THE BOTTOM LINE:
After the first upside price gap off the bottom, there have been two further (upside) price gaps with the Nasdaq Indexes and the Russell; unlike the S&P which follows a different accounting for 'Open' on stock prices with early order imbalances. The Nasdaq upside price gaps on those charts suggests bullish strength for the rebound off the mid-November low and that this rally looks to have 'legs'.
I also had good confidence in the mid-November low being a place where the 8-week decline could end as the retracements in the S&P ended after giving back 62-66% of the June-Sept advance. Retracements of 50 to 62-66% are fairly common in the indexes, especially after being preceded by a prolonged advance. Moreover, as I tell trader's frequently, if we all just waited for the few times a year when the 13-day RSI in the major indexes was at or above 70 (short stocks/buy puts, etc) or at or below 30 (buy stocks, calls, etc), we would trade a lot less and enjoy the outcome a lot more. You'll see with the RSI relative to the price charts how well this worked for taking a major position when the RSI last met such highs or lows.
I wrote a Trader's Corner article that got e-mailed out yesterday (Friday) evening and it was all about price gap analysis. At times overnight chart gaps not only suggest initial and then gathering strength but also can suggest when an overall move might be about half way along. If you can estimate half way in a move from a starting point, this in turn suggests an ultimate or interim price targets for the indexes. Valuable stuff at times!
I'll go into some of the things worth pointing out about upside and downside price 'gaps' with the Composite and Nas 100 daily charts further on. Such gaps occur from one day to the next on overnight news or news coming after the Market Close.
MY BULLISH/BEARISH 'SENTIMENT' READINGS
My desktop PC somehow 'ate' a year and half's worth of my daily "CPRATIO" figures; i.e., my daily ratios of CBOE equities-only daily call to put volume. I divide total call volume INTO daily put volume to obtain a whole number and so that the resulting oscillator works the SAME as other overbought/oversold indicators such as the RSI; i.e., a low CPRATIO number, like RSI, etc. is 'oversold' and a high number 'overbought'.
The numbers for this past week show some caution on further buying which should help keep this rally going but you won't see my Sentiment indicator with the usual charts. Not your problem, except that eagle eyed readers of this column will notice that my Market 'sentiment' indicator, for this week only, is not part of my S&P 500 and Nasdaq Composite charts.
A background note: I input my call to put ratio value for all trading days by hand after dividing the numbers daily. My CPRATIO indicator data will have to be pulled another day from my (back up) laptop in a somewhat distant location AND from re-calculations of a few weeks from the CBOE web site. This reminds me AGAIN of the importance of doing a weekly back up of all key data as well as my operating system and all apps.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart action is bullish as the index continues in a substantial rebound after completing a Fibonacci 62% retracement of the June-Sept advance. Moreover, the oversold 'extreme' that had registered with the 13-day Relative Strength Index indicator suggested high-risk for an upside reversal in SPX for those holding puts and in bearish strategies.
I've highlighted with blue up and down arrows both the last bearish RSI and high extremes and the more recent bullish RSI and price lows. These extremes closely marked intermediate reversals. In the case of the first High, it would have been necessary to be out some weeks in calls in a buy and hold strategy. This is typically the case with tops as they usually take time to 'build', versus the tendency for V-bottom (sharp reversal) lows as a result of panic type selling in a more condensed time frame.
SPX is at a down (resistance) trendline; added to this aspect is some other technical resistance suggested around 1420-1421. If SPX knives through this area the index should test further resistance around 1430. Fairly major resistance then begins in the 1460 area, extending into the 1470's.
Near support looks like 1390 with next and pivotal, support at 1360.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart has the same bullish features with retracement and RSI extremes having suggested relative low-risk in a counter-trend trade. Since I consider the longer-term trend to have been up/bullish, buying calls and the like was counter to the prior intermediate-term trend only. I like buying 62-66% retracements when the RSI gets to a low extreme. Also, bearish sentiment should build up at the same time, which it did.
It was helpful also, in trading OEX options to have S&P 100 big cap bellwethers like IBM and GE get to technical/chart support areas and start rebounding. GE support looked like it should come in around $20 and $185 in IBM. IBM on a weekly chart basis looks bullish above 190.
I've highlighted support levels at 635, extending to 627. Fairly major support begins around 620 and extends to 616-612.
Nearby resistance is at the down trendline; I didn't note its level of intersection on the chart, which is 647 currently. Resistance on a trendline breakout then comes next at the 50-day moving average, with pivotal resistance beginning at 660.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) Average also completed a bullish turnaround, along with the S&P indices. But I also anticipate a 'lagging' Dow as a bunch of the 30 stocks have more sideways than up patterns; the exceptions, those in still-strong uptrends are the usual 'suspects' of HD, KFT, PFE, MRK, TRV, XOM and maybe a few others that look 'Ok'. There aren't enough INDU stocks in strongly bullish patterns to suggest the whole market is in gear, especially with the monster-cap institutional Dow favorites.
About retracements: INDU went beyond a 66% retracement, but its next lowest Closing Low was a 69% retracement so that wasn't very much slippage. As I note on my Dow chart below, final waves of selling will cause some slippage below any obvious support(s) such as to a 2/3rds retracement in this case. With the Dow its apparent buying came in at a cluster of June intraday lows. At the same time the Relative Strength Index finally fell to what I consider (most reliably) to be an oversold 'extreme'.
There's significant INDU resistance from 13050 on up to 13200, extending to around 13300. If the other indexes stay up and keep moving higher it should pull INDU higher too.
Near support is at 13000-13050, then at 12800. Fairly major support begins in the 12600 area.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq chart is in a bullish rebound, within a still-bullish long-term trend. The Nasdaq indices nearly completed round-turn 100% retracements back to their June lows. "Nearly" is the operative word here. Not surprising that tech stocks are leading on the upside currently after Nasdaq indices fell the most.
With the way the Nasdaq indices are priced at the Opening, there are more upside and downside 'overnight' gaps that occur. So-called narrow 'common gaps' aren't much to get excited about. A prolonged sell off, followed by a rebound which in turn is followed by a SIZABLE upside price gap is technically a strong 'reversal' pattern. This first big upside price gap is sometimes called a breakaway gap as prices break sharply higher.
To then suggest a CONTINUED strong bullish trend, what I anticipate seeing next after the 'breakaway' gap is further upside price gap(s). Sometimes such an additional gap may turn out to be so-called measuring gap, suggesting a gap coming about mid-way in an overall move.
I've highlighted and explained some gap patterns, both on the downside and the upside on the COMP chart. The widest bearish downside chart gap (from 3000 to 2977) in COMP is nearly midway to the bottom as measured from the initial downside gap to recent low Closes around 2850. COMP may be headed to at least 3100 on this rally if a similar pattern on the upside is seen.
Near support is at 2940, then at 2992, both at the low end of upside price gaps that could now 'act as' support. Near resistance comes at the 50-day moving average, currently at 3023, with resistance extending to 3050, then to 3100.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index is in a strong bullish recovery and I've highlighted some more on the possible influence of upside and downside gaps that have come before. I assume completion of the last downside move. To give an idea of possible strong further upside in the big cap Nas 100, we've seen further upside price gaps and may see more.
NDX has already jumped over potential resistance at what is highlighted at the prior downside ('measuring') at 2650 on the low side of the gap. The gap up to a 2615 low set the stage for the strong extension of this past week's move. When you see gaps forming on one side of the market, this pattern is speaking to you about the trend.
Near resistance in NDX comes in at 2700, then at 2750. Fairly major resistance is implied just over 2800 at the downside 'breakaway' gap seen back in early-October.
Very near support looks like 2650, then as noted at 2615-2600, extending next to the 2550 area.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock's (QQQ) is also in a bullish recovery move. It now seems more certain to me anyway that the pattern of above-average volume days was a "volume 'climax'". As I wrote last week: "The volume pattern in the Q's almost always is above-average HIGH volume at lows, as traders jump out of fear and not from buying at perceived lows."
I anticipate further upside in QQQ, but there is also resistance in the 66 area, with next resistance just overhead, at 66.5. Even more significant (i.e., tougher) resistance comes in around 68.0.
Technical support is still noted at the low end of the last upside chart gap at 64, with next technical support suggested in the 62.5 area.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart is bullish and RUT broke out above a well-defined down trendline with another bullish upside chart gap. I anticipate higher levels with the chart pattern I'm seeing currently.
Near resistance comes in around 831 and extends to 840-842. A move closer to 860 is a measured move objective where a second up leg at least equals the first up leg.
RUT saw an important 765 double bottom low set up, suggesting a low-risk bet on the upside at that point.
Near support again comes in 800, with next support in the 780-777 area, which was the initial upside reversal type gap event, or what I've also been calling a bullish 'breakaway' gap.
GOOD TRADING SUCCESS!