THE BOTTOM LINE:
Early in the week the Market seemed in a run toward prior highs again such as SPX 2100. Instead, renewed selling took the Indexes to Closes below the last downswing, suggesting a second deeper pullback.
The theory that is common and commonly 'fits' what happens in corrections within a primary up trend takes the form of a down-up-down pattern; an 'a-b-c' correction in 'wave' terms. This where the second down leg 'c' is greater than the first 'a' leg decline and the second longer downswing has a Fibonacci relationship to the first; e.g., a second decline is 1.38, 1.5, 1.62 greater than the first pullback.
A recent example of this kind of relationship of a second down leg to the first, is seen in the Russell 2000 (RUT): After an October rally, RUT hit a peak at 1200 and then declined to 1141 (11/16/15) before rebounding. RUT's first down 'leg' carried 59 points. RUT then rallied to a slightly higher high in early-December at 1205, then proceeded to fall again to a lower low at 1109 (12/14), for a peak to trough decline of 96 points. The second downleg 'c' of 96 points is a Fibonacci 1.62 times greater than the fist ('a') decline of 59 points within an 'a-b-c', down-up-down, corrective pattern.
I made the point last week that the break below the S&P 500 prior low suggested that this same dynamic might be in play, where the a SECOND downswing would likely be greater than the first. I'll show again the simple math here as to what was, and still is, possible downside targets in SPX on a second decline:
Fibonacci 1.38: From the SPX peak at 2104 a second longer down leg IF at 1.38 times the first is 134 points, suggesting potential to 1970; i.e., 2104 - 134 = 1970.
If the second longer downswing implied by a down-up-down ('a-b-c') correction carried a distance equal to a Fibonacci 1.5 X the first SPX decline of 97 points, a potential objective is to 1959; i.e., 2104 - 145 = 1959. A still-deeper correction, of a second bigger decline of a Fibonacci 1.62 times the first sell off, sets up a possible target near 1950; i.e., 2104 - 156 = 1948.
I'd also note that bullish trader 'sentiment' increased substantially after the Fed acted and, sure enough so to speak, another sharp pullback started by mid-week (12/16). It's rarely surprising to me that predominant trader (bullish or bearish) sentiment is often not a winning bet.
[My usual chart highlights for resistance levels are red down arrows; my highlights for support areas are the green up arrows.]
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX) DAILY CHART:
The S&P 500 (SPX) continues bearish in its short to intermediate term pattern as the rally again stalled around resistance implied by the 21-day moving average. Follow that with a bearish new low Close putting SPX below its prior down leg. If this isn't a one-day 'fluke' the chart suggests a second down 'leg' carries farther than the first decline such as into the 1970-1950 zone.
I outline in my initial bottom line commentary above how possible downside targets could be calculated in SPX if a second decline was 1.3 to 1.6 times the first down leg. My more bearish expectations currently, assuming this decline gathers steam is to the 1950 area but more likely to around 1960 as a 'maximum' downside target. The foregoing assumes that the 2000 area doesn't hold up as a key support but momentum is down currently.
Key near resistance comes in around 2070, extending to 2100. Pivotal near support is at 2000-1995, with next lower support implied by a deeper 62% retracement of the prior advance, at 1965. Fairly major support begins at 1950.
Bullish trader sentiment popped back up this past week as seen below with my CPRATIO indicator. Bullishness rose right into the mid-week peak which wasn't surprising to such a long-time follower of contrary opinion. The Relative Strength Index is headed lower again nearing a 'neutral' 40; below RSI 30 WITH reversal price action, suggests good bullish rebound potential.
The S&P 100 (OEX) INDEX DAILY CHART
The S&P 100 (OEX) continues bearish short to intermediate term given the extended, although not severe, pullback from the double top of recent months; i.e., with highs ranging from 1947 in July, 2015 to 944 in early-November (2015).
886 represent potential support at a 50% retracement of OEX's October rally and is often a give-back amount seen in a 'normal' correction. While this Market looks jittery at times, it is undergoing a fairly moderate correction to date. Next lower support starts around 880 and extends to 872; 872 represents a Fibonacci 62% retracement of the strong October advance.
Near resistance is down to 910 in OEX given the recent end of week selloff rout. Pivotal next higher resistance comes in the 930 area, where the Index topped this past week.
OEX is at a new Closing low for this move. Yet to see is if the Index also dips below its recent 890 intraday low; if so, there's further downside potential to the 880 area. If such price action is seen, I assume the Relative Strength Index (13-day) will be 'fully' oversold and also suggest high-potential for an upside rebound. Stay tuned.
THE DOW 30 INDUSTRIAL AVERAGE (INDU); DAILY CHART:
The Dow 30 (INDU) continues bearish in its pattern as it saw another week below the important 200-day moving average. The rally failed again at resistance seen before around 17800. INDU then went on to fall to a new intraday AND Closing low for the current slow-moving sideways to lower correction.
I see better than even odds that the Dow falls back to support in the 17 thousand area; 16960 represents support implied by a 50% 1-half retracement of its sizable advance from the 16000 area up to within a hair's breath (17978) of 18 thousand.
Given the number of Dow stocks in prolonged sideways to lower trends (20 of 30 stocks) accounts for the failure of INDU to make new highs; instead we see a pattern of LOWER rally Dow peaks. INDU is the major indexes that I could see making a deeper retracement than 50% such as in a Fibonacci 62% give back by a dipping to 16800-16720. Stay tuned on that.
Near technical resistance comes in at 17550-17600 but I'd also pay attention to whether INDU could regain and mostly stay above 17200, action which would suggest possible basing or bottoming action. 17800 begins fairly major resistance, which then extends to the 18000 area.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) has been trending sideways to lower so the chart is bearish. In the indexes, trending below the 21-day moving average shows declining momentum per the current chart; conversely, a trend that's above this key 'centered' moving average is evidence of upside momentum.
The decisive break below 'milestone' 5000 support is suggested accelerating downside momentum. The rally ran out of steam around the 21-moving average, then broke sharply below 5000, which is now seen as resistance; support, once penetrated, 'becoming' subsequent resistance. COMP made a new Closing low for the current move. A dip, especially a Close below 4900 would suggest a potential next target to 4850-4830.
A continued drop in price such as to below 4900 support would suggest a continued decline in bullish trader sentiment and a continued drop in the RSI. Into 'oversold' territory for these two indicators would 'support' an upside reversal. Price wise, if COMP sold down to the 4800 area, bullish bets could be evaluated.
THE NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) like the broad Composite also showing declining momentum as NDX broke key support at 4600 and what had been the low/support end of a trading range. NDX made a new low Close for this move. Next up perhaps: a test of pivotal support in the 4500-4470 zone. 4400 is currently my lowermost downside target for the big cap tech index and if seen, could be a bottom for the current correction. My trading style is more to anticipate areas of likely/potential bottoms more than trend 'following'. In options, best prices come BEFORE the obvious reversals.
Pivotal resistance is at 4600 and NDX's most recent 'breakdown' point. A Close back above 4600, then to above the 21-day moving
Average, would initiate a turn in momentum to UP. Pivotal resistance is then at 4700; NDX could not previously manage consistent Closes above this level.
Some records that stand for ages can come as a surprise. With NDX, the record high at 4816 to date goes back 15 years to March 2000. It's telling that our tech big cap Index has gotten this close to the record but NOT hit new all-time highs; seems like even modest inflation would see NDX in the 5000 area. Psychologically, current levels near the 2000 price peak may be a REMINDER of tech bubbles! There's some talk of bubble like signs in tech here and there.
The NASDAQ 100 Tracking Stock (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock's (QQQ) chart has gone from mixed to bearish as the stock failed to maintain upside momentum above the key 21-day average. 114 proved to be resistance after mid-week and still is per our down arrow highlight. The key breakdown was seen in the sharp downside penetration of 112; a support which now becomes pivotal near resistance. A sustained move above 112 is needed to suggest renewed upside momentum.
Pivotal near support in QQQ comes in at the 110 to 109.4 zone. I've highlighted support at 109.2 as representing the 38% Fibonacci retracement, which is often about the deepest pullback seen in a previously strong Index trend. Next support is 108, then at the 50% retracement level at 107.2. I'd call key must hold support for the bulls as 108-107.2
Judging from daily volume (per the volume 'bars' seen below the chart), the bulls are not in panic exit mode; not yet anyway. A decisive break of 109-108 should up the anxiety ante in being long the stock; likely we'd then see some 'panic' type selling as would show up with a spike(s) in daily trade volume.
The RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 Index (RUT) is bearish in its pattern. RUT has had greater downside volatility than upside which is visually well seen in the Index as its rallies have advanced to or near 2.5 percent above its 'centered' 21-day moving average VERSUS levels at or near 5% BELOW the 21-day average.
RUT hasn't fallen to a new Closing low yet so watch these levels: the recent prior low Close at 1115 AND intraday low at 1108.
Key support begins in the 1100 area and extends to 1080, where I'd turn around from bearish positions and play for an upside rebound. RUT has been an index that has had favorable reward potential if bought at RSI low extremes and shorted at upside extremes per the chart highlights of 'typical' high and low extremes.
Near RUT resistance is highlighted at 1150, with pivotal next resistance seen at 1170; the 21-day average, currently intersecting at 1164 isn't noted as resistance, but pretty much always assume that continued trade back ABOVE this key average suggest further upside potential.
GOOD TRADING SUCCESS!