THE BOTTOM LINE:
I've had 3 weeks away but last wrote (on 9/19) that ..."the Market won't see lower lows". Sure enough, 9/29 saw the S&P make a double bottom low, on a spike in Volatility with relatively LOW bullish sentiment since then as SPX climbed 161 points! Technical analysis was in this case a likely best trading guide.
I will take such a STRONG (a double bottom) chart 'signal', on a declining VIX from the second bottom, especially as there was significant trader 'disbelief' (per my daily equities call to put ratio, CPRATIO) or a lack of any bullish sentiment extremes on the rally of 160 points off the last SPX low.
I was called away on a family matter and it was my most time away from my OIN column I've had in 12 years as I wrote from all over the place (and the world) whenever I was traveling. This time I was away away, watched from afar and took a writing/forecasting break.
I'll bore you perhaps but just remind quotes from my last (9/19) report/analysis in this space: "My analysis suggests the Market won't see lower lows although timing for a sustained rally is harder to forecast." AND...
"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."
"I 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."
Last but not least I noted that:
"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."
I repeat the prior comments and strongly urge you to take up technical analysis for market 'timing' and not fall in the trap of waiting for some external event(s) to tell you what to do and finally jump on board after a substantial move and after time premiums have jumped! Waiting for talking heads and 'consensus' opinions to form is generally a losing proposition. At least it is to professional traders, such as my former mentor.
It's not ME as 'brilliant-me' but rather the brilliance of technical analysis correctly applied!
I'll start with the current S&P 500 (SPX) weekly chart I mentioned above as suggesting lows were reached at the low end of SPX's long-term uptrend price channel. Note that the second low 'confirmed' so to speak the existence of support/buying interest at the low end of the uptrend channel. Also, the FIRST low at SPX's up trendline was the one that came down to an 'oversold' extreme.
S&P 500 (SPX) DAILY CHART:
My chart from 3 weeks back doesn't need much updating: 2000 was the first key resistance, then especially 2050 as the prior 'breakdown point'. Next pivotal resistance comes in around 2100.
Key chart support comes in at 1966 at the 21-day moving average, extending to 1950 per my green up arrow highlight.
SPX could fail on a first attempt to breech 2050 but as long a bullish sentiment remains relatively low I'm not overly concerned about any major downside reversal.
The Index has entered its RSI 'overbought' zone so pullbacks can't be ruled out. My upper moving average 'envelope' trading band has also been reached but 'true' resistance by this indicator is now more likely at 3-3.5 percent ABOVE the centered (21-day) moving average. I'll update my trading bands next week, but for now leave the chart where it was on my prior Index Wrap from abo weeks back.
Readers of my column may recall that I pegged major support at 16000 in the Dow 30 (INDU) and that's where INDU's long-term weekly chart up trendline intersected. Yes, there was a brief penetration of that implied line of support on panic selling but what matters is how quickly that penetration is reversed; once traders have set off a bunch of futures sell stops!
Now, at times I decry the over-emphasis of this 30 stock index as the end-all be-all of the day's tally of the what the 'market' did that day. Nevertheless, at times INDU provides or 'confirms' a key buy or sell signal, such as in a recent double top best seen on the daily chart coming up. It's important to follow ALL the major indices, as ONE chart may provide the clearest trend reversal pattern or suggests where support/resistance lies, etc.
THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:
The Dow 30 (INDU) has been climbing the proverbial 'wall of worry' ... or, where ELSE are you going to put your long-term investment money! Bonds?
I mentioned already that there's been a distinct lack of bullishness or at least we haven't seen any 'extremes' in my 'sentiment' indicator per my CPRATIO indicator seen above with the SPX daily chart. If we pay attention to what the Market actually DOES, like Charles Dow taught, we'd be better off in many if not most situations.
INDU has near support in the 16900 area, with pivotal chart support at 16500. INDU first made a decisive upside penetration of resistance implied by its 21-day average; the Dow then continued above its 50-day average which got the attention of even 'fundamentally' oriented money managers. Next up to suggest that the major UP trend is continuing is for the Average to clear the 200-day moving average. Stay tuned on that!
Resistance is seen at 17500, with more major resistance at 18000.
INDU has climbed into its 'typical' overbought zone in terms of its 13-day Relative Strength Index (RSI) reading. We may see some corrective action ahead but the trend looks higher overall.
The S&P 100 (OEX) INDEX DAILY CHART
The big cap S&P 100 (OEX) is bullish in its pattern as OEX has now climbed well above resistance implied by its 21-day moving average and also pierced what had been an upper 'band' of resistance at 2 percent above the (21-day) average.
I'm now supposing that OEX could climb to at least 5% over the same average as a possible measure of where OEX could get to next. The Index went well under 5% BELOW the 'centered' 21-day moving average and could, at a minimum, climb to 5% or more above it.
I've highlighted possible resistance in the 920 area with fairly major resistance at 937-940, extending to the prior intraday highs at 947-948.
Near support is suggested around 880, extending to 868 at the 21-day average, with support extending to 860 per the green up arrow chart highlight.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) is bullish in its pattern in that it's recovered much of its prior sharp decline. Yet to come however is a key test of resistance at 4900, the breakdown point that took COMP sharply below pivotal support at the low end of its prior multimonth trading range.
I've highlighted near resistance at 4900 naturally, then next at the milestone 5000 level, another key level. A decline to below 5000 on a downside price gap got the sharp mid-August decline rolling and ended up briefly (intraday) dipping below major COMP chart support at 4500.
The second low made in the 4500 area was a key upside turnaround late in September. By this time the 13-day Relative Strength Index bottomed at a higher low than at the oversold extreme of the first waterfall decline, representing a bullish price-RSI divergence buy 'signal'.
Near support is seen at 4750, extending to 4700. I'm bullish on COMP and the Market while there's such a moderate or mid-range reading of trader 'sentiment'. When everyone starts believing in the bull market again I likely turn cautious. Until, then buy pullbacks although the lowest risk to reward opportunity was seen in the 4500 area in the Composite.
I anticipate that COMP could climb again above 4900, but this time with possible 'basing' action at and above this level which would suggest a retest of 5000 in the Composite. Major resistance starts at 5200 and extends to 5350. Stay tuned!
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) like the Composite has seen a good-sized rebound from its recent lows but some key resistance tests are ahead.
Initial pivotal near resistance comes in at 4470-4500. A Close above 4500 that was sustained would suggest a possible test of resistance in the 4600 area, extending to NDX highs that approached 4700. Major resistance comes at 4800 and eventually at the milestone 5000 level.
Near support is highlighted at 4275, extending to 4200. Fairly major support begins at 4100. The pattern of higher downswing lows and higher upswing highs is, so far, putting the big cap Nasdaq 100 back on a bullish track.
A key technical aspect for the Nas 100 to keep bullish upside momentum going is for the Index to maintain levels at and above 4400, which would set up a possible move back into the 4500 to 4600 resistance zone.
The NASDAQ 100 ETF STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock's (QQQ) has had a good-sized rebound from the dips below the milestone 100 level. A good risk to reward equation was seen in buying dips below 100, risking to just under 98 with an objective to at least a recover move back to the 106 'breakdown' point. QQQ has gone further from there of course, which is bullish and the Q's looks like the stock can retest the recent intraday high at 108.7 which I've highlighted as near resistance. A next key resistance then comes in around 110.
Near support is highlighted at 106, with next support suggested at 104, although buying interest/support probably begins around 104.6 at the 21-day moving average.
Daily trading volume has been low on the recent advance. Typical for QQQ has been volume spikes coming on downside breaks, such as to below the key 106 level in the sharp decline of late-August. On Balance Volume (OBV) is the key volume indicator I especially look at and OBV is trending higher which offers some bullish support to the chart pattern of higher recovery Closing highs.
The RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000's (RUT) has seen a recovery move from the 1080 area, but hasn't made a sizable advance from there so far.
Near resistance is at 1180, extending to 1200-1220 and the area where the Russell accelerated in a waterfall type decline and aptly seen as RUT's 'breakdown' point and now suggesting pivotal resistance. Near support is seen at 1140-1130, extending to 1120.
A sustained move above 1180 is needed to suggest that RUT could go on to retrace more of its major decline that took the Index from the 1300 area down 200+ points to the 1100-1080 area.
RUT's recovery move to date has been a 38% retracement of the last downswing, representing a 'minimal' recovery move. A 50% retracement would be to 1187 also suggesting 1187-1200 as perhaps as much of a rally as RUT could muster near-term.
GOOD TRADING SUCCESS!