S&P 500 BECOMES OVERSOLD AND HITS 200-DAY -- APPLE FORMS HARAMI AFTER SELLING CLIMAX -- MARKING LONG-TERM SUPPORT FOR THE S&P 500 -- DOW BREAKS MEDIUM-TERM TREND LINE -- GOLD HITS RESISTANCE AS SILVER CONSOLIDATES

S&P 500 BECOMES OVERSOLD AND HITS 200-DAY... Link for todays video. Stocks are oversold and the S&P 500 is trading near its 200-day moving average. This is a recipe for an oversold bounce or a consolidation. Chart 1 shows the S&P 500 with support in the 1380 area from broken resistance (July highs) and the 200-day SMA. Signs of firmness emerged on Friday as the index stalled in the 1380 area. Should an oversold bounce take hold, the two broken supports mark a resistance zone around 1410 (10 points).

Chart 1

The indicator window shows the Commodity Channel Index (CCI) moving lower with three dips below -100 in the last five weeks. Notice that CCI did not break below -100 during the uptrend from mid June to September. It takes strong selling pressure to breach the -100 level and this occurs more often in downtrends. Now that CCI has pierced the -100 level several times, it is likely that a downtrend is emerging and the +100 level will mark resistance.

MARKING LONG-TERM SUPPORT FOR THE S&P 500 ... Barring a surge back above the early November highs, the S&P 500 is in a downtrend and the next support level for this benchmark index resides in the 1300 area. Chart 2 shows the S&P 500 with the 12% zigzag indicator. This indicator filters out price moves that are less than 12%. The S&P 500 is in a long-term uptrend on this chart and there were two sharp corrections in 2010 and 2011 (17% and 19.7%). A similar correction (18%) would carry the index to the low 1200s. There is, however, a higher support zone around 1300. The spring lows and channel trend line mark support here.

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Chart 2

DOW BREAKS MEDIUM-TERM TREND LINE... Chart 3 shows the Dow Industrials breaking trend line support for the third time in three years. Prior breaks occurred in 2010 and 2011. The Dow declined over 14% from peak to trough each time. The indicator window shows the Percent Price Oscillator (PPO) moving into negative territory during the prior two declines. The Dow ultimately reversed course when the PPO turned up and moved above its signal line (green arrows). At this point, the PPO has yet to enter negative territory and remains below its signal line.

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Chart 3

APPLE FORMS HARAMI AFTER SELLING CLIMAX... Chart 4 shows the Nasdaq 100 ($NDX) falling over 10% from its September high to its November low. We do not need a momentum oscillator to determine that this index is oversold. The index overshot its key retracements and support from broken resistance in the 2660 area. Despite this overshoot, oversold conditions make a bounce or consolidation increasingly likely at this stage. The consolidation from late October to early November marks a resistance zone in the 2675 area. Also notice that the upper trend line of the Raff Regression Channel confirms resistance here. The indicator window shows the Commodity Channel Index (CCI) breaking below -100 in early October and remaining negative the last four weeks.

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Chart 4

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Chart 5

Nasdaq 100 performance is tied to Apple, which is its biggest component, by far. Chart 5 shows Apple falling over 20% from late September to mid November. The stock fell over 7% on Wednesday-Thursday and traded over 60 million shares, which is around 5% of its float. This steep plunge on huge volume smacks of a selling climax. The stock ended the week with a harami. This is the long black candlestick with the smaller white candlestick. Notice that the body of the white candlestick is within the body of the black candlestick. This is similar to an inside day, which signals indecision. The combination of indecision and oversold conditions could give way to a consolidation or oversold bounce. The September trend line and yellow zone mark resistance in the 590 area.

GOLD HITS RESISTANCE AS SILVER CONSOLIDATES... Chart 6 shows the Gold SPDR (GLD) surging back to broken support last week and then stalling the last two days. Broken support turns into resistance here for the first test. At this point, the break above the October trend line is positive and needs to hold. A failure at 168 and break below 166 would signal a continuation of the October decline. This would target a move to broken resistance and the 61.80% retracement around 158.

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Chart 6

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Chart 7

Chart 7 shows the Silver Trust (SLV) plunging over 10% from early October to early November and then bouncing with a move back above 31 last week. This bounce broke the October trend line and the breakout is holding. A move back below 30.7 would negate this breakout and suggest another leg lower. As with GLD above, broken resistance and the 61.80% retracement mark the next support zone around 29.

BOLLINGER BANDS NARROW FOR SILVER MINERS ETF ... Chartists can watch the Gold Miners ETF (GDX) and the Silver Miners ETF (SIL) for clues on the next move in precious metals. Chart 8 shows GDX surging over 30% and then correcting with a falling channel the last seven weeks. The channel marks a downtrend as long as the most recent peak holds. A move above 52 is needed to break channel resistance and signal a continuation higher. Such a move would be positive for gold and precious metals.

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Chart 8

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Chart 9

Chart 9 shows the Silver Miners ETF surging above 24 in mid September and then consolidating the last 6-7 weeks. The range is fairly narrow since mid October with support at 23.5 and resistance at 25.5. In fact, notice that the Bollinger Bands have narrowed significantly to show a volatility contraction. Chartists should watch the three week range for the next directional clue. A support break would be bearish for SIL and negative for precious metals. An upside breakout would signal a continuation of the August-September surge and be positive for precious metals. Note that a granular look at the 30-minute chart shows a sharp decline and rising wedge since early November.