It may be that past months' weakness in the Dow Transportation Average, relative to the Dow Industrials, is suggesting US economic contraction ahead and could Greece set this off? I'm reminded that WWI started with big trouble in a small country in a corner of Europe.
I'll review the monthly S&P 500 (SPX) and Nasdaq Composite (COMP) charts as they do a lot to explain technically why there's been little upside progress for several months in SPX and COMP.
As to the question of whether the Market has bottomed, I'll first look at the SPX and COMP daily charts for a possible answer. Traders could be busy 'locking the barn door after the horses escaped' in their put buying spree. This is pretty typical of traders/investors who get super bearish after a major sell off. Professionals are more often the ones who see risk to reward as favorable in buying into such a decline on the assumption that the sky is probably not falling; just traders crashing and thrashing.
By the way, I thought the Market would make a bottom at support/up trendlines but those got sliced and diced! What tends to 'work' in suggesting a bottom in the occasional big kahuna bearish wave is when the major Indexes 'hold' at the moving average envelope lines you'll typically see highlighted on my daily charts. Being wrong on expectations of an average sell off TO, but not BELOW, up trendlines isn't completely rare. VERY rare is a prolonged decline to below the moving average envelope lines highlighted on my first two charts:
THE S&P 500 (SPX) DAILY CHART:
I commonly set my moving average envelope lines that 'float' above and below the 'centered' 21-day moving average in SPX at 2 percent above and 2 percent below. These lines usually mark 'extremes' on the upside and especially the downside in a bull market. (In high volatility situations my envelopes sometimes expand to 3% above and below the 21-day average.)
Seen on the SPX daily chart below are 3 out of 3 technical aspects that may suggest that the Index is at or near a bottom: 1.) The decline to or very near my LOWER moving average envelope line suggesting a PRICE level at which an oversold extreme occurs. 2.) The low reading in the 13-day Relative Strength Index (RSI) indicator also suggests a 'fully' oversold extreme has been reached.
#3 point) A different type of 'oversold' extreme is suggested by my CPRATIO indicator as traders look in the rear view mirror to protect themselves going forward. What I can say is that it rarely works out, assuming the other prior 'extreme' conditions are met; i.e., with price, RSI and high bearish sentiment.
THE NASDAQ COMPOSITE (COMP) DAILY CHART:
COMP not only fell to my LOWER moving average line suggesting an oversold extreme price but the recent low is the third to fourth low defining the highlighted UP trendline; holding this area would set up another possible 'confirmation' of at least an interim low.
As with my comments and highlights of the SPX chart seen above, COMP has also reached a 'fully' oversold RSI extreme. Moreover, my CPRATIO indicator suggests extremely bearish sentiment. It never ceases to amaze me that traders get super bearish when it would seem to me that a bottom could already be in place; here, suggested by how far the decline has carried to below the centered moving average. I may need to reset the LOWER moving average percent line but currently it looks about right.
All in all, Nasdaq looks like a speculative buy but with close stop (exit) parameters. It's 50/50 that when/if the sky doesn't fall in Europe, Nasdaq rebounds; e.g., in COMP, back to 5100.
THE S&P 500 (SPX) MONTHLY CHART:
When I am reminded of when I do my monthly review, such as now the END of June and Q2 and with the year half over, is what a monster rally SPX has had since the early-2009 lows. What's noticeable o the chart is how the upper price channel line has 'defined' significant resistance and marked pullbacks from this line of implied resistance. These have not been huge pullbacks but the point is that upside progress has been limited mostly to the gradual continued, but slowing, advance.
SPX has been more or less in a sideways trading range for the past 8 months. Major chart support at 2000 hasn't been tested but the highs form what (Charles) Dow would call a 'line' formation showing resistance in the 2125-2130 area.
Next higher resistance is suggested at 2170; if reached, this is not very far above current levels. Upside may be limited but if you were able to buy SPX calls in the 2000 area it would look like a trading opportunity for an oversold rebound with a stop-out or exit point that's not far below 2000; e.g., 1975.
THE NASDAQ COMPOSITE (COMP) MONTHLY CHART:
Unlike the S&P 500, the Nasdaq Composite, has continued to make higher highs but not by much. And like SPX, COMP has not been able to make much upside headway and not to above the upper (resistance) trend channel line.
Moreover, COMP has stalled at its prior all-time high (from March, 2000) at 5132. Stalling at a prior high like this is quite noticeable over time. Investors and traders check back as to the prior all-time peak and figure they won't go broke taking some tech profits if that prior top is a major lid on prices.
COMP may find support where it's gotten to already near 4950 or it might dip a little further, such as to the 4900 area and further downside may be limited. Upside in the best case scenario is also likely limited, such as to COMP 5180-5200.
GOOD TRADING SUCCESS!