THE BOTTOM LINE:
The Nasdaq is seeing a full-blown downside correction, whereas the S&P and Dow, not so much! It looks like some more to come all around but the tech-heavy Nasdaq should be weakest still. I will note however, that the Nas Composite (COMP) has already touched my prior week's forecasts for retreat objectives as COMP got to 3000.
Speaking of the Composite, Nasdaq indices reversed this past week in areas they should have sailed through. Especially so since the S&P and Dow had previously tested and held key technical supports implied by up trendlines and at the important 50-day moving average.
However, Nasdaq pointed to the downside reversal that it got socked with by failing to penetrate the key 21 and 50-day moving averages. You can compare the COMP daily chart here to the S&P which is shown next and starts my regular stock index commentaries.
COMP rebounded into mid-week, which was the short-term oversold rally that was due. Note the area that the Tues-Wed-Thurs highs could not penetrate: the two moving averages. This suggested that the S&P 500 (SPX) wasn't going to gain further traction either. SPX didn't fall as much as the two markets occasional divergence continued.
The Thursday Composite Close was a 'weak' two-day bearish reversal. Friday then brought COMP's decisive downside penetration of the up trendline and a fall all the way to the pivotal 3000 level. Thanks, Google!
My underlying perception of where things stood technically I summed up last week as the following:
"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."
I also suggested (last week) that:
"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."
We got the rebound and another part of an expanded down leg but it remains to be seen if some of the other targets I was playing with are reached; e.g., 2950 in COMP, the 1400 area in SPX; back to the low-13000 area in the Dow. The Nas 100 (NDX) could fall to 2660-2650 or to the low-2600's. These are sort of 'maximum' pullback targets based on the current chart picture. The Market is still in a long-term or primary uptrend. But October is well-known for some gusts and gales, especially after a summer rally.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The further dip below the S&P 500 (SPX) up trendline is bearish and suggests a loss of upside momentum that will continue to be felt ahead. The bulls best case forward would be for SPX to rebound quickly back above its up trendline and the 21-day moving average; a move above 1445 on Monday would do that.
The chart pattern suggests further weakness is in the cards. SPX would be doing its bullish best to hold above its 50-day moving average; a moving average that portfolio managers take note of.
Near support looks like 1420, extending to the 1400 area and an area where SPX might reach a 'fully' oversold extreme again. Such these low points have been few and far between with the 13-day RSI indicator. Oversold RSI readings have been associated with correction LOWS and subsequent upside reversals.
Near resistance is at 1445-1450, then in the 1470 area.
Bullish sentiment has been falling; no surprise there.
The level of bearishness that suggests the seeds of the apparent opposite hasn't yet been reached. Traders are cautious but still not overly bearish as the US economy continues to do better.
S&P 100 (OEX) INDEX; DAILY CHART
I thought last week that the S&P 100 (OEX) had turned near to intermediate-term bearish. The technical 'proof' of that came with OEX's fall to below its up trendline on Friday. Over time I think there will be some further weakness based on the possible topping pattern that's been traced out for a few weeks now as OEX has drifted sideways to lower, without enough buyers to push the Index above persistent resistance in the 670-676 zone.
Unless the big cap S&P 100 can get back above its up trendline intersecting currently in the 660 area, more weakness ahead is suggested. Technical support looks to begin at 650 and extend to 642-640.
Resistance at 660 extends to 665 on up to prior recent highs in the 672 area.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) turned bearish with its decline under its 21-day moving average (not shown) with the Average then falling below the pivotal 50-day moving average by week's end. If the Dow doesnâ€™t' rebound soon and to above 13400, more weakness looks likely.
Initial resistance is seen around 13400, then next in the 13600 area.
Technical support, below recent INDU lows around 13330, is highlighted (green up arrow) in the 13200 area. Fairly major support begins in the 13050-13000 area.
12850, if reached, would represent a 50% retracement of the June-Sept advance. I'm not currently expecting that much of a pullback but a decline to this area still only represents a 'nominal' correction.
There are only around 7 Dow stocks that I'd still be comfortable owning based on still-strong long term uptrends; e.g., HD, JNJ, KFT (probably), MRK, PFE, TRV and WMT. That's a small number to power the Dow to more than a short-term rebound in the coming week.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart turned 'suspect' so to speak when the Index failed to get back above 3100 for more than a day. COMP's chart turned bearish on its downside penetration of its up trendline that intersected in the 3055 area. This break of technical support now suggests that 3055 has 'become' a first resistance hurtle. 3100 continues to look like the key level as a move above this pivotal level is needed to suggest the potential for a bullish turnaround in the next 1-2 weeks.
Near support is at the psychologically important 3000 level, then at 2962, extending to 2950.
We're seeing what I think is an intermediate-term correction only. It would take a decline to below the 2800-2740 lows of June to suggest that the long-term trend had turned bearish.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index chart is bearish. A key technical development was NDX's decisive downside penetration of its up trendline. NDX would retrace 50% of its June-Sept advance at 2660. It took 15 weeks to take NDX up 420 points, but only about 4 weeks to give (approaching) half of that back. Old trader's saying: "they slide faster than they glide!".
I've calculated support in the 2660 area, extending to 2610-2590. If the Index got back to the 2600 area, I'd favor ATM calls on a risk to reward basis; thinking upside on a bounce back rally at 200 points versus a risk of 50 points, to 2550.
Near resistance is at 2736, back at the previously pierced up trendline, with next resistance suggested around 2780, up to 2800.
The NDX daily chart pattern looks like a pretty sizable top. I was seeing that with Google (GOOG) as its rally traced out a parabolic arc; when GOOG's monster rally put its price chart 'vertical' within a circular arc, it was look out below per the chart illustration in my Trader's Corner article posted 9/25/12
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock's (QQQ) recent low formed a 'final' up trendline so to speak as one with the lowest (upward) slope. If QQQ has perhaps bottomed, I'd anticipate that the stock has reached support already; i.e., at 65.6, with more significant technical support likely if QQQ got to 64.0
Near resistance is suggested in the 66.5 area, then at 68.
As is the pattern with a stock representing the 100 companies in the Nasdaq 100 Index, volume JUMPED on the recent weakness as holders of the proxy stock sold fast and furiously. Have we seen a so-called volume climax, suggesting QQQ has hit bottom for now? Hard to say. I'm watching as to whether there's a bounce from the 65.6 area. There 'should' be, but stay tuned on whether 64 is instead a further downside possibility.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart remains within its broad uptrend channel on the pullback to date. Very key support is at hand, in the 820 area. A move well under 820 suggests further weakness to come such as to 800 at a minimum. In the 800 area, RUT would complete a 50% retracement of its early June to mid-Sept advance.
RUT's intermediate-trend is up. A break down below the low end of its uptrend channel turns the chart bearish. A Close below 768 would turn all but the long-term trend bearish.
Near resistance is at 832, extending to 843.
GOOD TRADING SUCCESS!