THE BOTTOM LINE:
The S&P started slipping when the Dow fell under its up trendline week before last. Nasdaq followed last week when Apple (AAPL) failed to clear resistance I projected for the 650 area.
I’ll start with the same charts I’ve featured in this section recently, that of the big cap S&P 100 (OEX) and big cap Nasdaq 100 (NDX) on a weekly chart basis.
The point to be made with OEX is that it’s weekly highs were hitting a line of resistance implied by the previously broken up trendline. A week ago I was looking for a further retreat from this line and OEX delivered this past week.
The potential resistance implied by OEX hitting its prior up trendline as highlighted above was ‘confirmed’ so to speak by the pattern of S&P bellwether IBM, where the stock was hitting resistance in the 210 area, at the top end of its broad weekly uptrend channel (not shown).
Technical resistance measured in this same way, by looking at the top end of an obvious uptrend channel as seen in the OEX weeklychart below. The Index was hitting apparent resistance at the top end of its broad uptrend channel. The RSI extreme added to the view of an over-extended market. One other technical aspect: at 2800 NDX hit some ‘natural’ resistance of this level being a 50% retracement of the major decline NDX saw in the 2000-2002 bear market.
All that’s recently happened in a sense is that the major indexes this past week simply retreated further from a ‘classic’ chart resistance area.
Given the rise in the VIX (Volatility) Index from a late-March low to around 20 this past week this week and the still-bearish chart pattern, I anticipate some further volatile price swings and some further decline.
I don’t think the Market is done correcting but without complication TWO technical aspects should tell the story; 1.) can the Dow re-gain 13000 and 2.) will 3000 hold up as support in the Nasdaq Composite (COMP).
MAJOR STOCK INDEX TECHNICAL COMMENTARIES
S&P 500 (SPX); DAILY CHART:
As anticipated the S&P 500 Index (SPX) fell below its up trendline, following the Dow from the week before in that pattern. SPX’s Close below its up trendline was a type of chart ‘confirmation’ of more weakness to follow and not to get too ‘sucked in’ to rallies that followed. I doubt that the downside is over.
I am longer-term bullish but this last run up was over-due for a correction and they always come, eventually. The RSI has almost fully ‘corrected’ in its recent approach to oversold territory. One more shot down would complete the pattern I see here.
There’s technical support in the 1350-1340 area. SPX could near 1300 again, but it’s my most ‘extreme’ pullback objective.
The short to intermediate trend is down unless SPX can regain 1400. So, key resistance 1400, then in the area of prior recent highs around 1420.
S&P 100 (OEX) INDEX; DAILY CHART
The ‘confirming’ trigger for a bearish downside reversal with the S&P 100 (OEX) index was the break of its up trendline. The break of course occurred on Monday but the strongest Nasdaq stocks like AAPL held up into Tuesday in late week when they too were under selling pressure.
The chart pattern suggests another downswing coming off what looks like a bear flag. A fall to 610-600 would complete a second down leg pattern and be a buying opportunity in my opinion.
Don’t believe this bull market is over. “Sell In May and Go Away” is getting too much play to happen quite the same way yet again this year. I mistrust, with good reason, any simplistic notion of an EASY way to make money in the Market. Buy Low and Sell High seems an easy rule. HOW to assess trends is the TRICKY part!
Resistance starts above 630 and extends to 636, 640 and 645. Support looks to come in around 610, a key area as the prior downswing low. 600 is my ‘maximum’ downside target at this snapshot moment. Earnings have become a renewed focus of course and that can moderate price swings. Prices most likely stabilize above 610.
DOW 30 (INDU) AVERAGE; DAILY CHART:
The Dow 30 (INDU) which had been leading the market for a while was the first to break under its up trendline and was the ‘canary in the coal mine” this time. INDU now has slipped under its 50-day moving average, along with the other indexes this past week.
The 50-day average at 13000 is now a key ‘bellwether’ resistance along with what’s suggested by the chart pattern; i.e., initial strong resistance at 13000, an eventual strong breakout above it, followed by another break below 13K. The pattern suggests that conquering 13000 may have to wait a couple of weeks; or months.
Key near support is 12715-12700, then at 12600. I’d be surprised to see INDU pushed below 12700 for any time, with 12700 as longer-term (weekly) trendline support. A weekly close below 12700, at INDU’s longer-term up trendline, is bearish.
Resistance and a key one is 13000 both in terms of the chart (prior support ‘becoming’ subsequent resistance) and by the widely followed 50-day moving average. A move above 13000 that is sustained keeps INDU on a bullish track. Absent that the Average is incorrection mode.
NASDAQ COMPOSITE (COMP) INDEX; DAILY CHART:
The Nasdaq Composite (COMP) fell out of its bullish uptrend channel with the decline to a lower trading range this past week. The index has so far only pulled back to support in the 3000 area. Ability for COMP to hold above 3000 keeps this most recent correction fairly mild and minor.
Key near support as noted already, 3000; next important support comes in at 2900. I’d repeat what I said last week that any prolonged move below 2900 suggests a downside momentum shift.
Near resistance is at 3070-3080, then 3100, extending to 3130.
Whenever a key trendline is pierced, it’s important to do a chart check. My own suggests that there could be another down leg develop that carries COMP to around 2900. Any pullback to the 2900 area should bring in strong support/buying interest.
COMP almost got to its oversold zone early in the week as seen with the RSI above. It would also be fairly typical for another drop into more of a FULLY oversold reading.
My trader ‘sentiment’ (CPRATIO) indicator also seen above with the COMP daily chart is neutral, but its most recent extremes have all been on the ‘overbought’ side.
NASDAQ 100 (NDX); DAILY CHART:
The Nasdaq 100 (NDX) Index recent bearish technical action has been breaking under its up trendline and to below its 21-day moving average. Unlike the S&P and Dow, key Nasdaq indices have not pierced their 50-day moving averages. Support in the 2650 area is implied by the important 50-day moving average AND is a natural area for chart support, at the Feb. highs. Look for good support there and on any further dips to around 2600.
Key near resistance is 2750, extending to 2790-2800. It would take a couple of closes back above the 21-day moving average to suggest to me that NDX was back on its prior bullish track. I’m looking for another rally but not quite yet.
Repeating a key watch is 2650 for support and 2750 for resistance for directional clues to the near-term trend, currently mixed. The downside looks like the path of least resistance currently.
NASDAQ 100 TRACKING STOCK (QQQ); DAILY CHART:
The Nasdaq 100 tracking stock (QQQ) chart has taken on the same mixed technical pattern as with the underlying NDX index. On the QQQ chart a minor Head & Shoulder’s Top pattern is more clearly seen; with a ‘neckline’ at 66. A decisive downside penetration of 66 would suggest downside potential to around 64. I anticipate a buying opportunity on dips to between 64 and 63.2, the area of the last intraday low.
Key near resistance comes in around 67.3, at the 21-day moving average. A couple of Closes above the 21-day moving average would suggest more upside potential than down; the reverse is true now: with QQQ under its 21-day average, I anticipate further downswings. Next key resistance is at 67.9-68, extending to 68.5.
RUSSELL 2000 (RUT); DAILY CHART:
The Russell 2000 (RUT) chart remains bearish in its pattern but there is the potential for a double bottom if 785 continues to hold up as support. I’ve noted resistance at the previously broken up trendline, currently intersecting in the 832 area; resistance is also implied by the 21-day moving average, at 823.
I noted last week that key support would be in the 785 area, at RUT’s last downswing low and I’d point to this again as key near support; next support is seen at 760, extending to further support around 750-740.
I anticipate lower levels in RUT before completion of this current correction. After that the index should lag Nasdaq higher assuming another rally phase into May, after completion of the current correction.
GOOD TRADING SUCCESS!
— The Option Specialist