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Stock market preview for the week of April 21, 2014

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The S&P 500 pushed higher in all four trading sessions, increasing 2.71% during the holiday shortened trading week. The index finished the week with the largest weekly gain since a 2.96% increase was seen during the week of July 12, 2013.

Average daily volume levels decreased 8.54% during the four day week compared to the average daily volumes of the five days of the previous week. Monday produced the lowest volume levels with Tuesday providing the strongest volume. The five day volume variance increased 5.41% over that seen in the previous week to 20.31%. Although an increase in variance was seen, it was partly due to a drop off to more normal volume levels Monday from the elevated levels seen on Friday of the prior week and partly due to abnormally low variance seen during the volatile conditions in the previous week’s drop.

Major Stock Market Indexes

The index charts of the Dow Jones Industrial Average, S&P 500, NASDAQ, New York Stock Exchange and Russell 2000 saw bullish pushes higher during the week.

Thursday’s 0.10% loss seen on the Dow Jones was the only loss seen on any of the indexes during the week. Before registering the slight loss, the Dow pushed to an intraday high Thursday that was higher than that seen in previous cycle, being the first index to break to a higher high in this push higher. The higher high also broke a developing downtrend before it was established. The Dow pushed back above the 50 EMA on Tuesday and above the 13 EMA on Wednesday.

The NYSE pushed above its 50 EMA in Monday’s rebound, finishing the session virtually at the 50 EMA. It pushed just short of the 13 EMA in Tuesday’s late session rebound, then back above it on Wednesday. Although it has yet to break above the previous cycle high, Thursday’s intraday high was less than a point from it.

The S&P 500 pushed above the 13 and 50 EMA on Wednesday. Thursday’s intraday high was less than three points from the previous cycle high.

All three of these indexes saw the 13 EMA turn higher before crossing below the 50 EMA and also saw the 13 EMA begin to widen the gap above the 50 EMA again.

The NASDAQ and Russell 2000 appeared to lag the other indexes in this week’s rebound. Both fell to lower intraday lows on Tuesday before beginning to move higher. Both saw the rebounds bump into their 13 EMA on Thursday, but both finished the session slightly below this level. Both are still a fair distance below the previous cycle highs.

Part of the appearance of lagging in this rebound was due to the deeper drop seen on these indexes. As a result of the deeper drop and a somewhat slower rebound, both remain more deeply oversold, leaving more room for upside potential. Both also began to turn the 13 EMA higher, after beginning a rebound from deeply below it, often an early sign that a rebound off lows has begun.

The indexes are still oversold, so it does not seem unlikely stocks could continue higher in the week ahead.

US Treasury Charts

The 20 year US Treasury Note pushed higher in two sessions. It slipped slightly Monday before continuing higher Tuesday and Wednesday pushing to a higher high than that seen in the previous cycle in the process. It fell back sharply on Thursday but the drop rebounded at the 13 EMA finishing the session above it. This chart continues to show bullishness. The 20 year is fully overbought, so it seems possible more downside exists.

Long term US Treasury charts continued to show bullishness, yet they are fully overbought and it appears they may have broken lower in late week trading. This is somewhat bullish for stocks.

The interest rate on the 10 year US Treasury Note pushed higher in three of four sessions this past week, with Thursday moving sharply higher. The rebound Thursday pushed back above both the 13 EMA and 50 EMA finishing the session above both. The interest rate chart continues to be quite deeply oversold, so continued upside in this rebound seems possible.

Gold

Sunday night gold pushed quickly higher to about 1328 after the New York Global Exchange open and traded between 1325 and 1328 for the remainder of the night, finishing at about 1326.

Monday trended slowly higher to about 1329, before turning lower near the London open. It reached about 1321 before again changing course higher near the New York open. This rebound lasted until about midsession on the NYMEX and reached 1331. Gold slipped fairly quickly back to 1326 from that high and traded between that low and 1328 until the Sydney open, where it began a gradual trend lower that steepened at the Hong Kong open, reaching about 1319 before nosing up to 1321 to finish the night.

Tuesday morning began with gold holding tightly to 1320 before breaking lower about midway through the Hong Kong session. The trend continued lower to 1291 in the early New York session where it fell steeply from 1304 to this low. It slowly rebounded back to 1304 and then traded between that high and 1300 until dipping back to about 1296 shortly after the Hong Kong open. It stayed between that low and a couple points higher to finish the night at 1298.

Wednesday was uneventful, with gold reaching a low of 1295 in the Hong Kong morning session and high of 1306 in early New York trading. Aside from the trends between the highs and lows, gold spent most of the day between 1300 and 1302, finishing at about 1300.

Thursday was also mostly uneventful, with gold reaching a low of 1296 in the Hong Kong morning session and a high of 1303 in early New York trading before slipping to finish the holiday shortened week in with a New York Spot of 1294.80 and lower than the previous week’s close of 1318.40. Gold continued to trade in Hong Kong, but made little movement other that falling to about 1293 and finishing the night at the same price.

Good Friday saw gold trade flat between 1293 and a bit above 1294 in Hong Kong finishing the week at 1293.90.

Gold trended slightly lower, but continued to appear range bound during the week. A break of current support at 1290 could send gold lower or current resistance at about 1330 higher, but at the moment there appears to be little trading catalyst for a move in either direction.

S&P 500 Constituent Charts

The rebound in constituent stock prices appeared very bullish in the charts this week.

Several constituents broke above the upper trend line in downtrends during the past week. Several of these trends were recently established, but some had been trending lower for as long as several months. Some also finished the last cycle with a higher low and moved to a higher high in this break. It seems likely many could begin to trend higher from this trend break.

Several constituents that had sharp declines in the recent setback turned higher in a “V” rebound. Some have already returned to new 52 week highs in these rebounds.

Several of the constituents had continued in bullish runs even into the significant pullback seen on the index. Many of these stocks continued to hold in or near overbought levels and hold near or even push to new 52 week highs. There are currently 39 constituents that finished the week trading less than 1% from 52 week highs, compared to just four a week ago. Both of these time periods included two constituents that are in the midst of being acquired and are trading near the proposed acquisition price with the recent trading range being less than 1% of their 52 week highs: LSI Corp (LSI) and Beam Inc. (BEAM).

Not all of the stocks that maintained bullish stances into the recent pullback are near 52 week highs, but many of these stocks pushed above the most recent highs.

Many of the constituents broke to or above the 13 EMA and or 50 EMA in recent rebounds. Many that had bearish crosses of the 13 EMA under the 50 EMA have seen the 13 EMA rebound to a bullish cross back above the 50 EMA. Most stocks that had these bearish crosses and that have not yet seen the 13 EMA return above the 50 EMA saw the 13 EMA turn markedly higher and the gap between the two diminish substantially during the rebound.

Turns higher in the 13 EMA were seen on most of the constituents. Many that had prices fall below the 13 EMA, rebounded and held above it during the week.

Most of the constituents are showing bullish turns higher from recent lows and most are in or near oversold conditions. It does not seem unlikely the index could continue higher in the week ahead.

Interesting Points

Thursday’s close saw 454 constituents finish the week with gains, two finished even and 44 saw losses.

Only nine of the constituents are within 5% of 52 week lows. A week ago 21 were within 5% of 52 week lows.

There were 43 constituents that increased their 52 week highs and three constituents pushed to new 52 week lows during the past week.

A week ago the constituents averaged 11.61% below 52 week highs and 29.84% above 52 week lows. At Thursday’s close the constituents averaged 9.33% below 52 week highs and 33.90% above 52 week lows.

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 (two weeks ago), April 11 (a week ago) and April 17 (the past week or Thursday).

During the past week it was noticed that two recent constituent changes, Essex Property Trust Inc. (ESS) replaced Cliffs Natural Resources Inc. (CLF) and Keurig Green Mountain Inc. (GMCR) replaced WPX Energy Inc. (WPX), were omitted from the April 6 earnings update. These changes have been included in data presented this week. It was also noticed that the Google (GOOGL) split will not be handled as it is normally nor as originally planned. It has been decided that only Google class B shares (GOOGL) will be used in the data presented below and not both Class B and Class C (GOOG) shares as is in the actual index. Only the planned to be retained Class C shares were used in the prior week’s comparisons and not both. These changes did change some of the data presented in the prior week, however most changes were minor. Since a direct comparison to data supplied in the prior week will be used, an excerpt of this comparison data was updated below:

The 85 (17.00%) constituents that finished with share prices over $100 two weeks ago did not fare well in the fall a week ago. Only 4 (4.71%) of the 85 that began the week over $100 finished with gains and 6 finished the week below $100. The average loss was 3.41% and the 85 accounted for 45.42% of the total even weighted dollar loss.

Compared to the 415 (83.00%) constituents in the index under $100 a week ago: 48 (11.57%) finished higher with an average loss of 3.03%. With nearly five times as many constituents they accounted for only 54.58% of the total even weighted dollar loss. End of updated version.

The rebound in the past week saw stocks over $100 continue to perform below their lower priced peers. Based on the 85 stocks that finished with share prices over $100 two weeks ago, the average gain was 2.53% and two of the six that fell below $100 a week ago remained below $100. Even though the 85 accounted for 45.42% of the total even weighted dollar loss in the fall a week ago, they only accounted for 41.40% of the total even weighted gain in the past week.

The 415 that had share prices under $100 two weeks ago fared only slightly better in the average percentage of gain in the past week at 2.65%, but accounted for 58.60% of the total even weighted dollar gain when accounting for only 54.58% of the total even weighted dollar loss seen a week ago. Six of the 415 broke above the $100 barrier in the past week.

The week’s largest setback was seen in Safeway (SWY) at 9.95%, but the drop was due to the spinoff of Blackhawk Network Holdings (HAWKB) that completed before the market open on Monday April 14 and Safeway finished the week slightly higher than it began Monday. Setting aside Safeway’s apparent loss, the largest drop by a constituent was seen in Intuitive Surgical (ISRG) that finished at $411.99 after a 6.29% loss. Two other stocks trading above $100 shared in the top eight weekly drops along with another in a pullback from a previous push above $100.

Not all stocks over $100 fared poorly, and some are reasonably priced with future earnings that could continue to push these stocks higher. It does seem possible that many of the higher share priced stocks might not rise as fast compared to stocks evenly priced to earnings trading at lower prices. The deeper fall and slower rebound seen in the past two weeks in the higher priced stocks seems to support this possibility.

Six of the constituents rebounded in excess of 10% during the past week. One of the six was trading above $100 at Thursday’s close, Allergan, Inc. (AGN). The week’s largest rebound was accredited to Micron Technologies (MU) with a rebound of 13.16%. Micron was indirectly noted as the one stock “not yet trading to even value” of the 20 stocks with 5% pullbacks during the fall on April 4 covered in the April 11 preview.

It appears many stocks over $100 have reached plateaus that research indicates could cause them to underperform to their lower priced peers, at least until they split to a share price below $100. The data over the past two weeks seems to support the reflex observed in that research.

Indicators

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. See a more detailed description of most of the indicators developed through research and featured in these articles here.

The +2% H indicator did not provide a correct indication during the past week.

The -2% H indicator did not provide a correct indication during the past week.

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% / 1.56%.

The S&P 500 has pushed fairly steadily higher after rebounding off the midday lows in Tuesday’s retreat. Each day this week has had progressively higher intraday lows and higher intraday highs with the exception of Monday’s high falling slightly short of the previous Friday. The index pushed through the 1850 to 1865 MRL without seeing any residual resistance at this level. The rate of the climb has slowed somewhat from the early rebound, but the early rise was recapturing lost ground and the slowing in the rise has left the index closer to gains seen during normal bullish runs.

The index is nearing the 1875 lower resistance of the 100 L. The index has seen 11 daily highs within 3 points of this resistance since nearing or moving into the 100 L resistance. This resistance has already been breached and weakened in these breaks, so it seems possible that the index could push back above this level without incidence.

The 90 E was present during a bearish volatile retreat and a bearish significant pullback. The significant pullback is also considered a price direction change, another trait of this indicator. This indicator has been present during periods with more than one price direction change in the past, so it seems possible the rebound off recent lows could also produce a price direction change higher.

The +10 day indicator did not toggle on before the index rebounded in the past week, but it appears the index reacted bullishly to this near toggle.

Current Cautions

The index saw a volatile daily 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%.

The index has exhibited three of the bearish 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). Although the price direction change seen earlier was bearish, this indicator has been present during times with more than one price direction change. The current rebound makes it seem possible the indicator could also provide a bullish price direction change in this appearance.

Average daily volume levels decreased 8.54% during the week consistent with bullish moves higher. The five day volume variance increased to 20.31%. Although bullish runs normally see volume variance fall, the increase was partly due to interaction with volumes during the drop due to a shortened trading week as the previous Friday’s higher volume was used in the five day variance. The volatile conditions seen in the previous week also had lower than normal volume variance levels, being nearer to those normally seen during bullish conditions.

The next likely area resistance could be found once the index passes the 100 L at 1900 is in the Midrange Resistance Level (MRL) between 1940 and 1955. The MRL appears to have the potential to cause a significant pullback, but probably not a large pullback if one were to be seen there. It also seems possible the index could move past this level without incidence.

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 seven to 16 months if it reaches this level near the upper trend line and within 34 to 40 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,
ronz

Access link to all of Ron’s past articles.

Disclosure: Ron has investments in CLF, SWY and HAWKB. Ron has no investments in LSI, BEAM, ESS, GMCR, WPX, GOOGL, GOOG, ISRG, AGN or MU. Ron is currently about 86% invested long in stocks in his trading accounts. Although his investment remained unchanged over the past week, he purchased two issues with the cost of these purchases partially 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 seven issues in the coming week and 12 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.

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