The S&P 500 broke significantly lower in late week trading, losing 3.02% in Thursday’s and Friday’s sessions. The index dropped in three sessions shedding 2.65% during the week and has fallen 3.98% below the April 2 high. Thursday’s pullback reached volatile levels with a drop of 2.09%, the first volatile move since a 2.28% fall on Feb. 3.
Volume levels increased 14.01% over those of the previous week. The selloff Monday produced the highest volume with the rebound Wednesday providing the weakest volume. Despite the volatile market move on Thursday, the five day volume variance fell to 14.90% during the past week. Although volume increased consistent with volatile market conditions, trading sessions with volatile market moves lower often have the highest volume for the week and normally the five day variance also increases, these being inconsistent with volatile conditions.
Major Stock Market Indexes
All three indexes fell fairly steeply on Monday but pushed bullishly higher on Tuesday and Wednesday regaining the early week loss. On Thursday the indexes careened lower, breaking below the previous lows in the fall. Although all spent parts of Friday in or near positive territory, all broke lower in late trading to widen the week’s losses.
The NASDAQ and Russell 2000 are both in established downtrends. Both indexes have taken a much more bearish drop than that seen on the other indexes. The NASDAQ is currently resting on the lower trend line in its downtrend, while the Russell broke below its lower trend line Friday and also finished the session beneath it.
The S&P 500, NYSE, and Dow have not yet established downtrends, but fell from a lower high in the last retreat and reached a lower low in the late week drops.
Although the NYSE fell to a lower low, it finished Friday near support it rebounded from in early March and then again in mid-March. The Dow fell only slightly further below support found in drops during the same time periods. The S&P 500 slipped below the support it had found during these periods on Thursday, and after beginning a rebound near this support on Friday, drop back below it into the close.
The indexes are deeply oversold, so it does not seem unlikely a rebound could be seen in the week ahead.
US Treasury Charts
The 20 year US Treasury Note pushed higher in four sessions. The lone pullback was shallow and rebounded higher off the 13 EMA. The 20 year is overbought. This chart continues to show bullishness.
Long term US Treasury charts continued to show bullishness. This is somewhat bearish for stocks, although it continues to seem possible that Treasuries could falter in the not so distant future.
The interest rate on the 10 year US Treasury Note fell in four sessions with the lone rebound being quite shallow. The rate has fallen in six of seven sessions. The drop Thursday broke below the lower trend line in the slight uptrend the Ten Year had established off the Feb 3 low, but it rebounded to finish at trend by the close, but Friday slipped and finished below trend. The downturn also sent the 13 EMA to a bearish cross back below the 50 EMA. Despite the trend break and bearish cross, the Ten Year is deeply oversold, so it doesn’t seem unlikely it could rebound back into trend.
Sunday night gold traded between 1301 and 1304, finishing at about 1303.
Monday trended slowly lower to about 1296 near the New York close. It then trended slowly higher at the Sydney open to finish the night at about 1301.
Tuesday gold traded tightly to 1301 until pushing sharply higher in Hong Kong to about 1309 after which it flattened until the London open where it pushed higher to 1315. It trended slowly lower from this high to about 1307 during New York trading and then began to bounce between 1307 and 1311. It pushed slightly higher in Hong Kong reaching about 1313 before slipping to finish the night at about 1312.
Gold held between 1311 and 1313 Wednesday morning until breaking lower just before the London open and it trended lower to about 1302 in New York. In the late NY session it broke sharply higher to about 1316, but then fell off this high to trade flatly. Gold took another turn higher in Hong Kong pushing quickly to 1318 shortly after the open, and flattened again to finish the night at about 1315.
Thursday gold held near 1315 until beginning to trend higher prior to the London open, reaching a high of 1325 shortly after the New York open. It fell off this high to about 1317 and then flattened staying within a few points of that for the remainder of the night, finishing at about 1319.
Friday morning gold held within a point of 1320 until breaking lower before the London open, falling back to about 1314 in early London trading. It rebounded off this low to about 1323, and then trended slowly lower into the New York Spot close of 1318.40, which was higher than the previous week’s close of 1305.10.
Although the trend continued higher, gold appeared more or less range bound after pushing off lows early in the week.
S&P 500 Constituent Charts
The large pullback during the past week increased the numbers of constituents showing bearishness in their charts.
Only 52 constituents finished the week higher.
Some of the constituents established short term downtrends during the week, however many are near likely support.
Several charts have rounded lower.
There were several bearish crosses below the 50 EMA by the 13 EMA.
There were 100 constituents that saw 5% or greater pullbacks during the past week. Many of these stocks were underpriced prior to the retreat.
Most of the constituents are in or near oversold conditions with many deeply oversold, so it does not seem unlikely stocks could rebound.
The earnings information provided below is based on an earnings update for the S&P 500 completed April 6. The information gathered in this update includes the constituents operating earnings, the forward earnings projections for remainder of the current year and earnings projections for the next full year. The closing prices of the constituents noted below were on April 4 (a week ago) and April 11 (Friday).
There were 100 constituents that had price decreases of 5% or greater during the past week. Nine have trailing twelve month (TTM) P/E’s of less than 10. Seven have both a TTM and next full year forward P/E (NFY) of less than 10. Four of the nine had TTM P/E’s of less than ten a week ago.
As of Friday’s close, 24 of the constituents have TTM P/E’s of less than 10. Five have losses in TTM earnings and 189 have TTM P/E of greater than 20.
Of the 194 with losses or P/E’s greater than 20; 36 have NFY P/E’s of 16 or less. There are 63 that are expected to continue to carry P/E’s greater than 20. These 63 are the companies that are potentially overpriced to forward earnings.
If the recent pullback was due to investors’ fears that stocks are overpriced, we could expect these stocks to take a beating in a pullback. Only four of these companies had pullbacks in excess of 5% and two of the top three increases during the week were held by these companies.
The pullback caused the index’s TTM P/E to fall 0.61 points and the NFYF P/E to fall 0.50 points under those of a week ago.
Many of the stocks over $100 did not appear to be doing as well as lower prices stocks in chart reads over the past few weeks. Here is a comparison for this week.
The 83 (16.6%) constituents over $100 in the index did not fare well in past week. Only 4 (4.76%) of the 83 that began the week over $100 finished with gains and 5 finished the week below $100. The average loss was 3.46% and the 83 accounted for 45.36% of the total even weighted dollar loss.
Compared to the 417 (83.4%) constituents in the index under $100: 48 (11.51%) finished higher with an average loss of 3.03%. With over five times as many constituents they accounted for only 54.64% of the total even weighted dollar loss.
It hasn’t been just a bad week for many of those over $100; many have been dropping for over a month and many have shed over 10% during that time. Not all stocks over $100 are in pullbacks; some charts still look very bullish and are still reasonably priced.
Although the indicators featured in these articles are not always correct, they have been many times and being so they are worth reading about and taking note of.
The +2% H, -2% H, +/(-) 90 D, 100 L and 90E indicators are currently active. The (-)/+ 90 D indicator expired after Monday’s close. The +2% L and -2% L increased to a high rating. See a more detailed description of most of the indicators developed through research and featured in these articles here.
The (-)/+ 90 D indicator that became active on Nov 25, 2013 expired after Monday’s close. The indicator finished as follows in the format: highest close / lowest close / last close.
+4.91% / -3.36% / +2.36%
The summary of the interpretation of this indicator as it appeared in the Dec 2, 2013 Preview was as follows:
“Although it seems probable there could be a move higher first, it seems relatively likely the new 90 D could see a significant pullback in the first half of its active period. Although the overall moves seen could be fairly large, since a move higher is likely first, it seems possible this drop might not reach levels needed for normal – (minus) rating; therefore it will be encased in parentheses (-) 90D. It seems probable that the index could continue bullishly higher after any pullback seen during the remainder of the Nov 25, 2013 90 D indicator’s active period, but a good portion of that run could be regaining lost ground and it might not reach the level normally associated with a + (plus) rating, yet it seems possible it could. Therefore this indicator will be noted as a (-)/+ 90 D.”
The index did pullback significantly near the 1850 resistance of the MRL and within the 5% to 7% range as projected earlier in the interpretation. The significant pullback did occur during the first half of the indicator’s active period and after first moving higher into the end of the year. Although the indicator fell into negative territory, it did not reach a level needed for a normal minus rating. The index did rebound from this pullback and this rebound also fell well short of the proportions normally associated with a plus rating. The rebound also fell short of what was felt it would likely reach. Therefore the interpretation of this indicator appears to have been mostly correct in this instance.
The +2% L indicator did not provide a correct indication during the past week. Thursday’s 2.09% drop is third volatile pullback (a 2% or greater drop within a session) without an offsetting 2% increase, making it very likely an offsetting move could be seen in this instance. The +2% indicator has therefore entered a high state. It will remain in a high state for 30 trading days or until an offsetting move has been made.
Although it seemed unlikely, the -2% L indicator provided a correct indication during the past week with a 2.09% drop on Thursday. The presence of volatility increases the chances that more volatile moves could occur, therefore this indicator has entered a high state.
The +/(-) 90 D that became active on Feb 21, 2014 has performed as follows to this point in the format: highest close / lowest close / last close.
+2.98 / -1.12% / -1.12%.
A significant pullback on the index was not expected in the early portion of this indicator’s presence; therefore timing patterns used in the interpretation of this indicator have potentially been extended. It therefore seems possible the interpretation for this indicator as given was incorrect.
Monday’s decline took the S&P 500 below the 1850 support of the MRL, but Tuesday rebounded to close at 1851.96 and Wednesday’s low of 1852.38 also showed continued support at this level. Thursday promptly fell through this support in a volatile retreat, and Friday continued lower to finish the session at 1815.69 and 3.98% below the April 2 high. Since the index fell in excess of 3% from its high it is considered a significant drop beginning from within the 100 L.
Although the potential for a significant drop existed within the 100 L, one was not expected and if one was seen it seemed likely it would not be much more than 3%, therefore the interpretation of the resistance within the 100L was incorrect in this instance.
Although it seemed possible the 90 E could be bullish in this appearance, this interpretation appears to have been incorrect as a bearish volatile retreat was seen Thursday with this retreat sending the index to a bearish significant pullback level. The pullback to a significant level is also considered a direction change, another trait of this indicator. However, several of the past occurrences of this indicator have provided more than one direction change so it still seems possible it could contain some bullishness.
The +10 day indicator is near a high state.
The index saw a volatile decrease of 2% or greater and the resistance within the 100 L provided a significant pullback on the index, with the pullback reaching 3.98%.
All of the indexes and many stocks are deeply oversold making a rebound seem possible.
The index has exhibited three of the bearing traits often seen during the presence of a 90 E indicator: a volatile daily market move (that of 2% or greater either higher or lower), a significant drop on the index (that of 3% or greater from highest close to lowest close) and a price direction change (a 3% or greater change in price direction beginning during the indicator’s active period).
There were some inconsistences with volumes seen during volatile market conditions in the past week. Volume levels increased 14.01% consistent with volatile market conditions but the five day volume variance fell 2.4% to 14.90% during the past week inconsistent with volatile conditions. The volatile pullback during Thursday’s session also did not have the week’s highest volume.
There continues to be many reasons to be bullish at the current time. Any pullbacks in stock prices seen along the way are probably a good opportunity to add.
If the index continues within the trend established off the crash lows, it seems possible it could reach the 2000 to 2100 level in eight to 17 months if it reaches this level near the upper trend line and within 35 to 41 months if it reaches this level near the lower trend line. The data suggests the Midrange Resistance Level (MRL) at 2035 to 2055 could hold the resistance level of concern within this range at 2040. More details of this potential resistance can be seen in past articles.
Please note there is no established resistance in the MRL levels before the index has reached these levels. Several instances have proven to hold resistance once reached; however MRL levels that the index has not yet reached are only the most likely levels that resistance will be seen based on research. Back tests of the data used to project these resistance levels work well, but they are not allows exact, and these resistances could react sooner or later than expected, it is also possible the resistance will not be seen at all.
Many of these sources of information were used in this article.
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Have a great day trading,
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Disclosure: Ron is currently about 86% invested long in stocks in his trading accounts. His investment level increased over the past week due to the purchase of four issues with the cost of these purchases partial offset by the sale of two issues and dividend payments. Ron feels he is slightly oversold at the current time. However he has and will continue to sell stocks that reach long or short term targets and also continue to add stocks he feels are at a great value through a variety of buy orders. Ron will receive dividend payments from 12 issues in the coming week and 7 in the following week. If no further investment changes are made during this timeframe these dividend payments will reduce his investment level.
Some of the trades made during the past week may have been due to repositioning investments as discussed in a previous article.
Disclaimer: The information provided in the Stock Market Preview is Ron’s perception of the current conditions and what he thinks is the most probable outcome based on the current conditions, the data collected and extensive research he has done into this data along with other variables. It is intended to provoke thought of the possible market direction in his readers, not foretell the future. Ron does not claim to know what the stock market will do. If the stock market performs as expected, it only means he is applying the stock market history to the current conditions correctly. His perception of the data is not always correct.
This article is intended to provoke thought about investment possibilities. Acting on the information provided is at your own risk. You are urged to do your own research, and where appropriate, seek professional investment advice before acting on any information contained in these articles.