THE BOTTOM LINE:
I wrote last week about my first chart, the S&P 500 (SPX)
weekly, in terms of discussing why it's hard, or at least harder, to time (ascertain) Market tops. I used and use again the highlighted 4 times that SPX bumped into projected resistance at the top end of its broad uptrend price channel. Channel lines like this are very good at pinpointed resistance areas but not whether a pullback from resistance will be minor or MAJOR per our most recent correction.
It's hard to figure WHICH peak will be the one ahead of a good shorting opportunity. There was the 'divergence' of prices going up versus the 8-week Relative Strength Index (RSI) trending down, showing by this pattern a potential downside trend reversal ahead. However, such divergences happened at the time of some of the prior peaks and they didn't lead to the trading opportunity we just had in buying index calls, covering index puts.
The SPX weekly chart above is also shown here to illustrate the intermediate oversold condition suggested by the 8-week RSI being in the 'oversold extreme' zone. ALL the other indices, including the Russell 2000 have the EXACT same pattern; i.e., all dipped to this same low RSI reading then are rebounding in a carbon copy overall pattern for the major indexes.
THIS MARKET IS REBOUNDING FROM AN OVERSOLD WEEKLY CHART EXTREME AND IS ONLY NOW BACK TO 'MID-RANGE NEUTRAL' TERRITORY, SUGGESTING UPSIDE POTENTIAL IS STILL SUBSTANTIAL.
I'll be using what my Trader's Corner articles at key Market junctures to amplify and carry on DURING THE WEEK with analyzing trend reversals and areas of likely support or resistance. Examples are provided in the following two areas of interest that came up in suggesting how chart/trend analysis could have identified or help identify this last very tradable low.
USE OF PERCENT RETRACEMENTS
In my second most recent (Tues 10/14, a day before the recent bottom)
I covered the whys and wherefores of using percentage retracement levels relative to a prior major price swing, (up or down) to hone in on possible stopping places in a decline and especially in a STEEP 'waterfall' type decline where panic grips the market. This prior Trader's Corner will make for better understanding of what retracement levels are important in what type of market. High volatility downswings in oversold markets will sometimes if not often retrace 2/3rds to 3/4ths of the prior advance.
'TIMING' THE LAST BOTTOM USING 21-DAY MOVING AVERAGE ENVELOPES
In my most recent
Trader's Corner e-mail/web posting written the day of the 10/15 bottom, I describe the use of the 21-day moving average and related moving average envelope lines to predict potential bottoming areas.
For example, in high volatility downswings after a prior overbought EXTREME has been reached, the S&P 500 (SPX), S&P 100 (OEX), the Dow 30 (INDU) and even the Russell 2000 (RUT) Index would typically be at an EXTREME oversold condition if their intraday and/or Closing Lows reached the level of lower envelope line that 'floats' at 5-percent BELOW its 21-day moving average. With the Nasdaq, in its common drive high-beta condition, the Composite (COMP) and big cap Nas 100 (NDX) Indexes can fall to 7-precent BELOW its 21-day moving average.
Knowing the above will help make sense of the moving average envelope highlights on my charts below, which I've kept intact, especially now for noting the level of the UPPER moving average envelope which now may well indicate potential resistance(s).
Once a BOTTOM has been established or itâ€™s a pretty good guess that it is, the next important milestone is what happens on a recovery move TO the 21-day moving average. If the index rebound stops there, it will pull back and do some more 'backing and filling'. If instead the Index advances fairly rapidly ABOVE the 21-day average, it is likely headed to the UPPER envelope line where the rally might stall.
The 21-day moving average therefore should be watched as potential resistance on rebound rallies or as support on pullbacks once the Index is back ABOVE this key average.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The chart shows an intermediate bottom and turnaround since the 10/15 Wednesday intraday low. SPX retraced 2/3rds/66% of the February to September advance, which is a common stopping point for a DEEP correction. This assumes that the Index is NOT going to retrace ALL of its prior advance; and retest its prior (Feb.) low which would be a 100% retracement. Moreover the recent SPX low fell to 5 percent BELOW the 21-day moving average. For the S&P 500, 100 and Dow, 5 percent below this key trading average is about as volatile on the downside as we'll see in a bull market and we remain in a long-term primary uptrend.
Clearing the 21-day moving average resistance suggests next potential in this move is to the 2000 area at the upper (2.5%) envelope line and possible resistance there; next resistance is around 2019 and the area of the prior intraday high. Support is highlighted at 1930, then in the low-1900 area.
The RSI is now at a mid-level 'neutral' zone so still far from an 'overbought' extreme. Bullish sentiment (CPRATIO indicator, bottom of the chart) has rebounded some but (also) is far from an extreme. The last oversold daily reading per the green arrow highlight was 2 days prior to the bottom, consistent with this indicator seeing bearish sentiment readings 1 to 5 trading session PRIOR to prices bottoming.
S&P 100 (OEX) INDEX; DAILY CHART
I said previously that the S&P 100 (OEX) had put in a bottom and that this was suggested in the 820-815 area. The foregoing estimate of a potential low was based on the clues provided by the move to the lower (green) 5 percent envelope line AND the retracement made by OEX being in the 62-66 percent range.
A Fibonacci retracement is 61.8%, rounded to 62%. WD Gann made use of the 1/3 and 2/3rds retracements and I've found that a 66 percent retracement is often hit on the deeper Index corrections in overall bull markets.
The move in OEX to back above its 200-day moving average is important from an investment perspective and clearing the 21-day moving average is important from a trading perspective.
Key support is highlighted at 860 now, extending down to the 850-848 area. Near resistance is this week projected at 880-885, with 900 a key 'milestone' level after that.
THE DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow finally got 'fully' oversold which is kind of a big deal in technical analysis with INDU as in very STEEP declines we will tend to see the Dow stock Average 'fully' oversold as measured by the 13-day Relative Strength Index (RSI); and, in our recent market low, as shown (exactly) in the same pattern seen in my first chart ('bottom line' comments) of the weekly S&P 500.
The Dow in prior week rebounded from the area of a lower envelope set to a value of 5 percent BELOW the 'centered' 21-day moving average; use of these envelope lines are explained in my initial 'bottom line' comments above) and after INDU fell to a 75 percent retracement. 75 percent is another Gann related input: the 1/4th and 3/4ths retracement points(in addition to 1/3, 2/3rds). If retracements' exceed 3/4ths of the prior move, the next target to look for is a 'round-turn' 100% retracement to retest the prior bottom.
Near INDU resistance is highlighted at 17000, with next resistance then projected for the 17200 area at the upper envelope line.
Support is seen at 16600 currently in the Dow, with fairly major support now suggested around 16400.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The chart shows that the Nasdaq Composite (COMP) has regained its mojo and recovered from its recent sharp recovery which is as expected in a bull market. My work suggested that our recent panic sell off was no more than an intermediate-term correction within a primary bull market. I assess continued upside progress, maybe at a slowed down rate of climb in the November-May period. Opps, I'm getting way ahead of myself.
4350 is a key near support. 4300 was noted LAST WEEK as a "key near resistance at the 200-day moving average." This same area is now a highlighted next support; i.e., resistance once penetrated can become subsequent support on pullbacks. A very KEY resistance in COMP is at the line of prior highs at 4600 in COMP.
Near resistance is suggested for the 4500 area, extending to 4550 at the upper (red) envelope line. KEY chart resistance then comes at the line of prior highs at 4600.
NASDAQ 100 (NDX); DAILY CHART:
The NDX chart has regained its bullish momentum and chart pattern but will need to retest its prior high at some point to 'confirm' NDX in a renewed intermediate uptrend.
I previously have written about the Nasdaq big cap 100 (NDX) halting it's slide at a level just shy of a Fibonacci 62% retracement (for two days running) then also touching in the process the lower 7 percent envelope line. 7 percent as a lower envelope value in a 21-day moving average envelope study (applied to the more volatile Nasdaq) often represents an EXTREME low on the downside. A strong rebound followed and this wasn't surprising for pullbacks as deep as what we had recently in the Composite and in the big cap Nas 100.
It's important in relationship to using the 21-day moving average, with related 'envelope' lines, to measure likely upswing AND downswing extremes, to observe what happens on a initial recovery rebound TO the area of the 21-day moving average. This average may initially 'act as' resistance. Once it (the 21-day average) is decisively pierced, the Average then often flips to 'act as' support relative to a further advance.
Near support then as no surprise is suggested in the area of the 21-day average, with next anticipated chart support at the low end of the upside price gap area around 3875.
Near resistance is seen at 4050, then at 4100, extending to the 4120 area.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The QQQ tracking stock has regained its bullish chart pattern with the recovery from the extreme lows as measured with the help of where the lows fell in terms of retracements of the prior major run up and especially in terms of hitting the lower envelope line at the 10/15 bottom.
Last week I suggested resistance would next come in at 96, then at 94. Now those same levels, once they were penetrated exceeded, are expected layers of support ahead as seen with my green arrow chart highlights.
Next resistance is anticipated at 99, then at 100-100.5.
On Balance Volume (OBV) is finally pointed higher but upside potential may be limited if the current rally continues; i.e., to the 100-100.5 area in the near-term. QQQ may need some time to sustain a rally above 100-100.5. Stay tuned on that!
RUSSELL 2000 (RUT); DAILY CHART:
Even the dogs of the Dow have a tendency to get pulled up in a powerful bull move and I suppose that same axiom could be applied to the 'dogs' of the Market in terms of a major capitalization Market segment (small to medium cap companies) that has fallen out of favor currently.
Last week I talked about the importance of RUT having "a sustained move above the 21-day average". And, well a few days seems like pretty 'sustained' move for the Russell these days.
It's bullish having RUT above 1100-1080 but exceeded 1140 resistance may be tough; tougher still and more telling as to breaking out of its bearish downtrend channel would be for RUT to clear its down trendline in the 1160 area. Stay tuned!
GOOD TRADING SUCCESS!