THE BOTTOM LINE:
Stocks continue to be buffeted by various cross-currents related to future growth potential. My analysis suggests the Market won't see lower lows although timing for a sustained rally is harder to forecast.
While an apparent recovery rally is seeing a lot of fits and starts with significant volatility which makes any wide-spread 'recognition' of a bottom illusive; however, what may look like continued huge volatility of late isn't so much in context. The VIX S&P 500 (SPX) Volatility Index dipped under 20 the week before last (VIX ended Friday at 22), down from the VIX spike up to the 40 area in late-August.
I'm not suggesting in this whippy see-saw market what the exact TIMING might be for buying calls and other bullish trade strategies but do suggest that the LOWS for the current correction may be in. To that point, there is a 7-year uptrend price channel in SPX as seen below and the recent 1867 low touched support strongly suggested by SPX's long-term up trendline; a good-sized rebound from there did follow. I'm waiting for further signs that the major indexes have stabilized and continue to form an apparent bottom; such as with another retreat to SPX's up trendline or other 'basing' action.
Technically the Market remains in a long-term uptrend as suggested by very long-term weekly S&P 500 (SPX) chart seen below, covering the nearly 7 years of the current bull market. Note the recent SPX intraday low at 1867 and representing potential support by the initial rebound from the LOW end of the broad uptrend price channel. Note also, at the recent SPX low, the oversold 'extreme' reached with the 13-week Relative Strength Index or RSI.
The 7 year age of our current bull market may seem like an overly long time to have gone on by some but we've seen longer periods of rising stock prices such as in the 20 year bull market of 1980 to 2000. The 2003-2007 bull market was shorter than our current 7-year bull market of course.
A last point related to the long-term chart seen above delves into fundamental analysis and factors not just related to chart analysis. Bear markets almost always occur at or ahead of economic recessions. This is what Charles Dow's 100+ theory of market cycles is all about as so-called Dow Theory is an attempt to forecast an economic recession which is when bear markets happen.
There is no sign of a recession on the horizon although there's fear of the Fed tipping us into a slower growth period, China slowing down in a major way, Europe blowing up, etc. Fear is what happens when greed no longer holds sway and stocks hit the skids. As sure as the sun comes up every day, corrections eventually follow periods of rising stock prices. A key to trading/investing is assessing the dominant trend and buying into support (or selling into resistance in bear markets).
In my daily charts of the individual indices seen next below, I'd note the continued low bullish sentiment related to my Call-Put (CPRATIO) indicator displayed with the SPX and Nasdaq Composite charts. Not all bottoms are V-type bottoms; i.e., prices fall sharply to a low and then sharply rise again. However, a pattern of fits and starts to a recovery move seems to spook potential buyers. They might benefit from some study of technical analysis but this isn't necessarily a plug for MY (Essential Technical Analysis) book!
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The S&P 500 (SPX) long-term chart is seen and analyzed above in my initial 'bottom line' commentary suggesting that the recent SPX intraday low fell almost exactly to support implied by SPX's long-term support/up trendline; not just the Index's multimonth, but its multiyear, up trendline. This pattern suggests that a significant bottom may be in place which doesn't also imply that it's up, up and away for SPX.
Resistance in the broad S&P is seen in the 2000 area, with fairly major resistance at the 2050 'breakdown' point, the low end of SPX's prior multimonth trading range.
Near support begins at 1950 at SPX's 21-day moving average, with support extending to 1939 at the green arrow. Next support is suggested at 1915, extending to 1900. I see good potential for substantial buying to come in on any retreat to the low-1900 area currently.
The RSI is now in a 'neutral' range in terms of measuring upside/downside momentum; the Relative Strength Index is a price momentum model. Bullish sentiment has mostly been at a low among traders as seen with the daily CBOT equities call to put ratio. As a 'contrarian' such readings at a minimum suggest that's little risk of a significant new down leg. Bearishness may need to get more extreme to suggest a sustained upside rebound.
S&P 100 (OEX) INDEX; DAILY CHART
The big cap S&P 100 (OEX) has seen a near-term bullish rebound after OEX got to an oversold extreme (below 20) in the 13-day Relative Strength Index (RSI). A major test of upside resistance would come in at the 'milestone' 900 level, the low end of the Index's prior trading range; i.e., what was support, once penetrated, tending to offer significant subsequent selling pressure(s). The 880 to 889 area is key near resistance.
Friday OEX fell to support implied by its 21-day moving average intersecting in the 860-861 area. I've highlighted green up arrow support at 850, extending to 840. Fairly significant support comes in at 840. Fairly major support is suggested around 820 in OEX. The 811 area is the current intersection of OEX's long-term support/up trendline seen on the weekly chart (not shown here).
No trading suggestions. I'm looking to see what buying interest comes in on further weakness which the chart pattern would suggest may be part of a 'bottoming' process.
THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:
The Dow 30 (INDU) remains bearish in its chart pattern. From an 'extreme' oversold RSI reading a rally developed after some of the Dow 30 that hadn't fallen off a cliff, and a few of dogs' of the Dow, rallied enough for a rebound back to resistance around 16800. Next resistance is seen at 17000.
Support is highlighted 16200, extending to 16000. There's a fair to strong possibility that INDU could head back to at the 16000 area and retest long-term trendline support there which I've pointed out previously.
Still bearish chart patterns in BA, CAT, CSCO, CVX, DD, IBM, INTC, JNJ, MMM, MRK, PG, possibly AAPL, TRV, UTX, WMT and XOM would suggest that downside pressures predominate still in the Dow.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) is bearish below 4900, which was the point that COMP broke decisively below its prior trading range. I've noted resistance at 4900, although Friday's trade suggested selling pressure coming in at the 4935-4960 area. Pivotal next resistance is suggested at the milestone 5000 level.
Near chart support probably begins at 4800, then in the 4760 area at the 21-day moving average, but key support and the one I've highlighted on the chart, comes in at 4700, extending to around 4630. I'd look at establishing bullish positions in key tech stocks and the big cap NDX if the broad COMP falls back into the 4700 to 4630 zone.
COMP's 13-day Relative Strength Index or RSI is back in neutral territory, no longer oversold, and not back to an 'overbought' area. I'm 'neutral' to bearish on the Composite with trade below 4900, which was COMP's breakdown point, the low end of its prior trading range.
Low bullish trader 'sentiment' suggests upside potential at some point as from a contrary opinion standpoint my CPRATIO indicator suggests the 'seeds of the opposite' happening from the majority view which generally has a terrible track record, not always but enough to have made me mostly a contrarian over the years.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) is mixed to bearish in its chart. A sustained advance above 4400 is needed to suggest that resistance at 4450-4500 could be tested. A move above 4500, with support seen on pullback to this level would suggest that NDX has resumed its prior upside momentum before NDX's recent substantial 'breakdown' and selling pressures below 4400.
Near support is suggested at the 21-day moving average, currently intersecting at 4263, extending to 4250. Next potential support comes in the 4200 area. Support should also be noted at 4000. Looking at the weekly chart (not shown) with major chart and trendline support is seen at 3800-3720.
A further pullback to 4250-4200 may be an area to stake out bullish positions with an exit point at 4150.
The NASDAQ 100 ETF STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock's (QQQ) recent rally stopped at resistance implied by its previously broken up trendline, currently intersecting at 108.7 as noted as by the resistance down arrow. Near resistance is seen at 106.5.
Near support in QQQ looks to begin around 104, extending to 103.5; as seen with my green up arrow. Next support begins in the 102 area, extending to 101.5.
I see potential for the Q's to work somewhat lower such as back to its 21-day moving average intersecting around 104 with support extending to the 103.5 area.
The 104 to 102 price zone looks like an area to look at both covering short positions and buying QQQ. I'd stay away from options positions and not take the risk of WHEN the tracking stock mounts a sustained rally. We could see a 106 to 103.5-103 trading range ahead.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000's (RUT) chart is mixed to bearish. Its recent rebound stopped at the upper envelope line that reflects a value 2.5% above the 'centered' 21-day moving average which I use as a current suggestion of an upper resistance area.
Probably more importantly, RUT was approaching the 1200 level 'breakdown' point, where the Index fell off the cliff so to speak and accelerated its decline. I've noted near resistance at 1180, extending to 1200.
Near support comes in at 1140, extending to 1130-1125. Major support begins at 1100 and extends to the 1080 to 1050 price zone. A sustained move above 1220 would suggest renewed upside momentum. Absent that, or a pullback to the 1140 to 1125 support zone, I'm neutral on RUT offering much upside potential at this juncture.
No trading recommendations. I suggest letting the Russell 2000 Index establish further evidence of support and to see where buying interest comes in.
GOOD TRADING SUCCESS!