THE BOTTOM LINE:
Panic selling and extreme volatility gripped the Market this past week and the VIX (21.2) and VXN (22.6) volatility indexes are now at levels previously seen at bottoms. The Russell 2000 (RUT) falling below its 200-day moving average in mid-Sept (9/19) has turned out to be a harbinger of the overall Market decline to come; RUT's 50-day average also crossed below the 200-day at the same time.
What a difference a week makes! I was last week mostly convinced that the major indices (not RUT!), holding at or near trendline supports, would lead to another rally. This view was, how can I say it, WRONG!
One wrinkle of the 'whippy' price action of the past week is that my usual best guage of oversold on the daily charts, the 13-day Relative Strength Index or RSI isn't yet showing a 'fully' oversold reading in some of the major indices. There was enough volatility on the upside to stave that off so far in the S&P (both) and the Dow but not in the Nasdaq Composite and the big cap Nas 100. On a weekly chart basis, an 8-week oversold reading (beside RUT) was reached in COMP. SPX and INDU are closing in on a 'fully' oversold condition in the RSI.
My shorter-term Indices outlook contrasted with my last month-end Trader's Corner technical review (9/30/14) of the very long-term trend via monthly index charts. Multiyear monthly charts made it harder to think that the relentless years-long major push higher in the Nasdaq wasn't going to result in a major pullback at some point, possibly soon, considering the continued move higher in COMP but on declining 'relative strength' as highlighted by the higher price trend in recent months, with the RSI not matching. 9/30 monthly COMP chart:
This past week, in a telling study of trader psychology, it wasn't until the bear had completely rampaged through Friday that my daily equities call to put volume ratio (CPRATIO) finally showed a SHARP increase in put volume and by inference a sharp increase in bearishness. Using another animal metaphor, this is closing the barn door after the horse is gone! And may suggest that the Market could be at or near a bottom. We'll see on that.
There's a possible retest coming up of chart support in the 1900-1905 area in the S&P 500 (SPX), the 850-845 in the S&P 100 (OEX), 16400 in the Dow 30 (INDU) and its early-August bottom.
In the Nasdaq Composite, next chart/retracement support looks like 4200 with major support in the 4000 area; in the big cap Nasdaq 100 (NDX), potential support now looks to come in at the early-August NDX lows in the 3850 area with support extending to 3800. The Russell 2000 chart finally may find some support/buying interest in the 1020-1000 area.(Friday Close: 1137).
Last week I thought it was 'cleaver' or savvy of options traders NOT to be overly bearish and big put buyers coming into this past week; high bearishness only finally showed up in my daily call to put volume ratio (CPRATIO) this past Friday. In retrospect us short-term trader types were not looking hard enough at the bigger picture of a potential global slowdown.
An important milestone moving average that is widely followed is the 200-day average and not just RUT has closed below it now: following suit with a Friday Close below this key average is INDU and COMP. SPX closed AT the 200-day; OEX and NDX closed the week above it, as seen on their charts.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
Last week SPX looked like the Index could have been bottoming in the area of its up trendline. It looked like a V-bottom, but that didn't last long as renewed fears set in this past week. VIX volatility level at 21.2 is suggestive of a potential bottom. Stay tuned on that. Market has sure been spooked. Friday's decline stopped right AT the key 200-day moving average and this area will be watched for signs of buying interest in the coming week, especially by 'reversal Tuesday' I would think.
Resistance first comes in at the broken trendline at 1925 although not highlighted on the daily chart. I noted key chart resistance at 1970, then back at 2000.
Support is strongly suggested in the 1900-1905 area, then around 1882, representing a 2/3rds retracement of the advance from the March low into the September high at 2020. Lowermost support then highlighted at 1860.
Traders finally jumped into substantial put activity by week's end, pulling my 1-day CPRATIO down to the oversold-extreme bearishness area. RSI is almost at a 'fully' oversold level on a 13-day basis but only is not all the way there given intermittent rallies. 8-week RSI (not shown) is within a hair's breath of an 'oversold' reading.
This corrective pullback/reaction seems quite overdone, but so was the upside for some time. A bottom might take a while to form. Europe moves far slower to take investor-pacifying actions.
S&P 100 (OEX) INDEX; DAILY CHART
OEX knifed through key support at 880 with few buyers to stem the tide. The Index now looks like it would 'logically' re-test the early-August lows in the 850 area. We'll see if the bears will remain in the driver's seat into next week. Next support below the important 850 level comes in around 845-843.
A Close or two below the 200-day moving average would attract more selling potentially as even fundamentally oriented money managers do pay attention to this key investment-relative average and either see it as place to pick up some stock(s) OR, on a break of it, as a trigger to do more selling.
Resistance comes in at the 'breakdown' point at 860, then at 877-880. A Close or better, two such Closes, above 880 is needed to generate some feeling of confidence that the big cap S&P has regained some stability.
I thought last week that dips to 870 or lower would be well supported but the buyers stepped aside!! We'll see what happens if OEX gets to the prior lows and stops or breaks further. The sellers may let up some in that area or not. Stay tuned.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
INDU broke under 16600 support and Closed below the key 200-day moving average. This is not a good omen to money managers. A bullish omen would be for it to rebound quickly as the Dow did the last time when it just went TO the 200-day.
Support is highlighted now at 16400, which is a key level, at the prior (early-August) lows. Next support, also key technically is the up trendline intersection of my latest and last version of INDU's up trendline which intersects currently in the 16230 area.
16000 is major support.
I didn't highlight this level, but initial resistance may come in at INDU's recent 'breakdown point' at 16650. Resistance points that are highlighted; first, at the key 17000 level, then at 17200.
The Dow is STILL not 'fully' oversold on a 13-day time frame but is also like SPX, within a hair's breath of being so based on an 8-week Relative Strength Index (not shown here). Being oversold AND holding at or around the 200-day moving average would help the Index stabilize. Absent that, more downside looks possible.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
COMP is bearish in its pattern with the decisive break below 4400, which is now initial resistance. The Index also Closed below its 200-day moving average which is bearish; certainly a different pattern for the long-standing bullish trend! This shorter-term pattern should be viewed within the context of the Composite still being within a broad uptrend channel.
Key support in my estimation comes in at 4200, both as the intersection of the support/up trendline and a representing a Fibonacci 62% retracement of the March-September advance. If COMP starts trading below 4200, the chart begins looking increasingly bearish.
Resistance at noted is at 4400, then up at 4500 and the 50-day moving average.
Unlike some of the other major indices, COMP is now at a 'fully' oversold extreme on both a 13-day RSI reading (per my daily chart seen below) and on a 8-week basis per the weekly chart and not shown here. An 'oversold' condition simply means that the Index has a propensity to rally IF there is an absence of negative shocks; and of course, some bullish news would help!
Bearish sentiment finally took hold on Friday but traders are still not all that bearish per my read of them. A more substantial build up of bearishness may be needed to set the stage for a sustained rally.
NASDAQ 100 (NDX); DAILY CHART:
NDX has held up the best until recently, as it resisted the decline due to willing buyers. They went away on Friday! Out to lunch, to the nearest bar, wherever!! The Index may hold at its up trendline, currently intersecting in the 3850 area. Next chart support looks like 3800. Fairly major support may be found in the 3700 area.
Meanwhile NDX is finally, the first time in a long time, at an oversold extreme on both a daily AND weekly chart basis. Moreover, as the S&P's VIX volatility index, NDX's VXN index, as seen at the bottom of the NDX price chart below, has climbed to levels previously associated with bottoms. Stay tuned on that effect!
I'll be watching the up trendline (3850) for potential support and below that, the 200-day moving average currently intersecting in the 3760 area. Not good for the bulls for the prime mover to have such momentum slippage that it can't hold this key average!
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
QQQ has a bearish pattern although still within its broad uptrend price channel as highlighted on my chart below. The down leg or sharp decline once 96 support gave way is just the latest bearish chart aspect showing panic type selling. Heavy volume came out on Friday with that break.
Now to be seen or not is what happens in the 94 area, if reached, at the Q's up trendline. I've highlight next support at 92, at the 200-day moving average. [92.9 bears watching as a potential support as it represents a 50% retracement of the March-September advance. 90.5 - 91.2 is another Fibonacci retracement area of interest and is seen on chart also.]
First resistance is now down to 96 with next resistance at 98, extending to 98.8.
Daily trading volume shot up on the last break and is so typical of this ETF as the break of key price points sets off a wave of concerted and panic selling. The On Balance Volume (OBV) line now longer looks anything but showing a bearish down trend.
RUSSELL 2000 (RUT); DAILY CHART:
So much for RUT's potential to rebound due to an oversold RSI extreme as I mused last week. That has worked when RUT was performing more consistently as the laggard WITHIN a bull market. Now, I don't what this bearish chart portends for the overall market; I don't see an bear market around the corner. Maybe there's something coming that can't be guessed at currently.
RUT's price channel has flipped to a bearish downtrend, going from right (high side) to left (low side). Technical/chart support may come in around 1025. Definite support in the 1000-982 zone shows up as potential support on longer-term charts (not shown here).
Resistance is highlighted at 1120, then 1140. Trendline resistance intersects in the 1169 area currently.
As I write in my initial bottom line comments above, the occasional rebounds on the way down have kept RUT from showing an RSI oversold extreme on a 13-day basis. Such an oversold extreme WILL be seen if you look at the Relative Strength Index 'applied' to a weekly chart (length = 8) at a 22 reading.
Note the downside acceleration when the 50-day moving average crossed below the 200-day.
Just as 'overbought' situation in a bull market trend may not lead to much of a correction/pullback for long periods, an oversold 'extreme' in a bear trend might not 'set up' a good sized rebound for a lengthily period.
GOOD TRADING SUCCESS!