THE BOTTOM LINE:
I headlined my week ago commentary as "correction over" but wondered at the time if I should have ended that thought with 'correction over ?'; yes! The last rebound looked good (maybe 'too' good) but the major indices may be too overbought on a long-term basis to tack on another immediate up leg.
I also wrote last time about the importance of the 4000 level in the Nasdaq Composite (COMP). COMP had of course previously rallied strongly above this pivotal level and now is back to it. From mid-week on this past week, COMP has held at 4000. This level in COMP should be watched as a harbinger of either strength if this level is a springboard for another rally attempt or as sign of further Market weakness if COMP pierces this level decisively.
The S&P 500 (SPX), our other Market bellwether, has key support in the 1750 area, extending to around 1720 at the current intersection of its up trendline. I'd watch for what happens if SPX dips into the 1750-1720 zone.
With the tendency for buying support related to portfolio 'window dressing' into the end of this month and end of the quarter, I don't look for any major sell off. January could be a time the time for a more significant pullback.
Last but not least in my overall comments about the Market being overbought at recent highs, I lead off my charts with the longer-term S&P 500 (SPX) weekly chart, with the Relative Strength Index (RSI) applied with a '13' length setting; i.e., the indicator uses the last 13 weeks Closing levels in its calculation.
You can see easily compare the most recent RSI peak to the one prior to it in May that was at a similar 'overbought' extreme. After that prior high extreme, SPX had a 100 point dip; and the last time the Index saw that much of a correction. The RSI will sooner or later come down from high 'overbought' RSI levels on either a substantial pullback AND/OR just from a leveling off of prices for a period of a few weeks.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) chart has turned bearish short-term after a double top was made in the 1809 area, followed by a dip below SPX's most recent downswing low. Intermediate-term support is seen in the 1750 area. Below 1750, trendline support is the next technical area of importance with the trendline currently intersecting around 1720.
Pivotal technical resistance is at 1809-1810 and a Close above this level which, if followed by holding this area on the following day, would suggest potential back up to 1840, at the upper end of SPX's broad uptrend price channel.
Bullish sentiment has finally declined some from high extremes as traders realize that there's no immediate expected economic news that would likely move stock prices all that much. Time to nail down some profits even! Certainly there's stocks being sold that have either over-performed and reached likely objectives or stocks that have underperformed the market.
It looks like the S&P path of least resistance is down currently.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX), like big brother SPX, has a bearish short-term chart pattern given the recent top and formation of a line of resistance at 808-810. Above this near resistance, I've highlighted next resistance at the upper channel line, currently intersecting around 817.
OEX has likely technical support in the 790 area, then more pivotal support at 780. Fairly major support at OEX up trendline, comes in at 763 currently.
As with SPX, OEX's path of least resistance looks lower but not dramatically lower in my estimation. 790 could hold up as a support and buyers come in but the low-780 area looks more solid technically for the bulls to hold.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
Enough of the 2/3rds of the Dow 30 (INDU) stocks that were in strong uptrends have paused and/or started retracing some of their prior advances to cause INDU to lose ground and take out near support in the 15800 area. I've highlighted next support at the 50-day moving average at 15660, extending to 15600.
A weekly close below the 50-day average would be widely perceived as bearish. Next lower support below the 50-day average comes in at 15400, extending to support implied by the current intersection of INDU's up trendline, at 15265.
I anticipate a continued drift lower based on INDU not yet being in an area that will bring in strong buying. In terms of a bellwether stock, you can watch General Electric (GE), which is holding up well. However a GE Close below $25 would reverse its current bullish advancing momentum.
Turning things back to a more bullish INDU chart would be a recovery to 15800 and the ability for the Dow to hold this area as support. Next resistance then comes in around 16000-16050, extending to the 16150 area.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) has lost it prior strong bullish momentum as seen in its inability to pierce highs made in the 4073 area. On a short-term basis the trend has shifted to neutral/sideways. On the bullish side, COMP has managed to hold the key 4000 level on the last 3 intraday lows. Stay tuned on COMP's ability to then mount a rally from 4000.
I would rate the odds of a dip to next support around 3950 or even to more 'solid' technical support implied in the 3900 area, as better than the probability of COMP rebounding to new highs in the near term.
I didn't highlight expected resistance on my COMP chart above 4073, but selling pressure would likely next come in at 4100. The upper (3%) moving average envelope line at 4145 is a possible target if COMP were to find some reason for a new up leg.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart has lost some its smoking hot upside momentum as it was bound to do. If only we knew at just what level and if a downside correction would turn into a substantial (i.e., 'tradable') pullback.
Of interest is how high extremes in the 13-day RSI have come ahead of any meaningful downturns, whether that was more of a leveling off or a significant dip. RSI peaks occurred in early-August, mid-September, late-October and recently. Based the RSI/price pattern, there's no compelling and immediate reason to jump back into bullish NDX strategies. Prior corrections, whether more sideways than down, have tended to go on for a 2-3 week period.
Support is anticipated at 3450, at 3400 and finally in the 3360 area, at the lower (3%) moving average 'envelope' line, a computed level that's each day plotted at 3 percent below the centered 21-day moving average. Technical resistance can be anticipated at 3500, extending to 3520, with next higher resistance then projected at 3570.
I don't see 3450 holding up as the low point of the current correction, although there could be a short-term rebound ahead from the 21-day average. If so, another dip may follow, such as to 3400 or a bit lower with intraday lows near 3360 perhaps.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 (QQQ) tracking stock went from strongly bullish to a short-term lower trend as QQQ closed below it most recent minor downswing low. The first potential support I look to is at the 21-day moving average but the odds of 84.7 holding up as a rallying point is questionable. Better technical support is suggested at 84-83.6. Next key chart support comes in at 82-81.9, extending to 81.5-81.4.
Overhead resistance begins at 86 and extends to 86.5 with further resistance anticipated around 87.6.
There has not been the spike in daily trading volume that we could see if 84 gets pierced. There has been some orderly selling, without a panic button getting tripped. The On Balance Volume line is pointing lower and I anticipate prices are going to follow. Stay tuned for a test of 84 at a minimum I think, perhaps after a short-term rebound.
RUSSELL 2000 (RUT); DAILY CHART:
Weakness in the Russell 2000 (RUT) index did turn out to be a bit of harbinger for related weakness in the S&P and Dow. While RUT has reached support implied by the low end of its uptrend channel (at its up trendline), I don't put heavy odds on 1100 containing the current correction. It is an area of expected technical support, but better support probably is closer to 1080, and maybe ultimately closer to 1050.
Near resistance is highlighted at 1120, extending to 1140-1147.
I anticipate the Russell working lower, such as to 1080 at a minimum and to around 1050 as a 'maximum' current downside objective.
GOOD TRADING SUCCESS!