THE BOTTOM LINE:
The economy can't grow too much or it's too much of good thing! Better to do the common thing of climbing a wall of worry. The
'correction' camp has won out for awhile but that's a good thing too trading wise as bottoms are much easier to 'time' than tops. Really, seriously, tops in bull markets, even interim ones, are notoriously tricky to get into with options at the right time, especially in straight puts.
The right things are happening to 'set up' a next rally as the S&P 500 (SPX) and the Nasdaq Composite (COMP), even the small cap Russell, as they near or are at (RUT) 'oversold' territory relative to the 13-day Relative Strength Index (RSI) indicator. Not the Dow which isn't near an oversold low in RSI and is holding 17000; and, not in the Nasdaq 100 (NDX), which has a 'what me worry' sheen.
The problem so to speak with NDX here is that it's been too overbought longer-term to continue to advance and 'too much' in favor by investors to fall much. THAT would take real selling and who is going to sell the tech darlings!
I sensed some pullback if not a full-blown correction in NDX as I wrote 2 weeks back (9/13/14) that:
"I favor buying NDX calls in the 4000 area, assuming buying comes in this area as I believe it will; the idea being that what was a key (prior) chart resistance should now offer technical support on pullbacks. If not, a deeper correction may be 'signaled'."
Well, NDX got down to 4007 this past week before the sellers suddenly must have gotten struck by WHAT AM I THINKING?! They then stopped selling in the face of buyers wanting to come in near 4000.
Bullish sentiment finally has been declining as traders realize that maybe there actually ARE risks to owning stocks OR having too much of a weight in equities relative to those generous 2 percent government notes! I say GOOD. Not greed is good but some fear is healthy in trading.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The S&P 500 (SPX) Index slipped some this past week and had a 1-day Close below 1980 support and below its 50-day moving average. A more prolonged stint below the 50-day average would suggest that SPX's support (up) trendline may get tested.
Near support comes in at 1965, at the recent intraday lows seen on Thursday and Friday, with next pivotal technical support coming in at SPX's up trendline, currently intersecting in the 1948 area. Fairly major SPX support is suggested in the low-1900 area as the early-August bottom.
Near resistance is at 2000. Further key resistance is suggested in the 2011 area, extending to 2020 as highlighted by the red down arrows on my chart.
The RSI momentum indicator, with low and high readings in the upper or lower zones suggesting an oversold or overbought condition respectively, got down to near a typical 'oversold' low this past week.
The last time SPX got 'fully' oversold in the 13-day RSI, which was also coupled with a low (preceding) CPRATIO, was the last clear cut bullish 'signal' relative to my two key technical indicators. This was COUPLED with a fall to price support implied by SPX's dominant up trendline and the primary trend reversal aspect of price action + RSI + sentiment extremes.
S&P 100 (OEX) INDEX; DAILY CHART
The big cap S&P 100 (OEX) also fell briefly below its technical and moving average (50-day) support at 880 but not for two days running which tends to 'confirm' the first instance.
Near support is highlighted (green up arrow) at the recent two-day intraday low at 877. Next technical/chart support then comes in around 866 or the current intersection of OEX's up trendline.
Near resistance is at 890-892, then is highlighted at 900 which is the 'pivotal' resistance; further resistance is then implied in the 910 area, at the upper end of OEX's broad uptrend channel.
A dip to the 870-866 area looks to offer a bullish play. I didn't suggest buying puts in the 900 area as I don't usually trade counter to the dominant trend. I still see the big cap OEX moving higher over time. September is not always a great month to prove the primary trend is intact. August saw outstanding gains; September looks like it may end slightly lower. Only Monday and Tuesday to go until month-end!
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
Except for Thursday weakness, the Dow 30 Average (INDU) held its key current line of support at 17000. The chart remains bullish as it stands currently. INDU has traced out a sideways consolidation only. If there is a decisive downside penetration of 17000 then another down leg is suggested.
I've highlighted near support at 17000-16942, with key lower support coming in at the up trendline, currently intersecting around 16650.
Near resistance is at 17200-17215, then at the prior intraday high at 17350. Major resistance is projected to come in the 17600-17700 zone.
The 30 Dow stocks have 12 I count as either in strong bullish patterns or at least looking like they could go still higher; i.e., DD, GS, HD, INTC, JNJ, JPM, MMM, MRK, NKE, PG, TRV and UNH. The foregoing list here doesn't leave me feeling INDU has to go a lot higher but it's probably enough to pull the Average up. If there's another rally that only carries again to the 17130-17150 area and sideways thereafter for a period of time, I'd look at such a pattern as a possible Head & Shoulder's top.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite Index (COMP) is bearish on a short-term basis but still within its longer-term bullish uptrend as shown graphically by the highlighted uptrend price channel. The intermediate-trend would turn lower if there were Closes below COMP'S early-August lows. Below COMP's up trendline, technical/chart support is assumed at the prior (early-August) cluster of lows at 4350-4325.
Assuming that COMP holds at or above its up trendline, intersecting in the 4475-4460 area, the Index would be in a position to rally; especially so as it nears and/or is at a low 'oversold' reading in the 13-day Relative Strength Index. Moreover, a bearish 1-day or more extreme in trader sentiment could set the stage for a potential rebound.
Overhead resistance is first at 4550, then at 4600 and above that is projected next in the 4700 area.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) remains bullish, although within the context of a sideways to lower short-term trend after NDX hit resistance implied by the upper end of its broad uptrend price channel as seen on the chart. NDX also held a key technical support thi8s past week as implied by its 50-day moving average. It's low was within a hair's breath of key technical support at 4000. Trendline support comes in at 3900.
Resistance is seen in the 4100 area, then (again) up at the upper end of NDX's uptrend channel in the 4182-4200 area.
Implied volatility increased over the past couple of weeks, which is good for options sellers and high-frequency traders. I'll spare you my opinion of those computer jocks but think low, very low.
Odds favor NDX continuing to hold its 50-day moving average. It's hard not to be bullish on big cap tech which seems to be oblivious to any big sell offs. It's been rare to see NDX any MORE oversold than it was on Thursday. The RSI was at that same level prior to NDX's last up leg.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) is mixed in its pattern in the short-term but has seemingly found support in the area of its up trendline. I've highlighted support at 98 with next key support in the 96.4-96 area.
Near-term overhead resistance is at 100, extending to 100.6 at the prior intraday high. Next resistance is implied at QQQ's upper trend channel boundary.
Daily trading volume shot up significantly on Thursday and Friday of this past week which is meaningful for the Q's, usually as often as not, occurring at or near a bottom. However, if 98 gives way, I don't see support coming in before 96.4-96. Major support begins in the 94 area. Stay tuned!
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) is bearish in its pattern but RUT has the potential here to make a double bottom low; especially so given the oversold RSI.
MOST RELIABLE TRADE for the period shown below is to buy calls at oversold extremes and puts at overbought levels per the highlighted low ('oversold') and high ('overbought') zones in terms of the 13-day Relative Strength Index.
I don't have any more to say on RUT! It of course COULDN'T be that simple! You can always find reasons to make it more complex than this by further analysis!!
GOOD TRADING SUCCESS!