THE BOTTOM LINE:
The major indices spent several days registering 'overbought' extremes. Momentum indicators like the 13-day Relative Strength Index (RSI) warned of a potential correction, even a sharp pullback and it came this past week.
Long-term upside momentum shifted according to the Dow falling below its 200-day average. After 26 days strongly up, SPX retraced 38 percent of those gains in a few. Traders who haven't been strongly bullish and fully on board with the SPX advance, quickly got strongly bearish. Based on me versus the 'pack' I'll go the other way and look for a next bullish opportunity.
A related note: getting bullish at the last oversold RSI extreme and exiting at the recent overbought reading was taking advantage of the fact that we don't often see the bottom-most extremes in RSI in a bull market.
Possible double tops in both the big cap S&P 100 (OEX) AND the big cap Nasdaq 100 (NDX) is a worry that traders should pay attention to. I think it's a matter of time not if, that prior highs are exceeded. I also have an eye on the fact that the Dow has half or more of its 30 stocks in downtrends. Some key tech stocks are looking tired as well, so I won't make intermediate (2-3 month outlook) bets this time of year!
My current assessment is that SPX stays mostly at/above 1990-1985, OEX at/above 885, INDU above 17000, COMP at/above 4800, NDX mostly holding above 4400, QQQ the same at/above 107-108, and RUT probably hanging in at/above 1120. A decisive and sustained decline under the aforementioned support levels or areas suggest I'm more bullish in my expectations than where the Market is headed.
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The chart has turned mixed in its pattern short-term. After the S&P 500 (SPX) ran into resistance in the prior congestion zone of abundant stock available for sale, selling picked up as the index traced out a minor Head & Shoulder's top. The 'breakdown' point became 2080 and a mini-waterfall type decline followed below this point as SPX quickly retraced a Fibonacci 38 percent of the prior upswing of 26 (trading) days. Old saying: "They slide faster than they glide"!
A long-term bullish picture is still painted by the charts and I'm currently figuring this pullback will not take SPX below the 1994-1990 area, at least not for 2 or more days running. Given my assessment of the strong 'W' bottom pattern and the quick return to the top end of the prior broad trading range, I'm not anticipating more than a 'normal' 50% retracement of the last upswing.
[My usual highlights for resistance levels are the red down arrows; my highlights for support areas, the green up arrows.]
Near resistance is seen in the 2085-2100 zone. Near support looks to come in at 2020, extending to 2000-1990. Fairly major support begins at 1960.
The S&P went from a deep 'oversold' low/extreme in late-August both in terms of the 13-day Relative Strength Index (RSI) seen above, along with a sharp drop in bullishness. At the recent peak RSI then got up to an overbought reading along with relatively mild bullishness beforehand.
Traders then QUICKLY got bearish again as seen above with my Call-Put Ratio (CPRATIO). Traders may be acting too defensively after the last two big sell offs (an important double bottom and too apt to miss buy-side opportunities when they come.
The S&P 100 (OEX) INDEX DAILY CHART
The big cap S&P 100 (OEX) chart seen next below reestablished long-term upside momentum after the strong rebound from its second low in late-September.
OEX has now ALSO formed an approximate double top so this is a pattern that can't be ignored. Seeing a second top at or near a long-standing prior peak, followed by some sharp down days, it's no wonder that bullish 'sentiment' fell sharply (as seen above with the SPX chart)! I also think bearishness will run its course and prices right themselves without a deep and long dive below OEX 900.
Looks like a difficult road back to a retest of the prior OEX highs but the long-term trend is up so I assume the Index can get to the milestone 1000 level eventually per long-term chart projections.
Near resistance is noted at 925, extending to the 940 area. Near support begins at 900 (and a 38% Fibonacci retracement) and extends to 895. OEX support implied by a 50% retracement is at 885.
THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:
The Dow 30 (INDU) has dipped below its 200-day moving average, which is a common 'Street' indicator for longer-term price momentum stalled or declining. I see the chart as mixed but assume that long-term uptrends remain intact. A pullback yes, another major downturn seeming unlikely.
INDU went from several days in an RSI 'overbought' extreme zone so momentum indicators like this one warned of a potential correction, even a sharp pullback as seen this past week.
Very near resistance begins at 17400. Noted on my chart is resistance at 17600 and a pivotal one implied by the current 200-day moving average. Resistance at 17600 then extends to the 17800 area.
I anticipate support/buying interest coming in beginning at 17200, with next support around 17000 and which seems like a potential target for the current pullback.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) in a bullish rebound rallied from 4500 all the back to the 5100 area and toward the high end of its multimonth trading range. Once back in a resistance zone COMP started slipping then fell sharply below the milestone 5000 level. Not surprising, the move to ABOVE 5000 was on a 'gap' up move and now it's a gap-down one. It equals out.
I've noted support at 4900 with next support expected around 4800; I'll refine that to describe a ZONE of anticipated support, 4826-4800. I'm bullish in the 4800 area in COMP. Pivotal resistance is at 5000, extending to 5100.
4800 is a key support for the bulls and 5000 resistance for the bears. A strong move above or below is noteworthy for the intermediate-term trend. Downside pressures look to continue so 4800 may be tested and I'd expect it to hold.
Bullishness falls fast and far in the face of rallies so I'd bet against this view at the 'right' time. Bullish chart retracement around 4800 to a bit lower, coupled with meager bullishness and an RSI again near 30, look to exit Nasdaq puts at a minimum.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) pattern is mixed. For the period showing on my daily chart here there's some possibility of a double top having formed. NDX worked up to the 4737 area, nominally above its prior peak around 4700, but close to what could be a second key top in the 4700 area. Double bottoms and double tops often are key entry points as they can so strongly suggest a trend reversal.
NDX is hitting resistance at the top end of its longer-term uptrend price channel (not shown here). This pattern suggests that tech may pause or slow down in its march higher; e.g., slowing to a walk from a run!
Some support may come in around 4500 but stronger buying interest is more likely around 4400 at the half/50% retracement of the last upswing.
Near resistance comes in around 4600, extending to 4700. Volatility has climbed some and the 13-day Relative Strength Index (RSI) fallen to 40; 'oversold' is considered to be 30, take heed if seen as a bullish play comes into view.
The NASDAQ 100 Tracking Stock (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) is bullish long-term, bearish to mixed in the short to intermediate-term. Key resistance is at 112. The price gap to below 112 leaves a possible 'island top' formation in the Q's.
The same potential 'island top' pattern is seen in underlying NDX but QQQ looks more like it has a 'cap' from 112 to 115. Seen from the recent gap-down pattern is that 112 appears as a pivotal make or break a bull move resistance; next resistance is highlighted at 114.
A couple of ways to look at potential QQQ downside targets and/or for potential 'support' levels: 1.) Making note of the 'common' (Fibonacci) retracement levels, a downside target at 109 represents a 38% 'nominal' retracement; then, 107 represents a common 50 percent/one-half retracement. You see 50% retracements in stocks a lot.
2.) Another way to calculate downside possibilities in QQQ is to look at prior chart patterns, both daily and hourly, suggesting to me 108 as key chart support per the green up arrow; next lower support then is highlighted at 106.
107-106 in QQQ looks like a key support zone if reached; 112 will offer possibly tough resistance looking ahead over 2-3 weeks.
The RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 Index (RUT) may have settled into a predictable 'trading' zone, fluctuating from 2.5% above, to 5% below, its 21-day moving average. However, stay tuned on that as this theory could be too simplistic!
Near resistance is highlighted at 1180, extending to the recent 1200 top. Near support looks like 1140, extending to 1130.
A break of 1140-1130 might mean a follow on dip to the low 1100 area where RUT might be a bullish bet especially if the RSI was near its 30 oversold zone.
GOOD TRADING SUCCESS!