THE BOTTOM LINE:
The apparent breakout moves in the major indices were quickly reversed. All that's happened amid the sound and fury is that the trading range got extended a bit above the prior 4-month price range: e.g., to between 2050 and 2125 in the S&P 500 (SPX), between Dow 30 (INDU) 17650 - 18300 and a 4850 - 5100 range in the Nasdaq Composite (COMP). Given the Market up until 'Fed Dread' these are relatively tight price ranges. Nevertheless, the indices remain in long-term uptrends.
The Nasdaq is up against some technical price resistance and COMP and the entire Market is overbought. A sideways bull market trend tends to relieve or 'throw off' such longer-term extremes by either a sharp downturn, seemingly not likely currently, OR by a prolonged sideways move such as over months as we've been seeing and could see for a few more. Such movements tend to restore equilibrium in the Market. A bubble is precisely a period when there is NO equilibrium in valuations and pricing becomes manic. I've been through stock, precious metals and real estate bubbles and know something here.
The low volatility environment has meant that price ranges as a percentage above/below the 21-day moving average have contracted as you'll see on my charts. Whereas previously the S&P would trade in a 3 percent range above or below its 21-day average, sometimes hitting 3.5-4% above, SPX is trading with price swings not even out to TWO percent above/below the 'centered' (21-day) moving average.
The more typically volatile Nas Composite (COMP) is also not seeing price swings of much GREATER than 2 percent; COMP could hit 3% (above its centered average) on an upswing but doesn't look capable of it currently. When volatility increases or jumps, we'll most likely see moving average envelope lines EXPAND out to 3-4 percent above/below current market in the S&P and 4-5% in Nasdaq. Price moves to and above these envelope lines will then help define a 'new' overbought extreme. It's good to know the likely 'extremes' when trading the indexes!
The S&P 500 Volatility Index (VIX):
The S&P 500 (VIX) volatility index has popped up a bit recently from support in the 12 area in VIX, approaching 14 now on a daily chart Closing basis. There were intraday moves to 14.5 this past week. 14.5 to 15 is what I see as a 'maximum' near-term upside.
The trading range market of the past 3-4 months has not generated VIX readings above 16, at least not for long. I don't see prices starting big swings to the downside and can mostly suggest hedging portfolio risk at VIX levels in the 13-13.5 zone. As a speculative play, upside doesnâ€™t look higher than the 15 area in the near to intermediate-term; i.e., 2-3 days to 2-3 weeks.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The S&P 500 (SPX) failed to sustain its move to new highs above 2120 as SPX again gets pulled toward 2100. SPX is most recently stuck in narrow range between 2080 to 2130; looking out over the entire past 4-month period, the spread between lows and highs remains a relatively narrow 2050-2125 range.
When volatility (VIX) jumps, so will prices, up OR down. I anticipate 'up' but a decisive and sustained advance, above the multimonth trading range may be some time off. We've had 4 months of range bound trading, we could get 3 months more.
I've 'pulled in' or reduced anticipated trading 'bands' (moving average envelopes) for SPX in this low volatility period to 2 percent below and 2 percent above the 21-day moving average as seen below. This suggests no sustained dip to below 2060 or above 2160.
Support comes in initially at 2100, extending to 2080. Resistance is suggested in the 2130-2133 area, then at 2145, extending to fairly major technical resistance around 2160.
Trader sentiment readings tend to be mostly in bullish territory. The bulls don't see the bears as able to 'break' the Market and tend to think it's only a matter of time before higher levels are seen across the board. But bullish fever is NOT raging due to Euroland and Fed uncertainties; amid other worries!
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) remains in an uptrend as seen visually in the pattern of higher highs and higher (downswing) lows seen by drawing OEX's up trendline. Trendline support is suggested at 922 initially, with next chart support showing up around 910. A break below the 21-day average and the up trendline would be bearish for a move to new highs in the short-term.
The intermediate trend in the big cap S&P 100 is neutral per the 4-month trading range and remains long-term bullish.
Near resistance is seen in the 932 area, extending to 938. Above 938 projected next resistance is to 945, perhaps extending to 950.
A sustained breakout above 930-932 could carry to 960 or higher but I don't see prices headed that way soon. Downside risk is to 895-900 again if the Market took a bigger dip which also doesn't look to be 'high' risk. Downside vulnerability is seen in the charts and keeping with fundamentals involving China/Europe and Fed thinking here at home. This keeps many investors on the sidelines, especially notable in some years as over summer.
THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:
The Dow 30 (INDU) has seen a quick Fibonacci 62 percent retracement of its prior run up. The Dow might dip a bit more and my first expected near support is highlighted below at 17950, extending in a 'worst-case' scenario to 17800. I'm not looking for that but I'm also not looking for a quick rebound to 18200 resistance or back up to the recent 18350 high.
A general background note is to also suggest that the longer the Dow trades below its 21-day moving average the more downside potential appears. Yet to happen is a 2-day back to back consecutive Close below this key trading average. 2-3 days below the 21-day and intermediate momentum is definitely down.
I noted already resistance seen at 18200, then the prior recent highs at 18350, extending to 18500. Long-term charts would suggest long-term resistance doesn't come into play until well above current levels; e.g., to the 18700 area. 17650 is the low end of the past 4-month trading range and 18300 looks to be the high end of the trading range anytime soon.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) is mixed in its chart pattern as long as prices 'stall' in the 5100 area suggesting a potential double top. Conversely, a sustained move above 5100 would suggest a rise to the 5150 area and perhaps to near 5200.
Conversely, a sustained dip to below 5025-5000 in COMP would suggest a possible test of trendline support around 4950. 4850 is major support suggested by the low end of the past 4-month price range.
I've no strong conviction of the Composite getting and holding, above 5100 in the coming week on out to 2-3 weeks. COMP has major resistance showing on weekly charts (not shown) at 5160, not far above the line of recent highs. The Nasdaq Market may have reached at least an interim limit to how high for tech stocks for now.
NASDAQ 100 (NDX); DAILY CHART:
The big cap Nasdaq 100 (NDX) shows the same potential double top as the broad Nas Composite. Since I analyze 4600 as long-term chart resistance and that's not far overhead I see potential for 4550 at most short-term, maybe to 4600 suggesting a near-term top in the big cap NDX.
The foregoing bearish possibilities are set against the Index remaining in an uptrend. No uptrend, no up trendline, so I'm watching for breaches of this line of support that are not short lived 1-day affairs. See the chart.
Near support is suggested at the 21-day moving average, currently at 4473, with support extending to the 4450 area. Fairly strong technical support is seen at NDX's up trendline currently intersecting in the 4400 area. 4320 is support suggested at the outer envelope line.
My most 'bearish' view of NDX current is more a neutral take on the charts which is the likelihood of NDX being 'locked' into the same trading range ahead (e.g., next 2-3 months) as has been the case for the past 3 months: 4315 on the downside to approximately 4555-4560. If we look at past 6-7 months, NDX's price range over that period was 4100-4560.
The NASDAQ 100 ETF STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) reflects the same potential 'lid' on the stock (at the prior high in the 111-111.1 area) as seen of course in the NDX. The potential projected 'maximum' price range of the stock has narrowed to levels around 3%-3.5% below and the key 21-day moving average. Selling picked up when QQQ stalled again in the same area as late-April. No surprise!
QQQ is in the approximate middle of its uptrend price channel but some further downside for the Q's looks more likely than a decisive (and sustained) upside breakout above 111. 'Some' downside potential is potentially to the 109-108 zone. 108 is at current suggested trendline support.
The On Balance Volume (OBV) line is pointed down/bearish. In the event that 108 trendline support is pierced, fairly major support next comes in around 106.
Buying any dips to 108 area if seen, with trade exit at 107, with a target back to 111 and higher offers favorable risk to reward potential. Stay tuned.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) has gone from front runner bull status to lag behind in the Nasdaq at least. Resistance is seen at 1260, then at the prior highs in the 1273-1275 area.
Support is noted at 1233 on the chart, extending to 1220.
With less than wild enthusiasm to be in RUT options currently I favor bullish strategies in the 1220 area, bearish plays around 1270.
GOOD TRADING SUCCESS!