THE BOTTOM LINE:
While the news has generally been upbeat on the economy and corporate earnings, it was time to get spooked by news 'good' enough to cause the Fed (famously as they say) to kill the power and take the stimulus punchbowl away!
An overbought Market trumped previously bullish charts and corrections followed as did of course bearish chart formations that slightly preceded the Thursday rout. The S&P 500 and 100 finished tracing out Head & Shoulder's (H&S) Tops this past week, as did the Russell 2000 (RUT).
By Wednesday's (8/14) Close, SPX had made a slight bearish penetration of its H&S neckline and Thursday's Market 'temper tantrum' followed: I don't care if economic-related reports are bullish, don't stop priming the pump or I'll dump!
The Dow 30 (INDU) made a 'picture perfect' rounding top before the Average got really whacked. The SPX H&S Top could be seen in DETAIL on its hourly chart, along with a projected/suggested 'minimum' downside target to 1660-1657. The aforementioned INDU rounding top was also quite apparent on its hourly chart. I highlighted these patterns in my companion Trader's Corner piece I wrote Thursday (8/15). If you want to peruse that short article, more chart-rich than wordy, check it out with a quick CLICK.
Of course anxiety about fall Fed actions came in and also retail sales being down at the low-cost end (e.g., Walmart) of the spectrum (duh - no income gains there!). Also, Cisco (CSCO) went from its stock going to the moon to time to jump and dump. CSCO is more of a Nasdaq bellwether than Apple, where I was playing, based on very bullish chart pattern; i.e., a bullish falling 'wedge' into late-April, a subsequent double bottom and completion of a 50% Fibonacci retracement, which I've been pointing out in prior articles. AAPL closed the week above $500 which is a strong follow through move.
I was still seeing the possibility of the Nasdaq Composite taking out 3700 resistance, although COMP made the exact same 3695 top for 3 weeks running, so I could have been more of a bear there! Google also saw weakness. So, CSCO and GOOG, as well as some other key tech holies, finally brought in tech stock profit taking. Tech was going up too fast and too far, absent Santa Claus coming in August.
Watch the Dow, as the Average was AT its long-standing up trendline at the Friday Close. There could be a near-term rally as hourly oscillators are fully oversold; if so, after that, watch for an decisive downside penetration of Dow 15050 on a closing basis; it could touch 15000 intraday however. The S&P 500 has potential up trendline support lower down, coming in around 1636 currently; OEX trendline support is at 740.
More on the individual chart aspects in my commentaries from here. One other thing I'd note is my long-standing suggestion to keep a daily ratio of CBOE daily equities call volume divided by daily equities put volume. You see this ratio (CPRATIO) plotted on my SPX and COMP daily charts from week to week, but I don't update this chart during the week. Doing this simple division only takes a daily minute and Tuesday (a big 'change' day) saw CBOE equities call volume double that of puts (2.03 was the ratio) which is a danger 'signal' for a downside reversal that could follow within 1-5 trading days.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart turned short-term bearish after piercing the low end of its prior trading range. SPX would turn intermediate-term bearish if it was to fall under its prior (down) swing low, which was a Close at 1572 and an intraday low at 1560. I'm not anticipating that but that's the chart determinate.
There are other lesser bearish events such as continued Closes below SPX's 50-day average and especially a decisive downside penetration of its up trendline, currently intersecting in the 1636 area. This trendline is not as well 'defined' as some, such as the Dow's support trendline, but is the current 'best fit' trendline; one pretty close to showing SPX's upside rate of gain since its mid-November lows.
Near resistance is seen in the 1680-1683 area, extending to 1700. A close above 1700, with an ability to hold above this current line of resistance would demonstrate renewed upside momentum.
Trader sentiment as plotted above (my daily call-put volume ratio line) continues to reflect a mostly neutral to bullish outlook even after the recent sharp break. It appears that traders remain predominately bullish and expect that August is just a typically corrective month but not necessarily reflecting the dominant trend; part of the summer doldrums.
The RSI is almost at a 'fully' oversold extreme at least on a daily chart basis which often doesn't last long in a continued bull move. Low RSI readings around and under 30 often are seen at or near a bottom, although not in a bear market cycle and we're far from that. The long-term trend is still clearly up.
The SPX September 1660 calls were last on Friday at 28.75, -2.21 on the day. The Sept 1660 puts were last at week's end at 31.80, -1 from Thursday. Too much premium built into them on Thursday when the sky didn't fall on Friday.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart has turned short-term bearish after the break of its prior trading range and after formation of a Head & Shoulder's Top. A 'minimum' downside objective implied by that formation has nearly been met.
OEX is now nearing support implied by its up trendline, currently intersecting in the 740 area. 720 is next support, extending to the low-700 area. A couple of back to back closes below 700 would turn the chart bearish as far as the intermediate-term chart picture and would be a bearish on the weekly chart (not shown).
Near resistance is in the 752-754 area. A Close above 760 would be encouraging as to renewing upside momentum, with 765 as the upside 'breakout' point.
The OEX September 740 calls were last on Friday at 12,
-2.21 from Thursday. The Sept 740 puts traded at week's end at 9.7, -1.5 on the day.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU), which as I noted last week had had a more significant pullback than the broader S&P indices, when INDU dipped below key support at 15400. This past week's break took INDU well below that and Dow has now reached possible support implied by its up trendline. The odds of support developing in this area is somewhat greater given the low level of the Relative Strength Index, suggesting what I call a 'fully' oversold condition. Support is seen at 15070 with next support seen at 14900.
Key Dow stocks that have most contributed to the sell off in the 30 Dow Average are CSCO, DIS, HD, IBM, JNJ, MCD, UTX, WMT and XOM. All of these were the most 'overbought' and were due for a correction so to speak. If these 9 continue to slide as sharply as recently, the Dow could wind up in the 14600 area again. This is more or less my 'worst case' bearish scenario currently.
Key near resistance is at 15400, then back at 15600-15650. A couple of closes back above 15400 would suggest renewed upside momentum. I don't think such a rebound will be seen anytime soon, but that's the pivotal resistance overhang looking out over the next 2-3 weeks.
The Dow Index (DJX) September 151 calls were last on Friday at 2, -.43 on the day. The DJX Sept puts traded at 2.5 at week's end, +.36 from Thursday.
. The largest DJX call Open Interest (OI) is currently in the Sept 153 calls; in DJX puts the biggest OI is also at the 153 strike.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) Index turned short-term bearish with the break of this past week. As I was speculating last week, COMP's ability to continue to maintain its very steep run up into early-August was in question after touching resistance implied by the upper end of its uptrend channel. Trending sideways after that was telling. Old trader saying: bull trends 'die' of their own weight; stocks stop finding so many new/willing buyers after prolonged and increasing steep advances and after that it doesn't take huge selling to drive prices lower.
A key near-term line of support at 3650 gave way midweek and the overnight downside gap put COMP below another pivotal support implied by its 21-day moving average. Next support is another prior line of lows at 3575 as highlighted on the chart. Still lower support then comes in around 3523. Major support looks like 3450, at the up trendline.
Near resistance is seen now at 3645, extending up to the 3-week line of prior highs just under 3700.
Unlike say the Dow, the Relative Strength Index (RSI) is not at an oversold extreme but if 3575 support was successfully 'tested' I'd be looking for a possible bottom there or a bit lower. The strongest indexes in a any given market cycle don't make for an easier buying decision by getting 'fully' oversold in terms of RSI and similar momentum indicators.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart turned near-term bearish after the break below 3100-3105 chart support.
I wrote last week that "it would be logical to assume that NDX will pull back some more near-term after the Index has come off such an overbought RSI extreme. I can envision getting interested in calls again on a pullback to the 3050-3030 area, risking to a Close below 3000." This still mostly reflects my view except that I anticipate technical/chart support closer to 3030, with the possibility of NDX dipping intraday to the 3000 area.
Near resistance is at 3100, then in the 3145-3150 area.
The NDX September 3075 calls were last on Friday at 55.96, +1.46 on the day. The Sept 3075 NDX puts last traded at week's end at 55.7, +.75 from Thursday. This strike had the most volume and biggest Open Interest in both calls and puts.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 (QQQ) chart picture reflects the bearish near-term chart picture outlined above after the decisive downside penetration of support in the 76-76.2 area. What was 'support' is now seen as near-resistance, with next resistance in the 77 area.
Pivotal technical support in my estimation comes in back at a prior line of support in 74.3 area; technical support then extends to around 73.6 which would 'fill in' the prior upside price gap. Major support is suggested at QQQ's up trendline, currently intersecting in the 71.5 area.
Daily trading volume spiked on the break per usual with this ETF tracking stock for the Nas 100. There's likely more volume to 'come out' on a further dip to the 74.3 area or below which would be a bearish break under the QQQ's 50-day moving average.
The QQQ September 75 calls last traded on Friday at 1.7, -.18. The September 75 puts traded at 1.42 at week's end, -.03.
The QQQ 79 strike in calls was also actively traded. The largest Open Interest is currently in the Sept 78 calls and Sept 72 puts.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart saw a bearish break of support last week similar to the Nasdaq in terms of the decisive downside penetration of prior support (the 1040 area) on an overnight price 'gap'. And, like the S&P (and unlike Nasdaq), a Head & Shoulder's (H&S) top had formed before the 'confirming' break of the H&S neckline at 1045. A 'minimum' downside objective implied by the Head & Shoulder's top formation has been met already but could extend to 1020.
For a couple of weeks, I've suggested that 1040 was a key support as was a break of that level as suggesting at least a short-term downside reversal. My view is still also the same in that I don't see this correction falling below 1000. Near support is 1020, fairly major support in the 1000 area at the up trendline. However, the intermediate-term trend wouldn't reverse lower until or unless the prior downswing low in the 950 area was pierced.
Technical resistance is suggested in the 1020 area, but the most pivotal support and area of buying interest looks to come in around 1000 as already noted.
The RUT September 1025 calls were last on Friday at 21.4, -2.6. The Sept 1025 puts were last at week's end at 24.6, +2.6
Largest call Open Interest is in the RUT Sept 1050 calls, as well as in the Sept 1050 puts, closely followed by the 1030 strike (in puts).
GOOD TRADING SUCCESS!