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Stock market preview for the week of April 4, 2014

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The S&P 500 slipped lower in three sessions during the past week finishing with a 0.48% loss. The index has finished higher in 22 of the past 38 sessions.

Support at the 1850 to 1865 Midrange Resistance (MRL) level held in two early week tests, but faltered on Thursday as the index broke below it. Thursday’s drop rebounded to close near the MRL support and Friday again found support within this level.

Volume levels increased over the past week, rising 11.42% from those seen in the previous week. Thursday’s mild selloff posted the week’s highest volume with Friday’s rebound having the week’s lowest volume. The five day variance between high and low volumes fell drastically from those seen in the previous week to 26.32%.

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 pullbacks in the Biotech’s that over spilled into other stocks and sectors weigh on overall market performance in the past week, causing some bearishness to show up in the charts.

The NASDAQ and Russell 2000 showed the greatest effects of the selloff. Both indexes’ pullbacks reached significant levels (that of 3% or greater) in their retreats.

The Russell lost 3.51% during the week and has fallen 4.70% off its March 4 high. It fell through the 13 EMA in Monday’s retreat, but bounced higher near the 50 EMA. It again rebounded near the 50 EMA in a small retreat on Tuesday, breaking above the 13 EMA before slipping lower. Wednesday fell through the 50 EMA and Thursday continued lower. Friday spent most of the day well above Thursday’s close, but the rebound was turned back slightly above the 50 EMA and the Russell fell to finish the session with only a small gain, that being the only increase on the index for the week. The index has fallen to deeply oversold conditions in the pullback.

The NASDAQ had finished the previous Friday below the 13 EMA, and Monday fell through the 50 EMA before rebounding to close at about the 50. Tuesday rebounded to the 13 EMA before slipping back below the 50 EMA and rebounding to finish with a small gain and back above the 50 EMA. Wednesday began the day with a rebound to the 13 EMA but trended lower for the remainder of the day finishing near the daily low and below the 50 EMA. Thursday slipped a little deeper to finish lower, while Friday spent most of the day well above Thursday’s close, it slipped to finish with only a small gain. The NASDAQ is also in deeply oversold conditions.

The continued selloff in Biotech’s appeared to hold the other three indexes mostly in check as they traded relatively flat for the week.

The S&P 500 and Dow Jones slipped in three sessions with Thursday’s pullback breaking a developing wedge in both indexes. Both have since rebounded back into this wedge from these drops. Overall the two traded relatively flatly during the week and finished the week little changed.

The S&P 500 fell through and closed below the 13 EMA Monday, but rebounded above it Tuesday to finish just slightly lower than the previous Friday. Wednesday pushed higher early but fell steeply late in the session to finish at session lows and below the 13 EMA. The selloff continued into the open Thursday, but it began bouncing to finish the session only a little lower. Friday’s rebound carried the index back above the 13 EMA, but the rally cooled late in the day and it slipped off session highs to finish slightly below it. The S&P is reaching oversold conditions.

The Dow traded mostly above the 13 EMA during the week, but finished both Wednesday and Thursday slightly below it. The retreat on Thursday rebounded slightly above the 50 EMA to finish only slightly lower than Wednesday’s close. Friday pushed back above the 13 EMA and although it closed well off the session highs, it finished above the 13 EMA. The index finished with a slight gain for the week of 0.12%. The Dow is reaching oversold conditions.

The New York Stock Exchange was the only index to finish three sessions higher. It also finished the week with a gain, pushing 0.41% higher. Like the Dow and S&P 500, the NYSE also traded fairly flat for the week. It dropped below the 13 EMA in Monday’s pullback and after rebounding to finish back above it Tuesday, slipped Wednesday to finish below it. Thursday’s rebound took the index back above the 13 EMA, and although the session closed at a gain, it slipped to finish slightly below the 13 EMA. The Exchange opened Friday above the 13 EMA and spent the entire day above it. It appears the NYSE is beginning to rebound from near oversold levels.

Although the Biotech’s could continue lower, the drops in these stocks have been extensive already. It seems possible if any additional downside is seen it could be at a slower pace. Overall economic news for the week was good; durable goods orders increased, consumer confidence increased, personal income and spending increased, new home sales were slightly lower than expectations but home prices increased, while initial claims for unemployment decreased as did continuing claims. Yet this news was overshadowed by jitters in a relatively small portion of the overall market. The ripples from this selloff were felt in sectors that appeared to have little reason to retreat and subdued increases in those that moved higher. It appears many stocks were dragged lower in this selloff that probably shouldn’t have dropped as deeply as they did. Overall stocks and the indexes are oversold. It seems possible a rebound could be near.

US Treasury Charts

The 20 year US Treasury Note pushed higher in three of five sessions during the past week and in the process broke the developing downtrend. It turned higher from a higher low and broke considerably above the previous high. It has finished six straight above the 13 EMA while the daily lows gapped above it on Monday and this gap widen in all but Friday’s turn back. Treasuries rebound as stocks fell during the week but the push higher was probably also aided by the continued weakness in gold. This chart is now beginning to look bullish again.

Long term US Treasury charts continued to show bullishness into the pullback in stocks and gold. This is somewhat bearish for stocks, although it continues to seem likely that treasuries could falter in the not so distant future.

The interest rate on the 10 year US Treasury Note slipped in three sessions, falling off the previous Thursday’s high that was short of the cycle’s high before it. The index fell below the 13 EMA Monday, and although it rebounded above it Tuesday, Wednesday and Friday, it finished every session this week below the 13 EMA. Wednesday’s late session drop breached the 50 EMA and it finished each session since below this level, although it spent much of Friday above the 50 EMA before slipping to close slightly below it. It appears possible the 10 year may have turned higher off the low Thursday, which was higher than the cycle before it. This chart continues to hold within bullish trends.

Gold

Gold trended lower in bounces after the 1335 open in Sydney Sunday night and finished the night at about 1327.

After a push back to about 1329 in Hong Kong, gold continued to trend lower Monday falling deepest in two quick $6 losses in New York. It reached about 1309 before leveling off into the Sydney open and then trended slowly higher to finish the night at about 1313.

Tuesday gold pushed to about 1317 in Hong Kong the held between 1312 and 1317 form most of the day. The only exceptions being a drop that began just before the New York open that reached 1307 shortly after the open. That drop rebound fairly quickly back into the day’s range. Later a drop in Sydney fell to about 1309 but also rebound fairly quickly. Gold finished the night about where it started at about 1313.

Wednesday gold traded tightly between 1312 and 1316 until beginning a drop at the New York open that carried it just below 1300 late in the session. The bulk of the drop came in a $10 plunge lasting about an hour. It rebounded back to 1305 then traded within a point of it for the rest of the night, finishing at 1304.

Thursday gold traded between 1303 and 1305 until the London open, where it slid to 1293 and flattened out until after the New York open. It rebounded fairly quickly to 1301, but then reversed into a slower decline to reach about 1290 late in the session. Gold rebounded to 1294 from that drop and then held between 1291 and 1295 for the remainder of the night to finish at about 1293.

Friday gold again traded flatly during the early Hong Kong session, staying within a point of 1294 until breaking higher before the London open with the run reaching about 1298. It slipped off this high shortly after the London open falling to 1287 by early New York trading. It rebounded back near 1298 before slipping to 1291 and then rebounding and flattening out between 1293 and 1296. Gold finished the week with a New York Spot close of 1294.90 and lower than the previous week’s close of 1334.70.

The charts appear to show fairly widespread support for lower prices at the current time. A break of support at about 1280 would be a bearish indicator.

S&P 500 Constituent Charts

Overall the constituents continued to hold within bullish trends, but the past week’s pullbacks mixed some bearishness into the charts.

Several constituents broke below the lower trend line of uptrends during the past week. Not all of these uptrend breaks were in moves lower; some were in more less sideways moves. Some of the constituents that broke trend in moves lower rebounded quickly back within trend while others appear to be rebounding and could return to trend.

Most constituents that were in uptrends maintained these trends, even some that took rather large drops have maintained long term uptrends. Some constituent stocks have turned lower in the past few weeks and have established down trends. It appears some of these stocks could continue lower for the time being, but others are nearing support levels that they could turn higher at.

Even though some stocks could continue lower, there appears to be an offsetting number of stocks that are beginning to turn higher off recent lows or have continued trend moves higher off lows started some time ago. Some of these stocks rebounded near 52 week lows leaving quite a lot of upside potential.

Not all the constituents did poorly in the past week, some moved considerably higher. Many of these moves higher broke above resistance levels and the stock prices accelerated higher afterwards. Many of these stocks are far from previous highs, although some pushed to or near 52 week highs.

The Biotech’s within the index have seen stock prices drop steeply in the past couple weeks, but most of these drops began weeks before the recent selloff. These stocks were trading to potential future earnings before the fall resulting in high current earnings P/E ratios. These P/E ratios could still appear high to investors so potential downside risks are still present in these stocks; however it seems possible the rate of the fall could moderate or these stock could possibly even rebound. Many of these stocks are at or near previous support levels and some appear to be beginning to find support. The selloff was sparked by speculation that future earnings could drop, it does not seem unreasonable that some investors might nibble after this large drop and speculate that they won’t. Betting on price moves in either direction seems somewhat risky at this point though.

The drop in the Biotech’s spilled over into other sector’s that have constituents trading to forward earnings potentials, some of these drops seem justified, others do not. The drops probably presented some buying opportunities in these stocks.

Some of the constituents that dropped in unison with the Biotech’s had appeared to be underpriced before the pullback. Some of these constituents stand to benefit from the proposed changes that could hurt the Biotech’s earnings if these changes were to occur. These stocks seem to have reduced risks and therefore look appealing.

Many of the constituents are deeply oversold and relatively few are not in or near fully oversold conditions. Stocks could be near a rebound point.

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 (-)/+ 90 D, +2% L, -2%L, +/(-) 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 (-)/+ 90 D indicator that became active on Nov 25, 2013 has performed as follows to this point in the format: highest close / lowest close / last close.

+4.19% / -3.36% / +3.06%

The (-)/+ 90 D indicator will expire in 6 trading days.

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

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

It continues to seem likely volatility could remain absent. It seems possible the 2% indicators could expire without correct indications in this instance.

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.

+2.28 / 0.00% / +1.16%.

The lowest close only considers closes lower than the S&P 500 closing price on the starting date, if there are none lower it is reported as zero percent.

The S&P 500 continued to find support near the 1850 to 1865 MRL lower level during the past week. Three lows during the week rebounded near this level: Monday at 1849.69, Wednesday at 1852.56 and Friday at 1850.07. Although Thursday slipped below this support to 1842.11, it rebounded to close near support at 1849.04. Although this support was breached briefly, it appears to be strengthening.

Thursday’s drop rebounded from a shallower fall than the previous cycles low at 1339.57, possibly matching last week’s higher high with a higher low.

Thursday’s drop breached the lower trend line in a wedge formation the index was making against the 1883 resistance, but Friday’s rebound brought the index back within this wedge’s trend. This wedge is biased higher. Wedge breaks do not always break in the direction of bias, but the quick rebound back within this wedge keeps the bias higher. The failure of the initial break to continue lower is also often a bullish indication in wedge formations.

The week’s high was turned back at lower level of the 100 L (from 1875 to 1925) at 1875.92 on Wednesday. The resulting pullback in stocks took many constituents into fully or deeply oversold conditions. This potentially refueled the index for a rebound into and possibly through the 100 L resistance.

Although the S&P 500 has remained relatively flat since the 90 E became active, it continues to seem possible the 90 E could be bullish in this appearance.

The +10 day indicator is nearing a high level. Toggles as well as near toggles of this indicator are often bullish.

Current Cautions

The index pulled back from resistance within the 100 L seen from 1875 to 1925. Since the 100 L has the potential to provide a significant pullback, there is reason to be cautious as the index works its way through this resistance. The 90 E is also active and is a potentially bearish indicator. Since a pullback within the 100 L has been seen, the presence of this potentially bearish indicator adds reason to remain cautious. Two of the indexes reached significant pullbacks in the recent selloff which should edge caution somewhat higher.

However it seems unlikely a significant pullback will be seen in the 100 L at 1900 on the S&P 500, but if one were to be seen, it probably would not exceed 3% by much.

The 90 E is often active during volatile market conditions and the market often exhibits other bearish tendencies during its presence. Although most occurrences of this indictor covered in past articles were during bearish appearances, the indicator is not always bearish; it has also been seen during very bullish conditions. It seems possible the 90 E indicator could be bullish in this appearance.

Although two indexes reached significant pullbacks in the recent selloff; the other three indexes have remained more or less flat. The Dow Jones which had been the most bearish index prior to the biotech spill, moved slightly higher with no biotech exposure and the New York Stock Exchange that contains all of the stocks in the two indexes that slipped lower, had the most bullish week. The pullback has also brought the majority of stocks into or near fully or deeply oversold conditions, making a rebound seem likely.

Average daily volume increased about 11% on the S&P 500 during the past week. It appears the bounce higher was mainly due to the previous week’s very low levels. The five day volume variance returned to more normal levels after seeing a large spike higher in the previous week.

Most of the indicators used to interpret market behavior appear to be maintaining a bullish stance and most volatility indicators appear to be moderating further. Market conditions do not appear ready to change this stance.

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,
ronz

Access to all of Ron’s past articles.

Disclosure: Ron is currently about 87% invested long in stocks in his trading accounts. Although his investment level did not change over the past week, he purchased four issues with the cost of these purchases mostly offset by the sale of four issues and dividend payments. Ron feels comfortable at his current investment level and plans to try to maintain near this level 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 27 issues in the coming week and 6 in the following week. If no further investment changes are made during this timeframe these dividend payments will not change 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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