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Stock market preview for the week of April 28, 2014

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The S&P 500 pushed higher in three trading sessions, but the fairly large pullback on Friday erased the week’s gains and as a result the index finished with a 0.08% loss. The index has finished higher in seven of the past nine sessions.

Average daily volume levels decreased 9.06% compared to the average daily volumes of the four trading days of the previous week. Monday produced the lowest volume levels with Tuesday providing the strongest volume. The five day volume variance increased 1.37% over that seen in the previous week to 21.69%.

The S&P pushed slightly above previous resistance at about 1883 on Tuesday and again on Thursday. Pullbacks initially found support near the lower level of the 100 L at 1875, but this support gave way later in the week. Friday finished near the upper resistance of the 1850 to 1865 MRL at 1863.40. If the index were to fall lower, it seems possible that the previous resistance at 1850 could provide support in this retreat.

Major Stock Market Indexes

The index charts of the Dow Jones Industrial Average, S&P 500, NASDAQ, New York Stock Exchange and Russell 2000 continued bullish pushes higher early in the week, although Friday’s pullback was fairly steep on some of the indexes.

The NYSE and S&P 500 followed the Dow Jones in pushing to an intraday high that was higher than that seen in previous cycle during the week. The push to a higher high broke developing downtrends seen on these indexes before they were established.

All three of these indexes fell short of record highs in the recent push higher, but all come quite close to these highs. The NYSE finished Tuesday with the second highest close ever and only 17.85 below the record. The Dow Jones and S&P 500 finished Tuesday with their fourth highest closes, 58.63 and 11.35 short of record highs respectively.

The NYSE and S&P 500 finished Friday just slightly below their 13 EMA’s, while the Dow finished the week a little further below it.

The Russell 2000 and NYSE have seen pullbacks in three consecutive days, being somewhat bearish. The other three indexes have maintained more bullish pullback durations, registering only one loss without a gain or after remaining unchanged.

Both the Russell 2000 and NASDAQ broke slightly above their 50 EMA during the week before turning lower. Turn backs at the 50 EMA in initial pushes higher are not uncommon and often lead to retests of this level later.

Both indexes also fell slightly short of a high higher than in the previous cycle, but both broke above the upper trend line in their downtrends during the week. Although the move above this trend line did not break these downtrends if the indexes were to rebound from a higher low in this pullback it would be a very bullish sign.

The NASDAQ has pushed higher in seven of nine sessions, but took a steeper pullback than that seen on the other indexes Friday. This pullback was largely due to investor dissatisfaction with Amazon’s (AMZN) earnings performance, although they met expectations the stock tumbled 9.88% during Friday’s session. Since Amazon is also an S&P 500 constituent, the large pullback in Amazon likely increased the losses Friday that kept the S&P 500 from posting a gain for the week and may have also skewed the rebound point on the index from the lows seen Friday.

The pullback in Amazon continued in afterhours trading Friday as it shed another half percent, so it is possible this fall could continue and possibly weigh on the NASDAQ’s and S&P 500’s performance in the week ahead. However, even if Amazon continues to fall it seems likely the drop would be at a much slower pace than that seen on Friday. Most stocks are reporting very good earnings so it also seems possible the majority could prevail and move the indexes higher again. Aside from Amazon, some of those that fell short of earnings projections during the week still had very good reports overall showing widespread gains in many earnings categories.

The Dow, NYSE and S&P neared overbought conditions prior to the recent pullback, but the Russell and NASDAQ were still somewhat oversold. It seems possible the recent round of profit taking was spurred on by a relatively few poor earnings performances, while most continue to have good reports. A pullback in stocks could continue, but it seems possible this round of profit taking could be near completion.

US Treasury Charts

The 20 year US Treasury Note slipped in Monday’s session but continued higher for the remainder of the week. Monday’s low held above the 13 EMA and after breaching the 13 EMA Tuesday, it rebounded bullishly back above it and has since increased the gap the price is riding above it. Monday’s low was higher than the previous cycle low and Friday’s finish also broke to a higher high. Although US Treasuries continue to appear risky, this chart continues to be very bullish. Treasuries are overbought at the current time.

Long term US Treasury charts continued to show bullishness turning higher early off the recent break lower. This is somewhat bearish for stocks.

The interest rate on the 10 year US Treasury Note finished unchanged Monday and slightly higher on Tuesday. It slipped lower on Wednesday breaking below the 50 EMA and finished slightly below the 13 EMA. Thursday rebounded back above both barriers before slipping to finish again slightly below the 13 EMA. Friday fell deeper below the 13 EMA but rebounded to regain about half of earlier losses. The chart continues to trade in a mostly sideways pattern.

Gold

Sunday night gold slipped to about 1292 shortly after the New York Global Exchange open and rebounded slightly at the Sydney open before falling back to 1292. Gold pushed strongly higher off that low reaching 1301 at about the Hong Kong open, but fell just as sharply off that high to 1283 in early trading, trending up off this low to finish the night at about 1286.

Monday gold traded uneventfully, spending most of the day between 1285 and 1290. It broke lower just before the New York open to reach a low of about 1283 and then pushed quickly higher to 1293 early in New York trading before falling quickly back to 1286 and resuming trading within the 1285 to 1290 bandwidth. Gold finished the night at 1287.

Tuesday morning began a bouncy shallow trend higher reaching about 1292 shortly after the New York open. It slipped more steeply lower off that high to 1278 by about mid-session in New York reaching that low shortly after the London close. It trended slowly back to 1285 and spent the rest of the night within a couple points of that and finished at about 1284.

Wednesday gold held within a point of 1284 in the Hong Kong morning session before pushing to the daily high of 1288 in London and falling to the daily low of 1282 early in Ney York. It traded within two points of the rebound back to 1284 until a push near the finish the day to about 1287, but slipped lower to finish at about 1286.

Thursday gold held within a point of 1285 in the Hong Kong morning session before falling to the daily low of 1269 in London and rebounding very sharply in the early New York session to the daily high of 1298. It slipped fairly sharply off that high to 1289 and then trended slowly higher to 1294 in the late New York session. It spent the Sydney and Hong Kong sessions between 1292 and 1294 before finishing the night at about 1292.

Friday saw gold continue to trade between 1292 and 1294 in Hong Kong but begin to trend higher after the London open to reach a high of 1305 in New York. It slipped back to 1299 before taking a flattish trend higher to finish with a New York Spot price of 1302.80 and higher than the 1294.80 New York Spot close of the previous week and Good Friday’s Hong Kong finish at 1293.90.

Gold trended slightly higher but traded very flatly for the week. Gold saw little price movement outside the hours that the London exchange was open for most of the week. All of the week’s daily highs and lows were seen during the London session or very shortly after its close, with the exception of Sunday nights trading. Gold saw support at 1290 fail and slipped to 1269 before rebounding. It also saw some whipsaw movements in price direction, making it appear somewhat risky at the moment. Even though it finished higher for the week these whipsaws appear to be stripping value. Although gold may continue higher in this rebound, the support found at 1269 could prove to be crucial in the week ahead.

S&P 500 Constituent Charts

The late week pullback increased the numbers of constituents that had somewhat bearish chart formations in the past week, but overall most constituents maintained bullish postures in their charts.

Most indicator stocks have maintained very bullish charts. Although some have pulled back with the overall market, they look near likely rebound points and have fallen to or near oversold levels.

Several constituents that turned higher in a “V” rebound stalled or pulled back somewhat during the recent pullback on the indexes, but it seems possible these rebounds could continue.

Several of the constituents continued in bullish runs in the recent pullback. There were 26 constituents that finished the week trading less than 1% from 52 week highs, down from 39 in the previous week. 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) and this week’s data includes Allergan, Inc. (AGN) that was offered a buyout during the trading week.

Many of the stocks that fell during the past week have reached appealing price levels.

Interesting Points

Friday’s close saw 232 (46.40%) of the constituents finish the week with gains, one (0.20%) finished unchanged and 267 (53.40%) saw losses.

The weekly price change shows that stocks with a share price over $100 continue to perform below their lower priced peers. Based on the 89 constituents that finished with share prices over $100 a week ago, the average loss was 1.12% and five finished the week below the $100 threshold. Only 33 (37.07%) finished with gains. The 89 or 17.80% of the index accounted for 84.12% of the total even weighted dollar loss on the index during the past week.

In comparison, the 411 constituents that had share prices under $100 a week ago had an average loss of 0.16% in the past week. There were 199 (48.42%) that finished the week higher and two finished the week above the $100 threshold. Representing 82.20% of the index, they accounted for only 15.88% of the total even weighted dollar loss on the index during the past week.

The largest dollar loss by a stock trading above $100 for the week was seen in Priceline.com (PLCN) at $51.12 or 4.23%. That drop in price was almost 145% higher than the total loss seen in stocks trading under $100. The largest loss by a stock trading under $100 was seen in Trip Advisors (TRIP) which shed $8.29 or 9.68%. Ten constituent stocks that finished the prior week at $100 or more had larger dollar losses than Trip Advisor did.

For the second week in a row the largest weekly percentage drop by a constituent was seen in Intuitive Surgical (ISRG) that finished $45.62 lower shedding 11.07%. Two other stocks trading above $100 shared in the top ten weekly drops; Amazon shed $21.06 or 6.49% and Netflix (NFLX) dropped $21.99 or 6.84%. Although Netflix beat earnings expectations in its most recent report, potential earnings problems in Amazon and Netflix were pointed out in an earlier article.

Two of the stocks that were trading above $100 finished in the top ten performers for the week. Allergan, Inc. (AGN) had the largest percentage increase with a price jump of $34.23, or 25.56% above that of the previous week. The large increase in Allergan was due to a buyout offer by Pershing Square Capital Management and Quebec based Valeant Pharmaceuticals. The other stock in the top ten trading above $100 was Apple (AAPL) which rose $47 or 8.95%. The increase in Apple shares was partially due to an announced 7 for 1 stock split but was undoubted aided by an earnings beat, an upbeat earnings report, a dividend increase and a planned increase in share repurchases.

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 data over the past three weeks continues to seem to support this possibility.

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 and 100 L indicators are currently active. The 90E indicator expired with Friday’s close. 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. Although the 90 E has expired showing decreased chances of volatility, this indicator will remain in a high state due to increased chances of an offsetting move higher to the April 10 drop of 2.09%.

The -2% H indicator did not provide a correct indication during the past week. The expiration of the 90E will set this indicator back into a low state at the close on Friday, provided there are no volatile market moves prior to this time.

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% / 1.48%.

The S&P 500 pushed higher in six straight sessions before Wednesday’s retreat. Tuesday’s high finished at 1884.89, and slightly above earlier resistance that had sent the index lower at 1883. After Wednesday’s low found support at 1873.91 and near lower resistance of the 100 L at 1875, Thursday’s intraday high again broke above the 1883 level reaching 1884.06. Although this high was somewhat lower than Tuesday’s, it still severed to further weaken this resistance. Third pushes into resistance levels often see resistance breaks, so it seems possible the next push above this level could continue higher.

The resistance at 1883 had been broken in the move to record highs when the index finished above it for three consecutive days. Three consecutive closes above a resistance generally indicates the resistance level has given way. It seems possible the renewal of resistance at this level could possibly have been that the index had a fairly long string of positive closes and was nearing overbought conditions while some news events allowed investors to take profits. This profit taking could refuel the index for a move higher through this resistance.

The 90 E indicator expired after the close on Friday. The 90 E was present during a bearish volatile daily retreat when a 2.09% drop was seen on April 10. The indicator was present during a bearish significant drop on the index. The indictor saw a price direction change during the significant pullback from the April 2 highest close to the April 11 lowest close of 3.98%. Although the index has yet to recover from that significant drop, the bullish rebound from the April 11 low to the close on Tuesday was 3.52%, and another price direction of significant levels.

The interpretation of this indicator prior to it becoming active was that it seemed possible it could be bullish in this occurrence. Even though it appears the index could be in a bullish move higher now, it appears this interpretation was incorrect in the instance due to the bearish market conditions seen during this indicator’s tenure.

The expiration of the 90 E indicator reduces the chances that volatile conditions will be seen on the index. These reduced chances of volatility will change the -2% H indicator to a low state after this coming Friday’s close, provided there are no volatile market moves prior to that time.

The -2% H indicator was held in a high state beyond this indicator’s expiration date due to near the volatile conditions seen on the NASDAQ Friday, along with past occurrences of market conditions normally seen during the 90 E indicator’s active period seen in the fringe days around its activation or expiration. This extension was made as a precautionary measure since it seems relatively unlikely these conditions would be seen in this instance.

The near toggle of the +10 day indicator saw the index rebound from a lowest close to the highest close of 3.52% during the first nine days after the 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%. Resistance was again found near the 1883 level in the rebound off the low, but the index pushed slightly above this resistance twice during the week.

The large drop seen in Amazon on Friday may have allowed the index to fall and finish below upper support levels within the 1850 to 1865 MRL on Friday. It therefore seems possible this drop could have skewed the rebound point lower than it would have been otherwise. Using an outdated weighting of Amazon makes it seem possible the index may have begun to rebound near the upper resistance support absent the Amazon price change. If this support should fail, it seems possible that the index could find support at the lower resistance at 1850.

The 90 E indicator expired with Friday’s close becoming inactive. Although market activity consistent with this indicator is sometimes seen in the fringe dates close to this indicator’s activation or expiration, this indicator’s dormancy reduces the chances of volatile conditions. The absence of volatile conditions is generally seen during bullish market conditions. This indicator expired after seeing a volatile daily move, a significant pullback on the index and two price direction changes with all being traits seen during past occurrences of this indicator. It appears this indicator expired during a price direction change higher, so it seems fairly likely this move could continue higher.

Average daily volume levels decreased 9.06% compared to the average daily volumes of the four trading days of the previous week, remaining consistent with bullish conditions. The five day volume variance increased 1.37% over that seen in the previous week to 21.69%, but variance levels remained near those often 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.

Comments:

Standard and Poors reported earlier this month that dividend increases during the first quarter seen in the approximately 10,000 stocks covered were at record levels. The report noted that dividend rate increases totaled $17.8 billion for the quarter with 14.2% more companies increasing dividends than in the same period a year ago. The report also noted that dividend decreases fell from those seen in the same quarter a year ago.

In January Standard and Poors report a $12.7 billion dividend increase in the fourth quarter of 2013 and a 2013 full year increase of $56.7 billion.

The high level of dividend increases coupled with the lowered levels of decreases appears to show a high level of confidence by corporations in their ability to continue to grow earnings.

Although first quarter earnings results to this point appear to be falling short of those needed to produce a quarterly earnings record, the first quarter’s earnings are generally the lowest seen during the year and often fall short of those seen in the previous quarter. Year over year increases in these earnings appears to be near or slightly above those projected early. Even though some stocks have missed projected earnings for the first quarter, most still saw substantial increases in year over year earnings. Most of the constituents have beaten the current earnings projections, with a fairly high number beating projections by double digit percentages. Misses have for the most part been small.

Good earnings did not stop some constituents from seeing losses during the past week. Several that beat projections in excess of 10% had fairly or even very large pullbacks during the week. Although some of these drops could be blamed on guidance, the guidance was little change from a quarter ago and some of these stocks were already trading very low to current and projected earnings.

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 no investments in AMZN, LSI, BEAM, AGN, PLCN, TRIP, ISRG, NFLX, or AAPL. Ron has long awaited a share split in AAPL stock. Although Ron believes the split would probably have been better for investors at 10 for 1, leaving more room for share price growth before again eclipsing the $100 barrier, he will likely take a position once this split completes, provided of course this stock does not increase above the $100 barrier before its completion.

Ron is currently about 84% invested long in stocks in his trading accounts. His investment decreased over the past week due to the purchase of two issues with the cost of these purchases more than fully offset by the sale of five issues and dividend payments. Ron feels he is 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 two 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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