THE BOTTOM LINE:
New lows were made after all for the current correction but some of the key indexes are nearing technical support at recent lows. The Market had a fit when the Fed said they might stop pump priming by 2014 and probably overreacted as it's prone to do.
I thought last week that the further downside looked "limited" (along with the upside) but the S&P 500 (SPX) fell to one Closing low of 1588, 10 points below its prior intraday low. I guess that's 'limited', at least so far. Up trendlines were decisively pierced in SPX and the big cap S&P 100 (OEX), just barely in the Dow and not yet in the Nasdaq Composite and Nas 100(COMP and NDX) and the Russell 2000 (RUT). My COMP and NDX support (up) trendlines haven't been successfully 'tested' yet; an initial rebound from its up trendline did occur in RUT.
All in all, a bit of a surprise from the Fed but you would think that the sky was falling by the reaction. This tendency to sharply react is nearly the case when the Market must adjust to a changing key influence. Something I emphasize over and over is that the Market is more prone to sharp reactions when the market is either overbought or oversold. The major indexes are no longer in overbought territory on a 13-day basis but its another story on a 13-week basis. A sideways to lower trend in the coming 4-6 weeks should pull weekly chart overbought readings to a neutral to even an 'oversold' area.
I don't usually show a representative weekly index chart each time I write but my first chart here is the weekly SPX.
A key aspect of the chart is that SPX is still trending nearer the high end of its bullish uptrend channel than the low end. A second technical aspect is seen with the 13-week Relative Strength Index (RSI). It wouldn't take a huge further pullback, such as closer to 1500, to pull the RSI into a neutral mid-range reading (e.g., around 45) or even to an 'oversold' reading in the 35-30 zone. A sideways to even slightly lower decline over time will continue to 'throw off' the prior high 'overbought' extreme seen in late-May.
The foregoing aspect of the weekly chart as no longer 'overbought' and heading toward a possible neutral to oversold reading is important in that a neutral to oversold RSI would give added confidence in buying into a next rally, assuming the chart pattern again turns bullish.
Last week, I did not that "To apply some contrary thinking to mine currently, if we took the Dow chart as the key index, its up trendline support doesn't come in until 250-300 points lower from the Friday Close (15070). The Nasdaq Composite would have daily trendline support 120-125 points lower than its Friday Close (3423)."
My more bearish scenario of last week wasn't far off the mark (15070 - 300 = 14770) as the Dow fell to 14688 at its intraday low and 14758 at its lowest Close to date. The Nasdaq Composite dropped to 3326 as an intraday low versus the projection that COMP could fall to 3323-3298. It can pay to be more bearish than not when the Market is correcting a very strong prior advance!
I'll just point you to my various index-specific comments below as to how price action might play out ahead.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) failed, for a third time, to hold above its up trendline, contrary to my expectations. SPX did hold what I noted last week as a next lower support at 1580. My SPX daily chart seen next has the same notations as to key support and key resistance carried over from last week.
A note on key resistance I indicated previously as coming in at the 21-day moving average. This relates to my 2-day reversal 'rule of thumb', namely that at any key resistance or support, a 1-day Close above or below resistance or support tends to be 'confirmed' as a trend change only if/when there's a second such Close. Absent that, it may only be a last gasp of the bulls (or bears). In this case the bulls pushed SPX once above its 21-day moving average but couldn't manage the same trick twice; hence, a 'one-trick' pony!
I believe that 1580 could hold up as support and might be the low for the current decline. 1540 looks to be an even more solid support if 1580 gives way and there's a next down leg. If there were two back to back Closes below 1540 I'd take that as quite bearish, although on a weekly chart basis a (weekly) Close below 1360 would be more definitive for a shift in the intermediate-trend from up to down.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) has fallen to below what had been its long-standing broad uptrend channel. While this is bearish certainly on at least a short-term basis, OEX's intermediate-term trend wouldn't turn down/bearish unless or until there was a daily Close below 700, at the last downswing bottom. Even then I'd want to see a second consecutive Close below 700 to 'confirm' a reversal in the intermediate trend. For comparison purposes, the major or long-term trend would reverse on a weekly Close below 619.
710 is next support, extending to 700. Near technical resistance in OEX comes in at what was the support up trendline, at 728. Just as a prior support, once penetrated, tends to 'become' subsequent resistance, so it is with support trendlines; once pierced, they also tend to become subsequent resistance. Next resistance is at 735, extending to the 743 area.
I anticipate OEX holding above 710-700. How soon the index might launch any prolonged rally is quite another thing and I don't think it would be anytime soon.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
I wrote last week that "Enough of the 30 Dow stocks (INDU) are in a corrective mode to suggest that the Dow would be holding up well if prices drifted sideways a while longer and 15000 support remained 'intact'."
YES, it would have been more bullish than the 30 individual charts together suggested for INDU to 'hold' 15000. The Dow is the only key index where perusing just 30 stock charts gives a pretty fair assessment of the Market's upside or downside potential. 30 stocks may seem like a lot to follow and they would be to actively follow, but 6 weekly charts per charting 'page' can be viewed fairly quickly to assess the big picture.
I'd say again this week that a key bullish chart aspect of pivotal importance is whether the Dow holds above its up trendline which suggests support at 14700 currently. Major support begins at 14500-14400.
Resistance is seen at 15000; what was prior support 'becoming' a subsequent resistance. Next resistance is seen at 15100, again at the 21-day moving average.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) Index is bearish near-term but on an intermediate term basis hasn't fallen below its up trendline support at 3310. Fairly major support then begins in the 3250 area, extending to 3200-3160.
Last week I wrote of strong technical support "...if COMP were to break under 3400-3375 and start a move that carried back to its up trendline at 3300." COMP got to 3326 and could still reach 3310-3300 but I don't see a sizable added down leg below 3300. Stay tuned on that! Same thing I said last week when I thought that the downside was 'limited'. Opps!
The lower readings this past week in the RSI and my bullish 'sentiment' indicator suggests at least that the index is no longer as vulnerable to further panic selling.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) as I wrote last week, would have a 'breakout' move down if there was a decisive downside penetration of the 50-day moving average, which last week was at 2920. I noted that "if NDX were to break 2920-2900 support, next support was suggested in the 2875 area..." This bearish scenario was mostly the way it went as NDX fell to an intraday low of 2853 and a low Close at 2877; NDX only slightly overshot my projected downside target on an intraday basis but not on a Closing basis. Once any cluster of sell stops are run, there's often a tendency for some bounce back.
Where to from here? If my up trendline is accurately drawn or 'artfully' drawn I could say, technical support is not much lower than the NDX low of this past week, in the 2845 area. While 2800 is probably a next lower support, pivotal support looks to be closer to 2750. I'll call next key downside support as 2800-2750.
To get much going on the upside, NDX should climb back above 2915, then to above 2950. There's a minor down trendline that's been traced out subsequent to the 3050 high, suggesting resistance coming in around 2990, but the main focus I'd have for a full blown bullish trading stance would be NDX's ability to get back above 3000 and hold this area as subsequent 'support'.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 (QQQ) continued to trend sideways to lower within its broad uptrend channel. QQQ has now extended its slide to the 70 area which I see as a near-term support. I've noted next lower technical support at QQQ's up trendline at 69.3. My 'worst case' bearish outlook is for the current up trendline to mark an area of future support/buying interest and don't currently envision QQQ falling below 69. Major support comes in at 67.
Near resistance is at 71.2, extending to 72 even. Further resistance is likely to come in at the top end of the recent downside price gap at 72.7.
I wrote last week that "I'm anticipating that the Nas 100 ETF stock will maintain its longer-range uptrend and stay within its uptrend channel...my 'worst case' downside target is to 70." I adjusted my trendline slightly and support implied by the current trendline intersection at 69.3 could also be relevant ahead.
Daily trading volume spiked on the sharp declines of Thursday-Friday as seen above and suggests that QQQ might be at or near a 'volume climax' end to its current decline.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart has been in a near-term bearish trend but to date has traded WITHIN its broad uptrend price channel. Remaining within its trend channel may or may not continue, depending on whether the Index continues to 'hold' (stay at or above) its up trendline.
Unlike the other major indexes, RUT did manage two recent consecutive Closes above resistance implied by the its 21-day moving average. RUT however again failed to advance above significant resistance at 1000 and after this rally failure R
RUT again broke below its 21-day average.
I see fair to good potential for RUT to work higher from recen lows. I've noted resistance up at 986-1000, but I consider the 50-day moving average as a key immediate resistance overhang. A close or better two back to back closes above 965 would suggest that RUT could work still higher or at least has arrested its downward slide.
Pivotal technical support is at 950, extending to 940. I anticipate major support will be found at 900.
I did indicate last week that "If there is another bearish shoe to drop RUT could test support at its 50-day average (currently at 960), extending to trendline support around 950. This is my 'worst case' bearish outlook, for one more dip to, but mostly not below, the aforementioned two technical supports." My prior more bearish scenario is the way it played out so far and 950-951 can continue to hold up as support as an area of buying interest.
GOOD TRADING SUCCESS!