THE BOTTOM LINE:
The Dow busted below long-term trendline support at 17000 and fell like a stone; the big cap Nas 100 wasn't spared, breaking key support at 4400-4300. The VIX volatility index ran from a 13 low this past week up to 28, up 118%
Friday saw more attention paid to our current panic-prone Market and suddenly highly volatile market. This recent supposed 'shock and awe' of the Dow Closing down 531 points brought back memories of the 1987 crash. I vividly remember the day, as I was a junior analyst at an seminar above the CBOE trading floor on so-called 'black Monday'. And it was a HUGE shock that day to see the Dow down 405 points. Just imagine this relative to a Friday Close of 2246. Watching panic selling at the CBOE on Monday's (10/19/87) 405 point Dow loss, down 18 percent!
The Dow, from the aforementioned panic low of that Monday, rallied steadily in the monthly following. What was DIFFERENT that day then had come along before, was the significant adoption of something called 'portfolio' insurance, involving computerized programs that shorted S&P 500 futures for every X decline in SPX on behalf of big funds. The amount of computerized selling that occurred that day (aka 'black Monday') was the first time that computerized trading had exacerbated a decline well BEYOND what it would likely have been just on European currency jitters at the time.
High Frequency trading is the just the latest iteration of computerized trading. I'd like to see overall High Speed Trading reduced in volume and frequency. It would be better for the Market to have prices go where the economics and health of stocks was taking it and not to tack on 200 Dow points due to hi-freq traders stoking downside velocity.
This past week's jump in volatility and downside price pressures also caused a sizable jump in my 'typical' index moving average envelope line measuring 'oversold'/likely lows at 2 percent BELOW the 21-day moving average to a much expanded trading band at 5-5.5 percent BELOW my 'centered' moving average.
In the case of the Nasdaq, my envelope lines suggesting 'overbought' had been 3.5% above the centered 21-day moving average and around 2.5% below the 21-day average to suggest deep 'oversold'/high probability lows. My lower envelope lines for COMP and NDX, suggesting possible oversold lows, has expanded to between 6 to 7 percent as you'll see on those charts.
Bullish sentiment among options traders fell sharply as you can imagine and reached an oversold extreme at "1" on Friday, as seen with my 'CPRATIO' indicator on the SPX and COMP daily charts; i.e. a "1" (rounded from .96) reading was Friday's CBOE equities put volume equal to or greater than equities call volume. So much put volume to suggest that traders may be 'overly' bearish and overreacting.
The S&P 500 Volatility Index (VIX):
I had indicated over past weeks that buying the VIX index in the 12 area would pay off over time as VIX was seeing what seemed like inevitable periodic, although short-lived, spikes in VIX to 22 on up to 30 and over. There wasn't much to report on VIX then, but there is NOW!
The VIX daily chart here is worth MORE than a 1000 words, as the 'obvious' resistance levels at 14-16 were blown through stemming from a sharper and deeper sell off then seen in the past 10-month Market trading range on Thursday and Friday.
I'm guessing we won't see VIX above 30, if that, for any amount of time and have highlighted 30 as initial 'resistance'. We have to go back to mid-August 2011 to see VIX rocket above 30 for any period of time.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The S&P 500 (SPX) pierced key support in the l0w-2000 area and there was nothing but air below. Expected support at 2000 didn't stem the bearish tide either.
SPX's possible downside trading 'band', technically a 'moving average envelope' indicator, is shifted to 5% below the 21-day moving average. 5-6% below the centered moving average is about as much as you see in the S&P and Dow before there's at least an interim bottom.
I'll mark immediate/near support at 1970 and assume SPX is not going to go too far below my 5% lower envelope line. Next support is highlighted at 1930. Near resistance now seen at 2000, at what was a prior key 'support' where sellers will be in wait, with resistance extending to 2040.
SPX has reached what is 'typically' an oversold extreme for this Index so there may be rally attempt shortly. Bullish 'sentiment' has fallen off the charts as a bearish Market view gripped investors this past week. So much bearish gloom that it's also 'supportive' for a short-term bottom; contrary opinion in action!
S&P 100 (OEX) INDEX; DAILY CHART
The S&P 100 (OEX) has sold off far enough relative to its 21-day moving average that I've marked a next implied 'support' envelope line at 5 percent below the Fibonacci 21-day average. Quite a jump from 2% under as volatility took a panic leap. It's relatively rare for the S&P and Dow to trade more than 5-6 percent below the key 21-day 'centered' moving average except for very brief periods; e.g., 2-3 days.
The chart is bearish except for the very long term time frame. Intermediate trend momentum now is down. However, the sell off looks 'overdone' and I've marked initial possible support at 865, at my revised lower (moving average) 'envelope' line per the chart. Next support 855. I'm assuming a short-term rally is near at hand. Stay tuned!
Overhead resistance where else but at prior key support at 900. Next resistance implied by the 21-day moving average at 920.
THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:
The Dow 30 (INDU) is bearish in its chart pattern, which really started with its March-May double top. INDU's break below first 17200, then especially 17000, set off an avalanche of selling and broke key technical support, especially at 17000.
I'm assuming for right now that the Dow's lower 'support' envelope line is at 5% below the 21-day average where SPX got to Friday. It's rare to see the Dow or S&P falling to levels that represent more than around 5-5.5% below the key centered average. Immediate support/buying interest may come at 16460-16400, with anticipated support extending to 16300.
Overhead resistance now seen at the Dow's recent breakdown point of 17000, when INDU pierced a long-term up trendline. Next resistance is comes in at 17200.
The Dow's at an oversold extreme in terms of the 13-day Relative Strength Index (RSI) so at a minimum I'm looking at some attempt for INDU to rally and/or stabilize common with patterns after 'oversold' extremes like this developed.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) finally cracked and broke sharply below its multimonth trading range. This looks like chart pattern when a possible bullish 'rectangle'/sideways consolidation BECOMES a rectangle top, which is one of the 5 most predictive patterns in technical analysis according to one MIT study I quote in my (Essential Technical Analysis) book.
Key support was first pierced at 4900 and the next day's 'gap down' opening and a plunge like no tomorrow took COMP all the way to the 4700 area where I've highlighted potential near support; next support, 4600. In the 4700-4600 zone, Nasdaq buying opportunities should exist for at least a short-term rebound.
Near resistance is seen at 4900, then at the key 5000 level.
COMP is quite oversold according to some key indicators like RSI and in terms of my CPRATIO indicator suggesting an extreme in bearish trader sentiment reached on Friday, suggesting (beside RSI) another kind of 'oversold'.
NASDAQ 100 (NDX); DAILY CHART:
The big cap Nasdaq 100 (NDX) is like the Composite as the 'volatility' range on the downside has expanded in a leap! The lower 'range' on the downside for NDX is now at least 6-7% BELOW the 'centered' 21-day moving average. I've seen this operating over many market cycles, including extreme bear and extreme bullish moves. I'm assuming a possible low at a 7% (moving average) 'envelope' line set to 'float' 7 percent BELOW the Nas 100's 21-day moving average.
So, support calculated at 4200 initially, then in the 4100 area if this freight train keeps rolling lower. Near resistance looks to form on rebounds to 4350, extending to 4450.
I see probabilities for a rally attempt coming up, perhaps after some further selling spilling over from this past week. It's rare, except in period when very HIGH volatility has been the norm, for Nasdaq to trade above or below 6-7 percent relative to its 21-day average. Past patterns aren't always repeated but my super successful trader-mentor did incredibly well in anticipating pattern outcomes similar to ones he studied before. Helpful too, if you've been through both bull and bear market cycles, boom and bust.
The NASDAQ 100 ETF STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) is bearish in its break of a long-range uptrend line pierced at 108. The next day's downside chart gap 'confirmed' a bearish pattern.
Friday's decline almost carried to 102, which is where near support is implied by my much expanded lower 'envelope' line, set this week at 7 percent below QQQ's the pivotal 21-day moving average and much 'expanded' from where it was resting for months prior, at just 2 and half percent below the average. Pow! Volatility.
Near resistance, 108, extending to 110-110.4. We may have seen a volume 'climax' bottom on Friday; daily trade volume certainly spiked enough.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) is bearish in its pattern, 'confirmed' with RUT pierced 1220-1200 recently. The lower moving average envelope line I've pushed out to 5 percent under the 21-day average; this aspect plus another suggests to me near support around 1150, extending to 1135.
With RUT this oversold (see RSI) and with RUT's most recent Close so 'extended' below its 21-day average, a snap back rally may be near, especially after another dip, if mild. Mild weakness or a rally from the get-go would be a tip off that selling was satisfied for now.
Near resistance is seen at 1190-1200, extending to 1215.
GOOD TRADING SUCCESS!