THE BOTTOM LINE:
Typically Market bottoms in a primary bull market occur quickly; down to 'common' retracements, oversold levels, and with the high volume of panicky profit taking. This then followed by a fast rebound. Not like tops that unfold in seemingly slow and extended motion!
Usually traders do get at least somewhat cautious and tend not to 'believe' the first low as a bottom, but it often is; in a major (primary) bull market, not in a mixed trend. Trader sentiment has drifted down a bit; not dramatically but the readings reflect cautiousness and is mildly bullish in terms of contrary opinion dynamics.
Summing up some key technical aspects of our recent low:
The S&P 500 (SPX) retraced approximately 50% of the October to January advance, which tends to be a 'normal' one-half correction in a stock or major market index after getting 'fully' oversold. A weaker index might retrace a Fibonacci 62 percent and a strong mover might only retrace about 38% of the prior move. The foregoing was the case with the Dow 30 (INDU) and the later was true for the big cap Nasdaq 100 (NDX) as it retraced a 'minimal' Fibonacci 38% before rebounding.
INDU rebounded after getting fully oversold (basis the 13-day Relative Strength Index or RSI) and after falling to the area of the pivotal 200-day moving average. The Dow was the weakest on the recent Market decline but twice now has managed weekly Closes above 15600-15660, a key long-term line of support in INDU.
The Nasdaq Composite, which got as 'oversold' as it has since its June low, also retraced close to a Fibonacci 50% retracement, but not more to date, which is a plus for a potential bottom. Good signs of a bottom there also included COMP's rebound from support implied by its long standing up trendline.
Even more bullish signs were seen in the still red-hot Nasdaq 100 (NDX) as it not only held in the area of its up trendline but only retraced a 'minimal' 38 percent of its October-January advance.
Typical for the last 3 important lows in the NDX tracing stock QQQ, were the multiple spikes in daily trading volume as high volume typically precedes a bottom in previously strong bull movers.
I noted last week that a break of key chart/trendline supports at SPX, 1770, OEX 750, Dow 15600, COMP 3920-3900, NDX at 3400, QQQ 82.3 and RUT at 1120-1100, would suggest my lower highlighted support areas would next come into play. This was pretty much the way it played out as the Market got spooked into a second leg down.
All in all, so far at least, this has been a fairly normal and not especially deep correction. 'Average' so to speak, 401k investors who don't normally ask me about the Market were coming up to me in social gatherings this past week and were clearly nervous. They didn't get 'nervous' with the S&P gaining 30%, or the Nasdaq 40%, last year! But, when the Market goes the other way for awhile in a period when it often corrects (February-March), its Maalox time!!
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The recent S&P 500 (SPX) lows turned out to be a bit below SPX's long-standing up trendline, but close to a normal 50 per cent give back or retracement of the prior upswing. The 3-day dip below the trendline was short-lived and minor before still more buying showed up. The following two days, Thursday and Friday, saw strong back to back gains. This pattern suggests that SPX's intermediate uptrend is intact, not broken.
SPX's 'fully' oversold RSI readings went on for a few days but it didn't require a lot of patience to wait for the rally that followed. Quite unlike the weeks of 'overbought' RSI levels before SPX broke down! Usually in strong bull trends, oversold conditions DO NOT last long.
A bearish flag pattern was seen in the sideways move of a few days coming into this past week as SPX bounced between 1772 and the low-1790 area. This was a bearish chart aspect suggesting a possible further dip of 50-70 points, which turned out to be only another 40 points from the low end of the flag, so not much really. A bottom looks to be in place for now and perhaps for coming weeks.
Upside resistance is at the moving averages, then at 1820, extending to the prior highs in the 1850 area.
Technical support is suggested in the 1760 area, then at 1740-1738. A couple of Closes below 1740 might see 1700 as a next stop and a next possible downside target.
A pattern seen prior to this past week that suggested SPX could make a still lower bottom further on was that bullishness remained relatively high per my CPRATIO model seen above. More bearishness then we were seeing would typically occur before a significant and long overdue correction ran its course.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart is bearish on a short term basis, but the intermediate uptrend is intact given OEX's rebound back into its uptrend channel. OEX saw intraday lows closer to the next key retracement level at a Fibonacci 62% but that was it. The strong move back into OEX's uptrend channel is bullish and keeps the intermediate trend pointed higher.
Pivotal chart resistance is seen at OEX's prior 'breakdown' point at 810, with resistance then extending to prior minor double top in the 824 area.
Near support is at the up trendline which, while penetrated briefly, is still an important technical support. Next support below comes in at recent lows at 771-772. Given that support developed close to OEX's up trendline and seemed most related to sell stops being elected just below the trendline, there is potential ahead for a continued rebound.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow (INDU) was the weakest of the major indexes as its retracement was the 'classic' 66 percent/2/3rds of the prior advance and a classic short-covering area. This later retracement amount is the lowest I expect to see typically, absent a round-turn pullback to the prior low in the 732 area. I expect the Dow has made a significant low which may be re-tested but not as likely to be exceeded further.
Near resistance is seen at 16000, then at 16100, with fairly major resistance coming in starting in the 16500 area, with resistance then extending to the prior top that formed at 16520-16588.
Key near support is seen at INDU's redrawn up trendline intersecting at 15385. I should not that it was very important from an Investor standpoint that the Dow rebound from the area of its 200-day moving average. A weekly Close below the 200-day moving average would suggest a deeper decline than the 30-odd Dow stock charts suggest to me currently.
The Dow got to the low end of its 13-day RSI scale that suggests what I call a 'fully' oversold condition. I wrote last week that the Dow in recent months has reliably rallied from such oversold conditions over the past 12+ months as is partly seen from the daily chart below.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart was looking bearish on a short-term basis but within the context of a still-strong intermediate to long-term uptrend, which can now be said to be INTACT given the rebound from COMP's up trendline.
I wrote last week that "In a bull market like this, especially with such a strong tech segment, odds will tend to favor a continued bullish outlook until proven otherwise." Until 'proven otherwise' would mostly be seen if there was a decisive downside penetration of COMP's up trendline; a trendline that's been defining support for a year+ period.
I also noted that I'd adopt bullish option plays on a dip TO the trendline that held (there) with buying coming in. Hopefully you dipped toes in the bullish waters such as buying calls in key tech stocks or with the NDX for this initial rebound and beyond.
COMP next needs to clear resistance implied by its 21-day moving average (currently at 4131) to suggest that the previously strong up trend can resume. Resistance extends to 4150, then 4200 on up to 4250. 4300 is technical resistance implied by the upper end of the Composite's uptrend price channel. Support is seen at 3985, extending to 3950; next pivotal support comes in at 3900.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart was looking short-term bearish with the recent dip to its up trendline. I indicated last time that "...a dip would 'normally' be a buy at the up trendline as support is strongly assumed there." It turned out that the simple answer was the best answer. I did go on to say that I favored buying dips like the recent one to NDX's up trendline only if 'risk' was held to exiting on a high volume break of the up trendline.
I'm not quite as sure about my more bullish statement that upside potential could next extend to the upper end of NDX's price channel in the 3700 area. That's a bit too far out ahead in the future for me to repeat, but the chart remains bullish.
Initial technical resistance comes in around 3600, extending to 3635. Near support is seen at the up trendline currently intersecting around 3450 with support likely extending to the recent intraday low at 3418. Pivotal lower support begins in the 3350 area.
NDX rebounded back above the pivotal 21-day moving average which is bullish. Most bullish was the shallow retracement and buying interest found at NDX's up trendline.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nas 100 tracking stock (QQQ) saw bearish recent action off its peak price at 89, but remained firmly within its intermediate-term uptrend as the stock rallied strongly from technical support at its long-standing up trendline.
Near support is seen at 84, then lower at 82 even. Near resistance is highlighted at 88, extending to the recent QQQ intraday high at 89.
The high volume spikes on the recent sell off, as has often been the case, occurred ahead of a key low at the up trendline, followed by a strong rebound. It's a bull market and that doesn't change necessarily just because the Fed stops priming the pump; recall it tapered because of gathering strength showing in the US economy.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) daily chart saw a full-blown downside correction but held the low end of its October-January trading range. I did re-drawn RUT's up trendline to make for what is probably its renewed and broad uptrend price channel.
Last week I wrote that "The Russell has a tendency for rallies to develop when and after the Relative Strength Index (RSI) gets to the low end of the scale." This may seem too simple to be true, but is often the case with the Russell 2000, at least within the current bull market.
I look for support in the 1080-1090 area, then at 1060. I've highlighted anticipated resistance at 1140, next at 1166 at the downside price gap seen there.
I anticipate we've seen the lows in RUT and anticipate that 1100-1085 may be as low a dip as we'll see this month.
GOOD TRADING SUCCESS!