' Dow stocks have had or are in corrections except key 'bellwether' IBM, but its showing a possible double top. MRK and PFE haven't given much ground, nor has TRV, WMT and XOM. But these few bull trends are down from 17 that were in strong to moderately strong uptrends last week.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) finally fell below its prior well-defined broad uptrend price channel so the chart has turned bearish as long as the Index doesn't rebound back above the up trendline. I noted last week that the tech-heavy Nasdaq "not only might decline further but dampen the current strong S&P uptrend." True as written so far.
Key near COMP resistance is now down to the 3100 area, with next technical resistance coming in around 3150.
Pivotal support in the Composite is at 3000, extending to the 2950 area.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index has fallen TO, but isn't yet BELOW its prior up trendline. I'd rate the chart as near-term bearish, not yet in that condition on an intermediate term basis. A couple of Closes below the (lower) up trendline would turn the chart to a further bearish hue.
As I noted last week, "The pattern traced out by NDX looks like a possible down-up-down (or 'a-b-c') formation; i.e., a first leg down, a weak recovery rally and the expectation of another downswing." After a second downside price gap, the second decline got underway. The pattern relative to a second down leg is often one that sees this sell off carry FARTHER than the first. Watch the highlighted up trendline, intersecting currently around Friday's Close at 2720, for support or the lack of it.
2700 is next support (below the trendline), extending to 2650. Resistance is at 2750, extending to around 2800 and the top of the last (downside) 'gap' area.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
In an interesting turn of events, the up trendline I've been highlighting with the Nasdaq 00 tracking stock, UNLIKE the underlying NDX index, HAS been penetrated. Next technical support looks like 66 even with fairly major support at 64 even.
Near resistance in QQQ is highlighted at the previously broken bullish up trendline at 68.2, with next resistance at 68.7, and fairly major resistance coming in just under and at 70 even.
On Balance Volume ('OBV') has been 'confirming' price weakness by OBV falling for most of the period since a series of intraday tops formed just over 70.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart is bearish as RUT has fallen under its internal up trendline. There's only been one Close below this bullish uptrend line and given a short-term oversold condition shared by the other major stock indexes, RUT could bounce back above its (up) trendline. If RUT continues weak, RUT should reach technical support in the 820 area or more pivotal support at 805-800. Near resistance is down to 840-845.
RUT is nearing an oversold extreme as suggested by the 13-day Relative Strength Index (RSI). RSI when at a low oversold type 'extreme' (35-30 and below), is a better predictor of a potential bottom in RUT (and all the major stock indexes), then is an 'overbought' (high) RSI reading.
GOOD TRADING SUCCESS!