THE BOTTOM LINE:
The S&P and Dow have retraced about half of their last run up. The Dow 30 (INDU) has also traced out a possible double top. Moreover, INDU has closed the week under its 50-day moving average which is showing its significant loss of upside momentum.
The Nasdaq has merely stopped advancing but acts like all this government stuff is a minor annoyance in a still strong tech market. I would note that the last sizable tech top (late-October, 2007) occurred with a similar (to now) long-term overbought condition.
I don't have too much more to say in a general way as the charts are all over the place. The Nasdaq looks like it wants to go up forever, damn the torpedoes, full speed ahead! It looks like upward progress is stalled here not because there is concerted selling but more an absence of buying.
The S&P 500 (SPX) is coming down slowly, the big cap S&P 100 (OEX) is starting to sink below some key support, but it's no rout. INDU looks to be the most bearish and INDU charts in 'unequivocal' bull trends are few and two are the newbie's NKE and V; the others are BA, MMM and UTX. 5 super strong stocks are not enough to substantially pull up the Dow.
All in all the chart picture looks like an artificial decline so to speak. Like an artificially induced coma, stocks could snap out of their lethargy if Congress wasn't likely to 'induce' an economic coma!
I think traders still want to be bullish and this past Thursday saw a jump in my call to put volume ratio for options on individual stocks, where call volume was double that of put volume. I'm more or less leery of 'over optimism' here especially because I've closely followed politics for a long time. The average trader and investor is not used to having to deal with such a wild card as this Congress and I think there's a belief that everyone ELSE is focused first and foremost on having the most rip roaring economy and rip roaring bull market possible. I can only wish that were true!
I'm struck by the long-term overbought condition of the Nasdaq Composite and how it was October of 2007 when the tech heavy Nasdaq topped out after getting as 'overbought' as it is currently. Beware of October surprises! Right now Nasdaq looks like it will NEVER come down but that's what it pretty much always looks like at a top. Stay tuned!!
STOCK CHANGES IN THE DOW 30 INDUSTRIAL AVERAGE:
As of this past Monday (9/23), AA, HPQ and BAC are OUT of the Dow Average (INDU) with Goldman Sachs (GS), Visa (V) and Nike (NKE) replacing them.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart has gone from a bullish move to a new relative high to the inability to hold new highs. The subsequent drop below 1700 creates a bearish near-term chart picture. 1680 is an expected next support but even more pivotal is support implied by the current intersection of SPX's multimonth up trendline coming in around 1657 currently.
An intermediate-term downtrend would be suggested if the Index closed below its prior downswing low in the 1630 area, especially without a quick bounce back.
Key near resistance, at what was prior support, is highlighted on the chart in the 1700 area. Next resistance then comes in at 1730-1733.
SPX has retreated from an 'overbought' RSI situation seen above once again, as has been the case now 3 times in the period shown. What you may also notice in the pattern seen previously is that SPX went from an overbought to an oversold condition and the Index has some ways to go before that situation also repeats itself, if it does.
Bullish sentiment (my CPRATIO indicator) remains higher than I would expect given the current political kerfuffle, but not if going by the technical chart picture alone as SPX could be viewed as just having a 'normal' correction of around 50% back to its 50-day moving avg. Stay tuned on any 'normalcy' ahead!
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is mixed: bearish now near-term, while at the same time OEX remains above its long-standing support/up trendline. The drop below the 'line' of prior lows, although not so far by much, is part of the bearish near-term chart pattern. A move back above 760 resistance would suggest renewed upside momentum; next resistance is then seen at 771-773.
If OEX continues to retreat under shut-down fever, key support suggested by the up trendline comes in around 743 currently. Next support then is seen in the 730 area. A couple of Closes in OEX below its prior cluster of downswing lows around 730 would turn the intermediate trend lower. Major support then comes in at 705-700.
OEX, along with big brother SPX, has also had a pattern of moving from an overbought high to an oversold low as seen above. We don't have the oversold condition yet but stay tuned for this possibility and assess/re-assess bearish strategies if that occurs. Price levels are also most key of course. A solid double bottom that formed in the 730 area for example, coupled with a 'fully' oversold RSI at 30 or below makes it tempting to exit puts and to unwind other bearish strategies. A debt default is a major wild card; we don't have a history to look at there.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) chart is bearish near-term. The intermediate chart picture starts looking bearish on a retreat to below 15200, making a possible next downside target to 15000. There's a possibility of INDU having formed a double top. What 'confirms' a double top so to speak is a subsequent retreat to BELOW the prior downswing low(s); which, in the case of INDU, is to below a prior cluster of lows around 14800. 14800 is where I've highlighted a next projected support below 15000.
Some technicians would say that a confirmation of a significant top is for a retreat to below the Closing low that formed prior to a first peak; i.e., a Close below 14653. Hey, take your pick! A couple of daily Closes and/or a weekly close below 14800 would be bearish and set up a possible test of the prior closing low in the 14650 area. The Dow is the most bearish looking chart of the major indexes. If you look only at Nasdaq you might say: "WHAT bearish price action?!"
As noted above in my initial 'bottom line' comments, there's only 5 Dow stocks (BA, MMM, NKE, UTX, and V) in really solid uptrends. Many other of the Dow 30 stocks show 'congestion' at or near clusters of prior highs basis their weekly charts.
Near resistance is projected back at the previously broken up trendline which intersects currently around 15490, then at the prior double top in the 15658-15710 area.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) Index chart is bullish. Upside momentum has slowed somewhat but there's a pattern of higher lows although absent a move to new recent highs. Key near resistance is in the 3800-3810 area. 3900 is projected as a next possible resistance above resistance implied by the upper trendline.
Is it possible that the Nasdaq index is showing us that the threat of a shutdown is not any big deal in terms of slowing the economy? It is rare to see a sizable divergence between major indexes such as we're seeing. Almost enviably, weakness in the S&P and Dow will show up at some point in the tech-heavy Nasdaq; OR, conversely, the S&P will stabilize and start to turn higher and follow tech to some extent. Sell the rumored shutdown, buy the actual fact of it? Hard to say.
I don't see Nasdaq going its own way if the mainstream economic stocks of the NYSE keep sinking. This is unlikely over time. As noted above in my initial bottom line comments, the Composite is as 'overbought' on a long-term monthly chart basis (not shown) as it's been since a significant top formed in COMP in late-October 2007. I was struck by this as October has often been a reversal month over the years.
Let me stick to chart facts so to speak and avoid further speculation. A Close above 3800-3811 would suggest upside momentum was continuing in COMP. Next resistance then looks like 3900.
A dip below 3740 would suggest waning upside momentum, but a true test for COMP is whether 3700 holds up as support. Next support then looks like 3660. Fairly major support is apparent in the 3585 area.
As prices hold up internal relative strength (RSI) is declining as seen above which is minor bearish divergence. This may point to a possible top in COMP.
Also, bullish sentiment, especially due to a strong advance and further perceived upside in such sub-indexes as the Semiconductor Index (SOX), seems high to me. Speaking of SOX, a decisive downside penetration of 490 in this sector index would suggest that upside momentum could be waning. SOX is an important bellwether for COMP.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart is bullish and to date, weakness in the big cap S&P 100 hasn't had much effect in the big cap Nas 100. Less buying has been seen lately but not wholesale selling. Tech stocks 'seem' immune to what's going on in the rest of the Market. I've heard this claim before but it doesn't hold up much when you look at Market history.
Key near resistance in NDX is at 3250-3257. A Close or better, two back to back Closes, above 3257 would suggest a possible next target to the 3300-3315 area.
Near support is at 3200, which then extends to 3170-3158. It seems that it might take bearish news on some key tech stock(s) to generate much selling in the NDX as opposed to a government shutdown. Stay tuned on that.
NDX, like COMP, is going sideways on less relative strength than at its recent 3250 peak. This might be a warning of weakness to come. But price action, especially a near-term break of 3170-3158 support could be a reason to exit bullish strategies or to lighten up on positions. A Close below the 50-day moving average, (currently at 3128) and not reversed in the next trading day would be seen by traders as bearish. More bearish still would be a downside break below 3100.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 (QQQ) chart is bullish but there is a minor bearish divergence with the On Balance Volume (OBV) indicator as OBV has been trending lower on balance while prices have trended mostly sideways.
Key resistance is highlighted at 80 with next resistance suggested at 80.5.
Pivotal near support is at 78.5, with next support at 77.6. A break of 77.6 would set off some selling in my opinion. We don't see volume really jump in the Q's until a key support gives way. Major support begins at 76, and extends to 75.3.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart looks somewhat like the Nasdaq charts but there is a more definitive line of resistance in RUT; currently at 1080-1082. Signs of at least an interim top? RUT has sometimes been a bellwether for Nasdaq.
A sustained move above 1082 is bullish and could lead to a rally up toward or to RUT's upper trend channel boundary, currently intersecting in the 1118-1120 area.
Conversely, a decisive downside penetration of key near support at 1060 would suggest further weakness to come. Next lower support comes in at the RUT's support/up trendline, currently intersecting in the 1035 area.
On balance, I see RUT heading lower but watch for its ability to hold 1060 or not, assuming it drops to this level. Fairly major support is seen in the low-1000 area; technical support is suggested at 1013-1008, extending very definitely to 1000.
GOOD TRADING SUCCESS!