THE BOTTOM LINE:
Houston we have a problem: the reliable Market uptrend of prior years has run out of gas in recent months. Many feel forced to trade for smaller objectives and this isn't to everyone's liking!
I'm a longer-term bull based on the long-term uptrend pattern in the major indexes. But, the short to medium term can be a killer as rallies fall apart on news that didn't seem to phase Market participants in the months leading into highs in late-November or even into late-February. The last sizable sell off in the S&P 500 into mid-October was short-lived after falling to the lower (support) end of SPX's weekly uptrend channel; also then reaching an oversold extreme. A weekly chart is coming up that includes an 8-week Relative Strength Index indicator.
A problem for the bulls from a technical/chart and indicator perspective is that there's a price/RSI divergence as prices trend one way and the RSI trends another; i.e., for approximately 20 weeks SPX has been trending sideways but accompanied by DECLINING relative strength suggested by a falling RSI.
A price/indicator divergence, with prices going one way and the RSI another OR in the OPPOSITE direction, has usually 'signaled' EITHER an inability to either (1) mount a sustained next up leg OR (2) has preceded a sharp pullback. Outcomes for BOTH divergent patterns are highlighted on my weekly SPX chart.
One thing about the divergent price/RSI pattern in SPX seen above is that it's hard to forecast WHEN the current lateral move will end. The sideways trend will look to be over if there's a sustained rally above 2100. Another outcome: there's a substantial pullback such as (again) to the low end of the uptrend channel (e.g., to the 1950 area) followed by a strong rebound.
A related outcome of trend resolution might be a fall to below the 2050 line of support to whatever level, followed by an upside reversal and strong buying. Whether SPX re-tested trendline support or not, upside reversal patterns have more credence if there's also an 'oversold' extreme seen with the RSI.
The S&P 500 Volatility Index (VIX):
The VIX Index got down into its typical 13-12 zone where downside reversals often occur in SPX. I thought VIX might again hit 12 again but VIX did see daily Closes twice at 12.5 followed by at least one steep decline so far. Intraday on Friday, VIX reached an upper extreme at 15 before settling just below 14.
I noted last week that: "There's some tendency for VIX to rebound when the Index falls into its 'oversold' zone in terms of the 13-day Relative Strength Index (RSI)..." which has preceded at least this last pop in VIX.
It's worth repeating again from last week that if you were "convinced of another top ahead, buying VIX calls is one way to 'hedge' stock exposure or to speculate, especially if VIX again hits or comes close to 12." Stay tuned as to whether volatility continues to pick up!
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The S&P 500 (SPX) is mixed in its pattern. The Index remains in a longer-term uptrend but on an intermediate-term basis SPX is in a holding pattern or in a trading range; e.g., between 2040 and 2120 at least since early-February.
My moving average envelope 'bands', currently set at 2.5% above and below the daily 21-day moving average, suggest a type of potential 'trading range' also. Trade at the upper and lower lines suggests price levels at which the S&P could be 'overbought' and 'oversold' respectively.
I was leery of what would happen on another run toward SPX's prior high(s). The rally looked 'ok' until it wasn't! I don't favor bullish strategies and staying in on multiple approaches to prior highs when the Market is so skittish. You can tell when a bull move has run its course, which is when bearish news knocks stocks for a loop. In a technically strong advance the Market 'climbs a wall of worry' so to speak; not so, these days when 'worry' brings fear and loathing of stocks.
Near support looks like 1280, with pivotal support beginning at 2060, extending to 2040. Technical resistance is highlighted at 2100, extending to 2120. The 3-top formation looks a bit like a 'Head & Shoulder's top' pattern. A little irregular but the 'H&S' type top pattern is hinted at. The Close below the 21-day moving average was bearish assuming SPX continues to trade below this key trading average going forward.
Bullish sentiment peaked in early-April and has been trending lower since. If this indicator (CPRATIO) gets 'oversold', or at or under the highlighted oversold extreme AND if the RSI also fell to an oversold reading, I'd be looking to price action for signs of a possible upside reversal.
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) is mixed in its pattern like the broader S&P 500. See that commentary above. The firmest conclusion I can hold currently is that OEX looks to be bound in a trading range between 825-832 on the upside and 897-893 on the downside. I remain longer-term bullish.
Resistance is highlighted this week at 920, extending to 925. Above 925 we'd be looking at a possible retest of the cluster of OEX highs around 932.
Near support is highlighted at 905, extending to 900-895. I previously liked the 'risk to reward' of adopting bullish strategies on dips to the 895 area and also thought upside potential was to 925. OEX got to two intraday price peaks most recently just under 924.
No further suggestions of another bullish trade adoption. In terms of being long OEX calls for example, I don't like the way that rallies fall apart severely. Like last week, I'm less convinced of a new high scenario as in a decisive upside penetration of prior highs.
THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:
My doubt last week on the Dow (INDU) Average related to it being "uncertain as to whether INDU is (locked) in a trading range or capable of a decisive move to new highs." I thought that INDU could retest 18200 resistance which it got close to at 18170 at its recent intraday peak before taking a Friday plunge.
I've tightened up the trading 'bands' (moving average envelopes) I use to 2% (from 3 percent) above and below the 'centered' 21-day moving average. You can think of these upper and lower envelope lines as potential or anticipated upside and downside price parameters going forward. They give an idea for the price points at which the Dow would be 'overbought' or 'oversold'.
Bullish potential is seen due to favorable chart patterns (OR due to potential further recovery rallies from possible bottoms) in: AAPL, CAT, CSCO, DIS, GS, JPM, MMM, MSFT, NKE, PFE, TRV, UNH, and V. Besides these 13, oil stocks CVX and XOM may see some further upside in recovery bounces. This list may not lead INDU much higher but may prevent a big further decline.
Support begins in the 17800 area (not highlighted) with fairly major support in the 17650 to 17580 zone. Overhead INDU resistance is highlighted at 17900, extending to 18100.
I'm watching from the sidelines as INDU may continue to move within a relatively narrow 18200 to 17600 trading range but even that much seems uncertain in this nervous market.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) remains within a bullish long-term uptrend price channel but intermediate-term has traced out a bearish potential double top; 'double tops' are said to be 'confirmed' only if/when a prior downswing low is pierced which in COMP is in the 4850 area.
I wrote last week that "COMP looks headed to a retest of important technical resistance in the 5000 to 5040 area." For sure, as the Index got up to 5024 intraday and Closing peak of 5011, before the sharp Friday sell off.
I've noted support at 4900, extending to 4850. It's important at least for holding its prior price range that the Composite not see back to back Closes below 4850, which would turn the chart bearish and/or suggest a possible test of next support at 4800-4780. Pivotal resistance is at 5000, extending to 5020-5040.
Bullish trader sentiment has fallen significantly since I wrote last week that bullishness "seems a bit 'overdone' given the possible difficulty of piercing milestone resistance at 5000-5050." I also wrote that "I don't see major upside potential for COMP ahead..." and still my view unless a sustained advance developed that took the Index above 5000, in which case there might be eventual further potential to the 5100-5125 area.
NASDAQ 100 (NDX); DAILY CHART:
The big cap Nas 100 (NDX) reversed shy of its prior double top in the 4460-4465 area which continues a bearish chart. NDX is different in this from broad Nasdaq Composite which just formed a double top given its most RECENT high and subsequent retreat.
I've highlighted potential resistance at 4400, extending to 4450. Technical/chart support is seen at the low end of NDX's prior trading range at 4280; support then extends to 4250. Fairly major support then begins in the 4200 area.
I wrote last time that "Volatility as measured by VXN is at a low level around 14 where the Index has made tops in the past. Just saying!" Still sayin, as the Nasdaq 100 VXN volatility index has rebounded a bit from its base support at 14.
NDX has a similar appearance to a Head & Shoulder's top formation. Not the classic exact H&S 'classic' pattern with the middle top distinctly above the two highs on either side. But the Index has traced out a similar 3-top type pattern. I can definitely assess NDX's chart as mixed to bearish. No trade suggestion here, especially without a decisive upside OR downside breakout of NDX's relatively narrow recent price range.
The NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) is bearish in its pattern of successively lower upswing highs, allowing a down trendline to be drawn; one suggesting trendline resistance currently intersecting at 108.2. More immediate overhead resistance is at 107.
Near support is highlighted at 105, extending to the line of prior lows at 104.3.
As I often have noted, a sizable sharp decline such as we've just seen will usually also result in a sizable jump in daily trading volume. You can mostly trust that many bulls have turned to bears if there's HEAVY volume in QQQ. Bearish volume 'confirmation' to bearish price action is seen in the turn down in the On Balance Volume (OBV) line.
No trade suggestions. If you shorted the stock at the rally reversal at QQQ's bearish down trendline, look for a possible retest of support at the low end of the multiweek price range.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) previously appeared to have the strongest uptrend going of the major indices but a falling tide LOWERS all boats! RUT on the Friday sell off found at least temporary support/buying interest in the 1250 area, at the low (support) end of its daily chart uptrend price channel. Next lower support is highlighted (green up arrow) at 1240. Major support begins at 1200.
I've noted resistance at the beginning of the Thursday/Friday downside chart gap at 1265. Overhead downside price 'gaps' tend to act as resistance. Resistance extends to 1270-1278. Major resistance begins in the 1300 area. I've had a next longer-range upside target to around 1350-1360 in the Russell.
I wrote last time to "keep an eye on the 13-day Relative Strength Index/RSI in that RUT has a tendency for pullbacks of 20-30 points (or more) when the RSI hits overbought levels..." As it turned out, from the 1275 Close when RUT rose into its overbought zone, the fall so far has been around 25 points. The decline might stop IF of course the Index can mount a convincing rally from trendline support. Stay tuned on that! No suggestions on a possible trade.
RUT could hold its trendline but I'd rather look at bullish trade strategies IF the Index again gets 'oversold', which may be overly conservative. The last time RUT got down to its 'oversold' RSI zone was back in mid-January, but a sustained upside run began from there. I don't 'need' to trade often, only 'well'. I most favor getting in at overbought/oversold 'extremes'.
GOOD TRADING SUCCESS!