THE BOTTOM LINE:
Old Trader's saying about markets is "that they 'slide' faster than they 'glide'" and go down faster than they go up. Buying in stocks tends to be incremental, in bits and bites, selling can be all at once, an avalanche! We see this from time to time in bull moves and is typically a result of valuations going beyond the prior consensus of where earnings and the economy will be 6-9 months.
If you believe that the negative influences were Argentina default, some key disappointments on earnings, mid-east turmoil and these kind of things, then I've got a bridge to sell you!
Naw, it's the Fed dread. It's always, well so often, the fear that the Federal reserve will start jacking up rates.
However, I'm a technically oriented trader and I'll mostly stick to technical events and projections.
A, if not 'the', difficult thing about 'rotational' corrections in a bull market cycle is that different sectors and markets get to potential technical support sooner than other sectors and markets. It looks to me like the S&P 500 (SPX) AND the Dow 30 has already fallen to pivotal trendline support, whereas the big cap S&P 100 would have to fall a bit further to test key support trendlines.
The Nasdaq has only had a relatively shallow correction to date. It's then hard to know if we can 'trust' buying SPX, if the Nasdaq is going to get pulled down some more.
Trader sentiment got 'fully' oversold/bearish in my model on the Friday rout (what took traders so long to decide that there's RISK in stocks again!) and the RSI got 'fully' oversold in SPX. All together it looks like a buy already.
I'll lay out where I think (relatively) major support lies in each of the major indexes and you can decide for yourself. And, take a look at what I'm talking about with SPX, by perusing its weekly chart after these numbers:
SPX: key intermediate support reached already at 1920, with support extending to 1913 to 1900.
OEX: key intermediate support seen at 842, with a possible further dip to the 832-830 area.
DOW: key intermediate support comes in at 16500, which has been reached; support extends to 16450. Major support at 15265 if the aforementioned levels get pierced in a sizable further slide.
COMP: key intermediate support seen at 4200, but support starts around 4275.
NDX: 3750 to 3675 looks like pivotal intermediate support, but starts in the 3850 area.
QQQ: key intermediate support starts at 92, but extends to 90.
RUT: 1100-1080 is key chart support.
The S&P weekly chart will demonstrate a major index that has already fallen to what has PREVIOUSLY been technical/chart support implied by its longer-term up trendline. Support is at 1920, extending to 1900. A weekly close below 1900 suggest that this trendline is no longer 'valid'; and, that the rate of SPX upside momentum we've had for close to 2 years has slipped.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The S&P 500 (SPX) Index is bearish in its pattern. Important to note also, is that SPX has now retraced a 'minimal' 38% of its prior advance. In a still-strong bull trend, that might be all the pullback that we see. Support implied by the 50% retracement is at 1900. I've noted potential trendline support at 1913.
A dip to a key trendline, per the weekly chart seen above (at 1920) and that subsequently 'acts as' support and where buyers come in, PLUS and oversold Relative Strength Index (RSI), PLUS an extreme in bearishness in my CPRATIO model (even on a 1-day basis) often is a buy 'signal'; or, at least suggests that a bottoming process is starting. We have the aforementioned 'big-3' technical events occurring in the S&P 500, so I'm watching and waiting to see if an when I might re-establish some bullish positions.
Resistance is highlighted at 1953, at the current intersection of the 50-day moving average and extends to 1960. Two back to back Closes above 1960 would suggest that the S&P has regained some bullish footing.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) chart turned bearish when the Index pierced trendline support in the 875 area and then pierced its 50-day moving average in the 865, also now highlighted as resistance. The fall on Thursday was severe per the Close at the intraday Low after a steep decline; but, bearishness got much more extreme on Friday without buyers leaping in again given the employment report as was already 'priced' in the market.
To keep doom-saying at a minimum, OEX has to date only retraced a kind of 'minimal' Fibonacci 38 percent relative to the February to July advance. OEX could get to 850-845 next, but perhaps after an early week rebound. Some will bargain hunt. I've note support at 850, with intermediate support at its up trendline currently intersecting in the 830-832 area.
Near resistance as I said, 865, then 875. OEX is another of the S&P family to fall to an oversold extreme in terms of what the historical picture is. Is an oversold reading a signal to buy the Index calls? Not in and of itself, but rallies ALWAYS come after an oversold extreme, we just don't WHEN; oh, and how high will be the initial rally!
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 Average (INDU) is the most bearish of the sort of traditional group that centers on the NYSE. You know those with 3-letter symbols instead of 4! How do we measure this? The Average's closeness to touching its 200-day moving average, which is big or at least 'noticeable' deal in the investment world.
Important in the chart is the touch to INDU's up trendline at the 38% retracement level. If support is found in the 16400-16450 zone, that continues a relatively 'mild' correction.
If support implied by the 200-day average in the 16350 area gives way it started to look like a more severe correction. I noted at the top of my piece that Dow intermediate support was suggested at 16500, which has been reached; support extends broadly to 16450-16250.
The Dow is oversold like the S&P indices, suggesting some kind of rally will be coming. I'm wanting to see the 'quality' of the next rally (how strong, how prolonged) as I suspect the first rally will not be one to buy into. Rather that will come later.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite Index (COMP) formed a bearish 'double top' and it was downhill after that, at least as seen so far in the downside price 'gap' that preceded this past week's fall below key chart support at 4350. COMP did of course recover intraday and closed Friday at 4352 just a hair's breath back into its prior trading range.
I wrote above in my initial 'bottom line' comments that key intermediate support is at 4200, but near-term support starts at 4300-4275. Actually, I'm overlooking 4350 as it might be possible for the Composite to have such a shallow correction that COMP keeps within its prior 4350-4485 narrow trading range.
Bearishness, as suggested by sizable JUMP in equities put volume on Friday created a sharp drop in my call to put ratio, which is my favored 'sentiment' indicator. COMP is nearing an oversold level in the 13-day Relative Strength Index (RSI). COMP rarely gets all the way down into oversold territory in the RSI but when it does, especially when there are a couple of dips into that area, it's previously been associated with a tradable bottom.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) chart is now short-term bearish after NDX fell under chart support at 3950. The Index on Friday got near, but not to, support suggested at 3850, the low end of its prior recent trading range and the level of NDX's current 50-day moving average. Next potential support comes in at 3800; technically important chart support is highlighted in the 3750 area, at the intersection of the NDX's up trendline.
As I wrote above, in my 'bottom line' comments, 3750 to 3675 looks like pivotal intermediate support in the big cap Nas 100, but starts in the 3850 area. Would I like to buy NDX calls? Yes, if the index tested and held its up trendline. Bullishness in tech might not allow, what I think would be a 'low-risk' opportunity there, unless bearishness finally spills over into tech magical thinking.
Resistance is suggested at 3950 and back in the 4000 area. I made a note about the VXN volatility index and that the recent very low VXN readings suggested to me 'complacency' as has the long-standing bullish sentiment readings seen with the CPRATIO indicator on the COMP chart above, at least until Friday when the bulls knees finally trembled! This IS the stock market we're talking about here! Complacency has been the kiss of death for me and for many.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) turned bearish in its chart pattern on the Wed-Thursday downside chart gap and break below 96. The QQQ volume pattern may be an example of bullish complacency also. What I have seen in almost ALL significant corrections/pullbacks is big spikes in daily trading volume when perceived support levels give way. Not so this time! It seems unlikely.
Trader sentiment still seem 'overly' bullish given the bearish trendline break and other downside risk factors that the bulls may not be paying much attention too, at least now.
Key near support starts at 94, at the 50-day moving average and a decisive downside penetration of this average may set off some further selling. Intermediate support starts at 92, but extends to 90 on a big-picture basis.
Near support is at 96, extending to 96.5. A move back INTO its long-standing uptrend price channel, which is back above the lower up trendline, would be bullish if it persisted. Speaking of volume considerations, the On Balance Volume (OBV) line is trending lower, which is a 'confirming' bearish aspect to the recent price break.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart continues bearish as the Index trades below the important 200-day moving average. RUT now looks like it may retrace 100 percent of its entire prior decline and retest prior support in the 1100 to 1083 area.
The Russell is again 'fully' oversold in terms of its 13-day Relative Strength Index and such a low RSI reading has previously been telling for a rebound.
In the 1080 area, RUT would fulfill a measured move objective, whereby its two down legs would be equal. RUT is probably a low risk buy on a successful retest of its prior low.
Resistance is highlighted in the 1140 area, with resistance extending to 1160.
GOOD TRADING SUCCESS!