THE BOTTOM LINE:
The recent rebound to just over 1670 in the S&P seemed to have more to do with short-covering than a hoard of eager new buyers after such a prolonged run up. Friday's Close at its Low is a common bearish omen.
The drop this past week tends to 'confirm' the downside reversal pattern seen with the sharp intraday slide week before last. The downside reversal pattern I'm speaking of in week ending 5/24/13 is one proven reliable in identifying a high likelihood that a significant pullback is beginning. So-called 'key' trend reversals tend to have three key components technically:
1.) There's a price reversal pattern after such events as hitting a strong prior resistance overhang or after what we saw 5/22 in a key downside reversal of the S&P (500) making a pronounced new high (after a long advance), followed by intraday price collapse and a Close below the prior 1-2 days' Low(s).
2.) An overbought or oversold high (or low) extreme in the Relative Strength Index (set to length 13 on daily and weekly charts) and where there is also ...
3.) 'Excessive' bearishness or excessive bullishness; by excessive I mean that the expectations for a further decline OR the expectations for a further rise are UNREALISTIC at some point. The Market almost always over-'reaches' such as by going to a higher high than can be sustained for long.
Traders have gotten caught up recently in high bullish expectations as in the recent instances of high call/put readings you'll see on my first chart (SPX). With SPX a decline to the 1600 area would just carry back to the current up trendline. As some point the major indexes track back to the mean.
We're still in a long-term bull market but seasonally we are now also into the more volatile summer period of sometimes low volume and high volatility. The trend looks to be sideways to lower for awhile longer.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) continues in its near-term bearish pattern and has on its most recent fall gotten back into its uptrend channel showing visually that the Index has fallen back to its prior average rate of gain. The top end of the prior bullish channel now is highlighted as immediate overhead resistance at 1670. 1687-1700 is a likely next strong resistance.
If SPX retreats to the lower end of its broad multimonth uptrend channel as seen below, the Index could work back down to the 1600 area. I don't see worst than this currently.
Bullish sentiment as seen above shot up sharply on Thursday putting my CPRATIO back to what I consider to be a type of 'overbought' extreme; a different kind of extreme than with peak RSI readings but still reflecting a type of extreme of too many people getting on one side of the market. This usually won't be sustained for long.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) broke also has fallen back into its uptrend channel of old making it look like the accelerated rise into a high near 760 was a 'blip' in that the big cap S&P 100 wasn't going to sustain such an increased rate of upside gain.
The path of least resistance now is even more 'confirmed' so to speak as to the further downside path ahead given the bearish Friday Close on its intraday Low and decisive penetration of the 21-day moving average.
Downside potential looks it could easily extend to the 720 area and a test of the long-standing bullish up trendline. I expect good support will be found on a retreat to the 720-716 area.
Should OEX rebound near-term, key resistance or the most telling resistance is at 745. A close back above the upper trendline suggests the near-term bear trend won't play out here. What I least expect currently. Currently, strongest resistance looks like it would be back in the area of the recent 757 high; call it pivotal resistance at 757-760.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
After the Dow 30 (INDU) hit resistance at its well-defined uptrend price channel the first time, it was sideways to downhill after that. Short-term the chart is bearish, within a still bullish intermediate and long-term up trend. INDU could retreat to the 15000 area and still be holding its up trendline. Next support, should the support trendline be pierced beyond a day, is in the 14850 area. Major Dow support comes in around 14500.
Key upside resistance is at 15500-15550. I see more downside potential than for a rapid rebound in the Dow 30. However, if the Average finds support around 15000, it's still within a powerful advancing trend.
Seasonally, some back and forth price swings without big upside or downside follow through would almost be the 'norm' for the summer doldrums period ahead. And a sideways 'time' correction would throw off the overbought condition that's even more extreme when looked at on a 13-week basis. Summer could 'cool' the over-heated bull even though temperatures go way up!
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) is mixed in its pattern. Mixed in that while not breaking below the bullish (higher-angle) trendline traced out in its recent accelerated advance, COMP falling much lower ahead tips its prior rate of upside momentum down a notch. COMP could be about to pierce support in the 3450 area which sets up a possible retreat to 3350 or lower.
To suggest that COMP was regaining bullish momentum would be to see the Index move above 3500, then to above 3530 at least for more than a day. 3570 is potential top most resistance I'm seeing for the coming week.
COMP on the face of it has a pattern that suggests either posed between a rebound on one hand or NO bottom yet. My take on the chart and other technical aspects is to lean bearish ahead but watch for a bullish upside move above 3500 or a decisive bearish downside break below 3400.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart is bearish near-term, bullish on an intermediate and long-term basis. All that has happened in a big picture sense is that NDX has retreated from the top end of its broad uptrend channel.
NDX had a steep upside run after it held, and rebounded from, its internal up trendline back in mid-April. This strong rise was sustained for five weeks. Sooner or later 'gravity' took over and this time 'gravity' said, yes the US is growing but we still live IN the world and stocks are NOT going to the moon.
Old Market saying: "Bull Markets Fall of Their Own 'Weight'" and NDX's chart pattern suggests that prices went too far too fast and are adjusting. NDX could 'adjust' to the 2900 area, maybe to 2850 or a test of its long-standing bullish up trendline. That's my current 'worst-case' outlook.
On the bullish side, a move back 3000-3015 could lead to a retest of 3050 resistance; next higher technical resistance, the 3100 area.
I say lower, lets' see what the Nas 100 'answers' in this coming week!
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 (QQQ) is above its prior broad uptrend channel when looked at on a closing-only chart basis such as shown next with the cubes.
Key support is at 73.3, with next support anticipated in the 71 area, extending to QQQ's up trendline, currently intersecting in at 70.3. Key near resistance is highlighted at 74. Major resistance is at 76.
The chart pattern suggests that NDX will fall further, to somewhere between 72 and 71, with my 'worst case' outlook for a test of trendline support currently intersecting at 70.3.
I'm wrong if QQQ moves above 74 with this area then becoming a support floor ahead of a next advance, such as to 75 or higher.
The recent volume trend is consistent with what we usually see with spikes in daily trading volume on down days. OBV is trending lower. Nothing to add to the mixed to bearish price pattern.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) Index has a mixed chart near term as prices slide sideways, but that's also in the context that RUT is within its long-standing bullish uptrend channel and to date, is holding above key near support implied by the 21-day moving average.
A decline through near support at 980, seems likely to lead to a retest of key support in the low-950 area, with pivotal trendline support then seen at 938 currently.
A RUT Close above 1000 that was sustained into a second day would be bullish and set up a possible test of anticipated resistance in the 1020 area.
GOOD TRADING SUCCESS!