THE BOTTOM LINE:
The S&P 500 (SPX) and 100 (OEX) retraced 50% of its prior advance, the Dow nearly so and 100 percent 'round-trip' retracements (and double bottoms) in the Nasdaq Composite (COMP) and Nas 100 (NDX) preceded the Market's upside reversal this past week.
I wrote in my recent (4/17/14) Trader's Corner about the tendency for retracements of prior upswings to be anywhere from a Fibonacci 38% to 50 percent in moderate to strong uptrends in an index or stock. And, for a tendency for retracements that EXCEED 62-66% of the prior advance (Nasdaq) to retest the prior low; in other words, a 100% 'round-trip' retracement. Such a successful (the trend reverses up after 'testing' the prior low) 'retest' is of course also referred to as a double bottom.
I wrote last week that the NDX, which I initially, and wrongly, thought might hold at a 2/3rds retracement of its prior advance "could be headed to a 100 percent 'round-turn' retracement relative to its 3419 intraday low of early-February." RIGHT!
We do have some key resistance areas ahead: SPX, OEX and the Dow 30 (INDU) at the top of their multiweek trading ranges dating from mid-February. In COMP and NDX, resistance can be seen or 'measured' at the their 21 and 50-day moving averages; first up is the 21-day moving average. SPX, OEX and INDU have cleared these same key trading averages already.
Also, as anticipated, the Nas 100 was in a 'position' to rally so to speak with its Volatility Index (VXN) over 22. See the daily VXN graph with the NDX chart below. There's a pattern seen in recent months with NDX and COMP upside reversals coming when VXN gets into the 21.5-22.5 zone. A VXN daily peak at 22.6 this past week is up from a prior 'baseline' of around 13.
The Nasdaq and Russell also got 'fully' oversold at this last low in terms of the 13-day Relative Strength Index (RSI), repeating the pattern the early-February bottom. Can it be this simple?! Sometimes!
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
The S&P 500 (SPX) Index remains in a relatively narrow 1820-1880, to 1900, trading range dating from the strong move above 1820 in mid-February. The SPX daily chart remains within its bullish uptrend channel and the overall trend remains up. The short-term trend is up given the upside move above SPX's 21 and 50-day moving averages. The intermediate-term trend is mixed. Some would say that the S&P is 'trendless', but a trend can be sideways; e.g., as confined to a trading range for a time.
The recent upside reversal came after SPX held the area of a 50% retracement of the prior advance (from intraday low to intraday high). The same approximate low in SPX was seen 3 days running, from last week into the trading week ending Thursday. These 3 OEX lows, ALSO representing the common 50 percent retracement support point, was a pretty sound tip off to get out of bearish positions at least and back into strategies to play the upside for the bulls.
Where to now? There's pretty immediate overhead resistance in the 1872 area, then at 1900 and a pivotal level. Having come this far I see no way that SPX is NOT going to the 2000 milestone. WHEN is the question! A couple of consecutive closes over 1900 and with buying interest/support found on pullbacks to this prior resistance, will suggest that another up leg is underway.
Near support is at 1840-1844, although not highlighted on my daily SPX chart below; my green support up arrows point to key support in the 1820 area, extending to 1805 at the current intersection of SPX's up trendline.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart, like the broader S&P 500, retraced 50% of its last advance and then rallied strongly, crossing above its 50 and 21-day moving averages and suggesting that the short-term trend has reversed to the upside. The intermediate-term trend is mixed as OEX remains in an 805-830, to 840, trading range. The long-term trend remains solidly up.
The key bullish event but as noted last week OEX "has not taken out support in the low-800 area, at 805 specifically. OEX has now retraced 50 percent of its last major upswing." And of course the Index held that prior week's low and the 50% Fibonacci retracement level.
Immediate overhead resistance is seen at 828, with resistance extending to 836-838. A move above 838 and the prior intraday high with ability to hold in this area on pullbacks (prior resistance 'becoming' subsequent support), would suggest a new up leg could be underway.
I didn't 'green up arrow' highlight it, but near support comes in around 817, the low end of the recent OEX (overnight) upside price gap. 805 is pivotal support, with chart support extending to OEX's up trendline at 798.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) daily chart turned from short-term bearish (within a longer-term uptrend) to short-term bullish. INDU, unlike the key S&P indices, did not quite touch support implied by its 50% retracement level. It pays to remember that the Dow consists of just 30 stocks. Sometimes INDU traces out 'picture-perfect' technical chart patterns, sometimes it doesn't match what happens in the broader S&P 100 and 500.
What we can do more easily in the Dow is to track the 30 individual stocks. I make a quick review of the 30 charts on a weekly basis. For a trend capable of going to a decisive new high, I anticipate seeing 15 or more of the Dow stocks in moderate to strong uptrends.
The 30 Dow stocks individually are a mixed bag and recent gains have much to do with resurgences in CVX, KO and XOM. Only DD, DIS, JNJ, MMM, MRK, MSFT, and UTX are in mostly still-strong uptrends. Most of the other 20 Dow component stocks are in sideways to lower consolidations after prior strong multimonth advances. I can't get super-bullish on INDU just yet. There was enough buying to hold not far under the mid-March bottom and above the 50% retracement point. There may not be enough upside momentum yet to lift INDU above near resistance at 16450 and then to tackle pivotal resistance around 16600.
Near support is at 16200, then at 16050 as highlighted on the chart and with deeper support back at 15800 at the Dow's up trendline.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite Index (COMP) as I pointed out last week was "getting close to the 3968 area which would represent a 'round-trip' 100% retracement of its last advance. I've noted potential support at this prior intraday low."
Almost as if traders were 'conforming' to the chart, the prior intraday low was retested, with a little slippage, and held to make for a potential double bottom. I put considerable stock in trend reversals implied by double bottoms and double tops. (Triple tops/bottoms are often uncertain as to an eventual outcome.)
Also important (as I wrote last week) for an upside reversal was COMP dipping into it's oversold zone in terms of the Relative Strength Index (ditto for the Nas 100) and my call-put 'sentiment' indicator getting near another type of oversold extreme; i.e., daily CPRATIO lows suggesting traders are getting significantly more bearish. I noted: "In a contrary opinion sense, such times are a point to look for any confirming price action of an upside reversal."
What next? COMP is unlikely to soar from here. Key near resistance begins around 4100, extends to 4150-4180, with the most pivotal technical resistance at COMP's minor down trendline intersecting currently at 4230. Next resistance then is suggested at 4280. There's considerable ground to cover back up to 4230-4280. And traders have been (Gasp!) been reminded that high flyers have HIGH risk too!!
Pivotal near support in the Composite is at 4050, extending to 4000.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart parallels the broad Composite with the only difference being that NDX made an exact double bottom low. What more did a trader need than to see that intraday low pushed all the way back to the early-Feb (2/5) bottom, followed by a fairly rapid upside reversal, PLUS coming on the heals of an oversold extreme in terms of the 13-day RSI?
NDX made a bottom you could anticipate ahead of time and not be glued to a screen all day, since a whole new down leg is highly unusual in an oversold market that remains in a long-term UPtrend. Yes I know that at the end of big sell offs we tend to group-think that there's nothing but AIR under the market, but it often ain't so.
I made another key point last time regarding VXN, the Nasdaq 100 volatility index, which was about the ..."tendency in recent months for bottoms in NDX to form with elevated VXN readings in the 21.5-22.5 area. One more dip might 'set' that up, especially if a potential double bottom low formed in the 3440-3419 area." There you have it.
Picking a bottom is often easier than forecasting how quickly an index or stock might get back up to prior highs. NDX has to pierce near resistance around 3500, then cross above its 21-day moving average (to suggest renewed short-term upside momentum) and take out 3600 resistance; last but not least is the resistance implied by the minor down trendline intersecting at 3635 currently. NDX might rally quickly to around 3600, but I anticipate more selling pressure to follow and no immediate move back above the highlighted down trendline.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) looks to have made a high-volume 'climax' low, with the Q's heavy volume as a good ancillary indicator. Heavy volume comes out mostly on liquidation of existing QQQ long positions, although there's shorting going on also. Of course the Nas 100 EFT also made a double bottom low and was oversold, with emphasis on its 'double bottom' chart aspect.
Near resistance comes in at 86.8, extending to the 21-day moving average (87.1); next chart resistance looks like 87.8 followed by pivotal technical resistance at the previously pierced UP trendline intersecting at 88.2 currently. Resistance then extends to the 89 area.
I don't see QQQ soaring higher from here but a move above the 21-day average and then holding mostly above this line would be a bullish plus and suggest more upside potential to come.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) has reversed up from its short to intermediate decline by moving back above its long-standing up trendline. RUT also held to a Close above the key 200-day moving average after a minor intraday dip below it. The 200-day moving average is a technical indicator but one seen as important by even the most dyed in the wool 'fundamental' (it's ALL about earnings!) market participants.
Pivotal next resistance looks like 1160, extending back up to 1190. Near support is highlighted in the 1120 area, extending to the key 1100 level.
Unlike the Nasdaq the Russell did not make a double bottom relative to its last intraday low but was getting close to it. Moreover, RUT got 'fully' oversold ahead of the recent upside reversal which as I said last time, "has often been significant for a bottom"... and "traders should be alert to an upside price reversal."
GOOD TRADING SUCCESS!