While it looks like the Wild West out there, a monthly
chart review shows a fairly normal trend pointing higher. Whippy price action also isn't surprising as the major indices get near or hit the upper end of long-term uptrend channels
The S&P 500 (SPX) was down 36.6 points or -1.7% versus its February Close. The Dow 30 (INDU) shed 356 points or -1.9% for the month. The Nasdaq Composite Index (COMP) fell 62.6 points in March, down 1.3%. The big cap Nas 100 (NDX) sold off 107 points, for a monthly decline of 2.4%.
Repeating from my end of February Trader's Corner monthly technical review, the current bull market is in its 7th year. The long-term up trend in SPX and COMP began with the monthly lows made in March of 2009: at 667 in SPX and 1266 in COMP.
It's also worth repeating and as you will see on the monthly charts below, that the various relative highs of recent months are coming up TO, but not ABOVE the upper end of the broad uptrend price channel seen on the monthly charts. My assumption is that the major indices are not likely to pierce the upper 'resistance' end of the aforementioned monthly price channels. Last month this led to be project that 'maximum' SPX, INDU and COMP Index gains for the month of March would be less than 1 percent over their February Closes.
In fact of course COMP, SPX and the Dow were down from 1.3 to 1.9 percent for the month, with the high flying NDX down 2.4%.
THE S&P 500 (SPX) MONTHLY CHART:
As noted above, the S&P was down 1.7 percent from the February monthly Close. Given the perspective of the very long-term monthly chart, SPX uptrend looks 'normal' in most respects with higher lows in March but not a higher high and a slightly down Close.
Examining the SPX monthly chart further its noticeable that the highs of recent months keep hitting a line of resistance suggested by the upper end of the Index's uptrend price channel. This pattern suggests just what we're seeing as what seems like fairly broad two-sided trading swings on a daily chart basis don't lead to much month over month upside traction until after a down month.
At that point, after a down month, a subsequent monthly rally can carry well above prior lows but without sizable gains relative to prior monthly highs. Investors get frustrated with the slow pace of gains but option traders have some two-sided trading opportunities within the broad trend. Jack be nimble and Jack or Jill be quick however!
If a down month continues to be followed by another run up to the upper line of resistance, highlighted this month at 2136 and extending to 2150, there's potential for an up April. Conversely, a sustained drop below 2000 would be bearish, suggesting the potential for example for a decline to the mid-point of SPX's broad uptrend price channel. Stay tuned on that!
THE DOW 30 (INDU) MONTHLY CHART:
In the Dow 30 (INDU), in my end of February monthly review I wrote that: "March could be a down month, as was January relative to December."
What I anticipated last month became true as it turned out of course. I don't claim that there's something 'magical' about trendlines (e.g., there are moves TO them but not ABOVE them) but up trendlines drawn through the various pullback lows and rally highs do project visually the upside trajectory that the trend is tracing out. Market trends tend to continue with similar force and direction for prolonged periods. I assume that there's now 'room' on the upside for a rally to the 18500-18550 area or to the upper trend channel line in April. No fooling!
Conversely, a sustained drop to below 17000 in the Dow would be bearish.
THE NASDAQ COMPOSITE (COMP) MONTHLY CHART:
COMP touched resistance in March at the upper channel line in the 5050 area. Not surprisingly, there was a pullback from this implied resistance. April could bring some gains but I don't foresee an advance above 5100.
Conversely, a sustained decline to below 4560 would be bearish and suggest potential for a decline toward the middle of COMP's broad uptrend price channel.
THE NASDAQ 100 (NDX) MONTHLY CHART:
As noted in my Nasdaq Composite commentary above, NDX also hit implied resistance at the upper channel line at 4480 in March. Rally potential in April that it could carry to 4480-4515 or so, but not much beyond that, assuming not new up leg above the upper channel line; unlikely.
Conversely, any sustained decline to below 4100-4090 would be bearish on an intermediate-term basis, but unlikely to not be so on a long-term basis. A decline for example back to the middle of NDX's broad uptrend channel could see NDX fall to the 4000 area but this would, in the (long-term) scheme of things, still be a 'normal' corrective pullback within a primary bull market.
GOOD TRADING SUCCESS!