THE BOTTOM LINE:
The strong rebound from up trendline support in the S&P 500/SPX (at 1600) and the S&P 100/OEX (at 720) and from other support points in Nasdaq, suggests that the recent decline has run its course. This fit with certain projections I've written about well before the fact of them occurring.
One way of measuring the extent of the recent SPX decline to 1600, was the fact that this level was a key bullish trendline. Another way was by the understanding that so often corrections within an overall bull market have this pattern of a decline, a rebound from this initial pullback low, followed by a second decline that is often greater than the first by a Fibonacci order of magnitude of 1.5 to 1.6. It could be the second more severe decline is double the first sell off. Our first SPX decline took it down 52 points, peak to trough. The second decline just ended at an intraday low of 1598 was 1.5 times the first decline (from 1674 to 1598). This is a common relationship, the 1.5, just as 50% retracements of prior moves in stocks are common and often a good place to buy.
The aforementioned discussion of trading principles was covered in good detail in my
my Trader's Corner article of yesterday (6-8-13).
The Nasdaq Composite (COMP) retraced a Fibonacci 38% of its prior advance (from mid-April to late-May), then rallied strongly. Retracing just 38% of its prior advance, not more, suggests that the Nasdaq is still undergoing good buying on dips.
The important Nasdaq 100 (NDX) index 'filled in' the prominent upside price gap from back in early-May and then rallied strongly. Gap areas below current price levels in indexes and stocks are considered to offer technical support. Pullbacks into such 'gap' areas, including price action that fills in the price gap entirely and which is then followed by a rebound, is technically bullish.
Bullish price patterns in the S&P, on its recent strong rebound from 1600 trendline support, bodes well for the Market. SPX is currently the 'lead' index or the one to watch as to how well or poorly the overall Market will fare. Stocks look headed still higher. SPX has the potential to get back to the 1670 area, could then challenge its prior intraday peak at 1687 and perhaps go on to test 1700 without another intervening correction or sideways move.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) reversed its near-term bearish pattern, given its strong rebound from key trendline support in the 1600 area. SPX experienced an approximate 62% retracement, one of the common retracements ahead of a turnaround.
The key thing from a chart/technical perspective was price action at SPX's up trendline. There was a very short span of time when buying could have occurred at 1600 in the S&P 500. Then the market rocketed ahead. Good depiction of the hourly chart from the recovery/reversal point until Friday's Close is seen in my Friday Trader's Corner via the OIN site or the link above.
I wrote last week that "... the Index could work back down to the 1600 area. I don't see worst than this currently." It looked like a strong reversal, solid buying, etc. These kind of reversals aren't always so picture-perfect so to speak as this one (rallying as if on 'cue' precisely AT the trendline) but that's a very 'strong' up trendline, representing the rate of upside price change that the Market is willing to pay. More attention by the pundits was paid to the successful 'test' of SPX's 50-day moving average and easier to explain than a trendline.
Support obviously is 1600, extending to 1580 with main support in the 1550 area. I'm anticipating that SPX continues to stay within its broad uptrend channel. Key resistance is seen in the 1645-1650 area, with resistance/selling pressure stepping up around 1675. Ability of the index to hold above 1650 suggests 1700 could be reached on a next upswing.
Bullish sentiment as seen above has continued to moderate even after what looks like a clear cut upside reversal in SPX. But once burned the bulls get more cautious and that's a plus for further upside ahead.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) has the same bullish pattern as the broader S&P 500 index, with its strong rebound from trendline support. Sometimes just one, maybe two of the major indexes (including the Dow 30) will be the sole one(s) to trace out a clear cut trend (allowing the use of trend channels) AND clear cut trend reversals; such as when occurring at a well-defined trendline; e.g., either a deflection down, or a deflection UP.
As it sometimes, not always (groan), does, the OEX move this past week unfolded just as would be 'typical' of the pattern. To wit, I wrote last week that: "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."
Support, even more so this week, is at 720 and the 50-day moving average, with technical support extending to 710 and certainly to the 700 area.
OEX broke out above 740 resistance with the Friday close. We'll see if that continues! Next resistance is just overhead at 745, extending to the 755-760 area.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) Average found strong support on the dip below 15000. INDU did not activate what I call the '2-day rule' on charts and the idea that only TWO consecutive Closes above or below key resistance/support substantially 'confirms' a reversal. I wrote last week that "...if the Average finds support around 15000, it's still within a powerful advancing trend."
The Friday Close above its 21-day moving average renews the bullish short-term outlook and suggesting a continued move higher. But, consistent with what I just said, look for a second Close above this key trading average.
We could get into a sideway trend, with support more or less at 15000 and pivotal resistance half way to 16000, at 15500. 15500 looks like it will be a tough area for the bulls to punch through.
Near support at 15000, key trendline support is at 14700 currently with intermediate trend support at 14500.
Of the 30 Dow stocks, only 3 look like compelling buys still given continued strong performance: AXP, BA, MSFT. There are enough INDU stocks in bullish accumulation uptrends to continue to push the Dow higher, but probably not enough to pull the Average above 15500 anytime soon.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
We didn't see a fall to trendline support in the principal Nasdaq indexes unlike the S&P, although both the Composite and the Nas 100 have and had other bullish chart aspects accompanying the latest strong rebound.
COMP found strong support/buying interest above its prior upside price gap from early-May. Prior such price gaps tend to act as support on subsequent pullbacks. In this case COMP didn't even 'fill' its prior gap, unlike the more volatile Nas 100.
COMP also recently completed a Fibonacci 38% retracement of its prior advance, and then rallied strongly. Retracements held to less than 50% like this suggests buying is strong once there's a third or so giveback in prices. Big funds start buying in a zone such as in a pullback taking prices to levels a third to a half down from the most recent top (relative to its prior bottom). Anything in that zone, buy the index or basket.
Enough on the past, what ho ahead? 3500 looks like significant near-term resistance, with resistance/selling pressure extending to the prior recent 3530 high. COMP could get up to 3575 and touch 3600 but I might then be looking to play the downside.
Key near support is 3400, extending to 3350 with trendline support at 3277 currently.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) could have reversed its prior short-term bearish trend. The strong rebound from the 2900 area after 'filling in' NDX's key early-May upside price gap was bullish as prices fell to a level just below the low point of that prior open price 'gap', with NDX then rallying strongly.
While a strong rebound from a chart gap area is promising, the bulls aren't there yet so to speak; to keep a renewed bullish trend rolling NDX should next pierce trendline and moving average resistance in the 3000 area. With trade back above 3000 NDX would look like it could retest the prior high in the 3050 area. If buying accelerated further, NDX could reach 3100, pivotal resistance implied by the top of its uptrend channel.
Near support is at 2915-2900, with pivotal technical support at NDX's longstanding up trendline currently intersecting at 2860.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 (QQQ), especially when looked on a closing basis by using the line chart, has rallied from the more or less middle of its broad uptrend channel. The rally from 72 has taken QQQ to the area of its next key resistance at 73.4 at the 21-day moving average. A continued move higher above the 21-day average suggests QQQ could next test resistance in the 74-74.3 zone. Fairly major resistance begins at 75.
Key near support on a Closing basis is at 72, extending to 71.4-70.6. I have no strong urge that I have to be in the stock with a somewhat mixed chart pattern. Could go higher or continue to chop around more of less in a sideways trend. Hey, it's summer! Take trading breaks. I like selling at the high end of price channels and buying at the LOW end. In between can be murder! Or at least disturb my peace of mind.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) remains yet in a still 'mixed' trend as upside momentum has waned some and RUT is in a 'rut' maybe confined to a trading range between 1000 and 950.
If the index achieves a decisive climb above 1000, a next resistance implied by the upper trend channel then comes in around 1028-1030.
I've highlighted RUT initial support at 968, but key support really is the 950-953 zone with trendline support at 945 currently.
It looks like the Russell could reach the 1000 area again but climbing above it for long maybe tough. I'm not banking on it currently.
GOOD TRADING SUCCESS!