THE BOTTOM LINE:
With the tech heavy Nasdaq still in a correction pattern and tracing out an hourly rounding top and the S&P reversing from its prior high, the Market is vulnerable to more downside. As the Nasdaq has for a considerable period now 'led' the overall Market higher (and has most 'resisted' declines), I pay close attention to any bearish patterns seen there.
My first chart, that of the hourly Nasdaq Composite (COMP), has traced out a rounding top pattern, with future 'resistance' implied by the circular arc extended out from already completed trade.
A circular top pattern not only suggests a further potential decline, but also highlights where a bullish upside reversal might occur; i.e., at a decisive upside penetration of the extended line of the circular top such as where the red down arrows are seen. A decisive upside penetration of the line of a rounding top formation would suggest a bullish upside reversal.
We see the above pattern on extended HOURLY charts in the S&P, Dow 30 and as would be expected, in the Nasdaq 100 (NDX).
In the S&P, the circular top pattern is not quite as 'well-defined' as in the Nasdaq, but it is seen there also but after the S&P 500 (SPX) made an apparent double top at the end of the past week (3/21/14) and then reversed sharply to the downside into the Close.
Besides the rounding top pattern, Nasdaq index charts traced out a KEY downside reversal, with Friday move in COMP to a new High for its recent advance, followed by a Close BELOW the Low of the week.
Bottom line, the major index chart patterns lean bearish and suggest potential for a further drop.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) index is bullish on a longer-term basis, but recent daily price action is mildly bearish given another intraday top forming in the 1880 area where SPX faltered earlier this month. A decisive move above 1880 and with subsequent support found in this area on any pullbacks, would suggest renewed upside momentum.
Near resistance is seen in the 1880 area, then at 1900, extending to the 1920 area, resistance implied by the upper end of SPX's broad uptrend price channel. Near support is highlighted at 1840-1830, with next support at 1810-1800.
Bullish sentiment, which had fallen off, came back up with the rally of last week. This indicator didn't see prior peak levels of bullishness as traders no doubt waited to see if the prior top was going to be exceeded. I lean to a bearish interpretation of price and indicator action given another top in the same area in SPX.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart has a similar pattern as the broader S&P 500 with OEX showing a line of resistance at 830, suggesting potential for another price dip ahead. OEX looks to have strong technical support/buying interest in the 810 area. The most downside I envision currently is OEX getting back to 800 and retracing 50% of its advance dating from its early-February lows.
Also in terms of bullish possibilities, a decisive upside penetration of 830, especially if support was found in this same area on any subsequent pullbacks, would suggest renewed upside momentum. In that case I project next resistance coming in around 842.
OEX like SPX has a tendency after sustained advances for subsequent pullbacks, sometimes substantial ones, when rallies stall in the same area as prior tops. It seems in the major indexes that there is the 'shark' principle at work; i.e., rallies keep moving or die :-)
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
Within an overall bullish trend, the Dow 30 (INDU) daily chart continues to show difficulty in making and sustaining a move to a new high for the current move as well as to exceed the prior March top.
Of the 30 Dow stocks, only about a third, 10 stocks, are showing strong upside momentum without any recent corrections or possible downside reversals. Strongly bullish charts are seen in AXP, DD, DIS, HD, JNJ, JPM, MSFT, PFE, UNH and UTX (V is looking a bit 'toppy' in the 228-232 area). This 'bottoms up' view of the various INDU weekly charts suggests that there could be enough upside momentum to break out above 16400-16500 resistance IF another 5-7 Dow stocks turned strongly higher in addition to the aforementioned 10.
Resistance as noted is at 16400-16500, then at 16600. INDU support levels are highlighted at 16060 and 16000, extending to around 15900, at the 50% retracement level. Fairly major support begins at 15800.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) chart is bullish on a long-term basis, but its most recent price action is bearish in that COMP traced out a 'key' downside reversal; i.e., the Index went to a new High for its recent move, but which was followed by a Close below the cluster of prior intraday Lows.
The other bearish aspect is seen with COMP's hourly price chart shown above in my initial 'bottom line' comments. The hourly chart pattern over that many days shows a clear cut rounding top, which tends to be a reliable pattern to suggest topping action and the potential for a substantial move lower.
Near support is seen at 4250, extending to around 4216 and a 38% retracement of the last upswing. Next potential support comes in around 4170 and a 50% retracement, with support extending to 4150. Resistance is seen at 4350, extending to 4370 and the prior top; next resistance at new highs may come in at the top end of the COMP's resistance price channel.
The Relative Strength Index (RSI) is showing downward momentum and my 'CPRATIO' bullish/bearish sentiment indicator (both indicators seen above) is showing a declining trend in terms of BULLISH sentiment. If both indicators get to 'oversold' areas and prices come down to lower supports, an 'ideal' point for bullish positions may arise.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart is bullish as prices are within a long-standing uptrend channel. Within that context, NDX may have built, or is building, a top. On a daily chart basis NDX appears to have traced out a Head and Shoulder's Top and in terms of its hourly chart (not shown), the exact SAME rounding top pattern is seen that I highlighted with the Composite hourly chart (see my above 'bottom line' comments).
Renewed bullish upside momentum would occur if NDX achieved a decisive upside penetration of 3735 resistance. In that case, my projected next target/resistance area is at 3800, extending to around 3825.
Potential NDX 'support' levels are suggested at the 38 and 50 percent retracements relative to the early-February to early-March advance. Support is suggested in the low-3600 area, extending to 3580 and an area also in the vicinity of support implied by NDX's up trendline.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock, QQQ, is bullish on an intermediate to long-term basis but, as with the underlying NDX index, QQQ appears to have traced out a 'Head and Shoulder's Top'.
Overhead resistance initially comes in around 90.5, with next resistance at 91.3 and the prior intraday peak in QQQ. Above the prior high, a next projected target and potential next technical resistance is seen at 92.3. Chart/technical support is suggested at 88.4, extending to 88 even, with next key technical support at 87, at the intersection of QQQ's up trendline.
A big daily spike in trading volume was seen on Friday, which is typically the case with the Q's as volume 'comes out' so to speak when prior key support areas are pierced. On Balance Volume (OBV) has been on a saw tooth decline and given the mostly sideways price movement into Friday morning, OBV and price action set up a bearish price/volume divergence.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) may have also formed a bearish top. I say 'may' have but RUT isn't going to go its own way if the major indices take a significant hit.
Key resistance is in the 1205-1211 zone. Next resistance then is assumed to come in at the top end of RUT's broad uptrend price channel in the 1227 area.
Near support is at 1190-1184, extending to 1170-1162 and the Fibonacci 38% retracement level; next support is then suggested at 1150-1147. Assuming a bear move gets going, a decline to the 1150 area is the most I envision currently.
GOOD TRADING SUCCESS!