The S&P 500 broke a two week skid moving higher in three of five sessions while finishing the week up slightly at 0.46%. The index has risen in 97 of 163 sessions this year.
Major Stock Market Indexes
The major indexes, the DJIA, S&P 500, NASDAQ, NYSE and Russell 2000 all fell lower in the beginning of the week, but all rebounded off these lows.
All but the Dow Jones pushed higher in three sessions this past week as it only managed to post gains in two sessions. All but the Dow finished the week with a gain.
The pullback on the NASDAQ is the shallowest of the indexes. It turned higher late in the week after trading fairly flatly and falling only slightly lower through Wednesday. The NASDAQ rebounded and closed above its 13 EMA Thursday and continued higher Friday aided by a 7.29% increase in the heavily weighted Microsoft (MSFT). Microsoft wasn’t alone though, some of the other NASDAQ stocks had big gains Friday including Autodesk Inc. (ADSK) 7.69% and Expedia Inc. (EXPE) 5.10%.
The Russell 2000 fell below and closed below its 50 EMA on Monday, but rebounded to close back above the 50 EMA on Tuesday and has held above this level since, pushing into its 13 EMA Thursday before edging and closing slightly above it on Friday.
The New York Stock Exchange fell and closed below its 50 EMA in the first four sessions before it pushed back across the 50 EMA and into the 13 EMA on Friday finishing that session at about the 13 EMA.
The S&P 500 held below its 50 EMA in five sessions before rebounding back above it on Friday. This push higher hit the 13 EMA before settling somewhat lower at the session’s conclusion. The S&P 500 and Dow Jones also benefited from Friday’s large rebound in Microsoft as the stock finished the session near the levels it fell from a few weeks earlier.
The Dow Jones continued to inch lower into Wednesday before it began to edge higher in the final two sessions. The Dow had a bearish cross as it saw the 13 EMA slip under the 50 EMA on Tuesday.
Many of the indexes began recent moves higher at or near lower trend lines or after reaching areas similar to where rebounds began earlier in the run higher.
Overall the indexes are oversold. Although several of the indexes saw some bearish price moves early in the week, most broke back above these levels before Friday’s close. It isn’t impossible the indexes could continue to slip, but volume levels have continued to be very light into this pullback, indicating little investor support for the lower price moves. Many stocks have reached attractive price ranges and are deeply oversold.
US Treasury Charts
The price on the 20 year US Treasury Note slipped slightly lower through Wednesday before rebounding on Thursday and Friday, but Friday’s rebound was stopped as it reach the 13 EMA. Although the 13 EMA is likely to offer resistance, it doesn’t seem unlikely Treasury prices could continue somewhat higher, although upside potential continues to look limited. This chart continues to look very bearish.
The 10 year US Treasury Note interest rate pushed to over a two year high reaching an intraday high of 2.92% Thursday before retreating on Friday. Friday’s pullback rests above the 13 EMA, a likely support, so it doesn’t seem too unlikely the rate could retreat somewhat before rebounding again. This chart continues to look bullish.
The treasury charts maintained within patterns that are generally bullish for stocks.
Although gold has rebounded, it is finding staunch resistance at about the 1380 level. It could break this resistance and move higher, but it seems more likely it will again fall through support at around 1280, and a drop through that level could very likely change that level to staunch resistance. As seemed likely earlier, there are now reports that many of the large players are moving their stakes out of gold. Although some are buying these drops, it doesn’t seem likely the large increases in volume will continue to be engulfed by buyers.
It also seems likely many of those that are buying these pullbacks probably have low risk tolerances, and this could drastically increase the numbers that unload into a fall in prices. The gold charts continue to look like they have begun a long term decline, there will probably be bounces higher along the way, but the price of gold could fall for many years to come.
S&P 500 Constituent Charts
Overall the S&P 500 constituent charts continue to maintain bullish postures.
Many of the stocks that took significant retreats with the index look to have found support and are rounding out of these drops or have begun to rebounded higher.
Many of the stocks that appeared to be establishing uptrends after long drops or basing periods have continued to trade within these established uptrends. Although a few of the constituents have broken below the lower trend line of trends higher in this pullback, most of the constituents have maintained short or long term trends higher.
Several that have fallen rather steeply earlier have rebounded strongly to cover or nearly cover these earlier falls and others appear to be making strong moves in this direction. The three NASDAQ stocks mentioned earlier seem to fit this scenario. This trait was seen throughout bullish periods in the rebound from November’s lows and it continues to look like it could be resurfacing again.
Most of the constituent stocks are in or near oversold conditions. Many of the constituents have fallen to appealing valuations. Many appear to be rebounding or rounding up out of earlier drops. It seems possible stocks could continue to rebound.
Volume continues to be very light. It seems fairly likely a break above 1680 on the S&P 500 could bring volume levels back up to more normal levels as the volume breakoff accelerated below this level. The 13 DMA for volume has fallen 8.55% since the August 2 highest close. It is very rare for volume levels to fall into significant pullbacks.
The -2% L, 100 L, +9 Day, 90E and +10 D indicators are currently active. A ten day indicator toggled on after Wednesday’s (August 21) close. The 90E indicator will expire after Tuesday’s (August 27) close. See a more detailed description of the indicators developed through research here.
A new indicator toggled high this week, but it is generally bullish in nature. Three indicators have recently expired, another will be expiring in the coming week and it seems possible others could toggle off soon. Generally a decrease in active indicators shows a decreasing chance of volatility. Periods of low volatility are generally bullish.
Although we have seen a significant pullback during the expiration period of these indicators, the pullback was not volatile and occurred under very low volume conditions. It seems possibly the index could rebound very bullishly from this drawback.
The -2% L indicator did not provide a correct indication in the past week. The -2% L indicator will toggle off with the 100 L, provided there are no volatile moves (that of 2% or greater during a session) prior to the 100 L deactivating.
The 100L had a second significant pullback. The deepest close in the current pullback was seen on Wednesday and was 3.91% lower than the August 2 highest close of 1709.64.
The +9 day indicator that became active on June 18, 2013 has performed as follows to this point in the format: highest close / lowest close / last close.
+3.50% / -4.77% / +0.71%
The 90 E indicator that is currently active will expire after Tuesday’s close.
A +10 D indicator toggled on into Wednesday’s pullback. This indicator shows a high likelihood of the index rebounding by 3% or greater during the next ten trading days. This indicator has a very good success ratio of showing at least a 2% increase during this timeframe, but has failed three times to do so since early development began in 2008. All three were miserable failures with drops of 5% or greater during the time period and were covered in past articles. Although all three saw the index drop in excess of 5%, the index rebounded to provide gains within the expected range relatively shortly afterwards.
It seems possible the index could be entering the first of two midrange resistance levels fairly soon. It appears that this resistance level might cause a continued slowing in the ascent of the index, but the appearance of a second significant pullback within the 100 L could reduce the chances that this resistance will be felt.
The S&P 500 has dropped to a significant level. Although we have seen an unexpected significant pullback, it has maintained a bullish posture falling under low volumes and a lack of volatile conditions.
The fall to this significant level was very docile, without any drops reaching the 2% level that historically points to bearish tendencies. Only one drop reached a double digit decline and it fell 1.43%. This makes the pullback look more like a bullish round of profit taking than a bearish pullback.
Volume levels seen in this pullback do not appear to support the lower price direction either. The 13 DMA has fallen by over 276 million shares (8.55%) from the August 2 highest close to the close on Friday. Most significant pullbacks see an increase in volume, not a decrease.
A large bank of cash is waiting on the sidelines as much of the profits taken in Treasury and Gold sales have not yet been reinvested. It doesn’t seem unlikely that when stocks begin to break higher from this pullback we could see a large influx of new money begin pouring into equities with a potential to reach tens or even hundreds of billions of dollars. It also seems possible this influx could continue for some time as these investments move more towards normal levels.
It seems fairly likely a break above 1680 on the S&P 500 could bring volume levels back to more normal levels. It also seems possible the increase in price and volume could also start this influx. Those that are waiting on the sidelines appear to becoming antsy.
It still seems likely the index could enter into the first midrange resistance level soon. The first midrange resistance level will likely be found between 1735 and 1745 (possibly to 1750). The data suggests that the resistance at this level might slow the ascent of the index, but this resistance could have been reduced with the second significant pullback within the 100 L and another large selloff in US Treasuries that could fuel a rally past this resistance.
The second midrange resistance level will likely be seen between 1760 and 1770. It continues to seem possible the second resistance level could hold significant resistance. Not all data needed is available to fully investigate this resistance level at this time; any projections made prior to this data being complete are preliminary and could change over time.
Midrange resistance levels are the most likely areas that resistance will be met, but since there is no established resistance at these levels, there is no certainty that these levels will hold resistance. It is also possible resistances could be met in areas that appeared to have a low likelihood of producing resistance.
Several indicators have recently expired and others will be expiring during the coming weeks. Although we have seen an indicator become active recently, it is a short term indicator that is generally bullish in nature. Being short term it will also expire in the coming weeks. A decrease in active indicators is generally bullish.
Timing patterns continue to suggest stocks could rebound due to large selloffs in US Treasuries. This rebound in stock prices could be very large if the drop in treasury prices continues. Treasuries fell through the last meaningful support earlier leaving only minor support levels and a large gap lower before meaningful support would be found again. It seems fairly likely the minor support levels that hold in drops could fail in a retest. Although we have seen a rebound in prices during the past week, the charts seem to indicate the drop in Treasury prices could be returning to the relatively steep fall they were in earlier.
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.
Please note: Much of the information contained below is based on research of others in articles I have read, along with interjections from my research into the data that was presented. I would like to do my own studies on this data, but it is not readily available, and although I have a very large database, I have not collected all of the required data to do these studies. If you know of a free source of this data, please include the source in the comments section of this article and I will do a study of it for a future article.
I’ve read several columns relating to the recent appearance of the Hindenburg Omen, the indicator that called both the 2000 and 2007 crashes correctly. The indicator is based on parameters from data seen on the New York Stock Exchange that includes:
- The percentage of stocks making new 52-week highs and 52-week lows are both at least 2.8%.
- The NYSE Composite index is up over the last 50 trading days.
- The McClellan Oscillator is negative.
- The number of 52-week highs is not more than twice the number of 52-week lows.
Although the appearance of this indicator is most often incorrect at predicting crashes, it should not be ignored completely, instead let’s look at it in more detail.
Why was the Hindenburg Omen correct in 2000 and 2007?
In 2000 it showed the early signs of the tech bubble burst that brought stock prices lower. In 2007 it was the early signs of a collapsing housing bubble that brought stock prices lower.
What makes this indicator wrong so often?
It is not so much that it is wrong, just that the appearance of this indicator is always linked to the two times it was correct that a crash was approaching and not the dozens of times it was correct that stocks were headed higher. Those that look at the indicator appear to be oblivious to the reasons the indicator toggled and mindlessly link it to the crashes. The indicator has actually shown more opportunities to be buying stocks than reasons to be selling, including the last time it toggled high during a pullback in May 2012.
What made the indicator toggle on this time?
The Treasury, bond and gold bubbles appear to be deflating. It has lowered prices in stocks and funds in these market sectors that trade on the New York Stock Exchange. This in turn triggered the indicator.
If these bubbles are bursting, is this reason to be selling stocks?
Probably not, historically selloffs in Treasuries and bonds most often eventually work their way into equities. The selloff in Treasuries and bonds is not likely to send interest rates skyrocketing, only bring them back to more historically levels from the extreme lows they have been in. Although data to fully back test this indicator is hard to find, data I have compared to the research of others indicates it is likely that gold falsely toggled this indicator several times in its last decline. The selloff in gold moving into equities likely helped spur the S&P 500 to its largest market run of all time during that time period. Either or both of these bubbles bursting will likely increase cash inflows into equities and push stock prices higher, not lower. It appears most other catalysts in the market at this time could be pushing stock prices higher too.
It looks like this indicator is more valuable than those that look at it to predict a market crash give it credit. That is if instead of looking at this indicator just to predict a market crash, we look at what it is saying. It has been correct in pointing to buying opportunities more times than it has been correct at pointing out market crashes, and is most often seen during pullbacks prior to runs higher.
One of the better articles I read on this subject can be seen here.
Many of these sources of information were used in this article.
Subscribe to receive Email alerts for new articles as they are published near the top or bottom of this page.
Have a great day trading,
All of my past articles can be accessed here.
Disclosure: I have investments in MSFT. I have no investments in ADSK or EXPE. I am currently about 86% invested long in stocks in my trading accounts. The increase in my investment level over the past week was due to the purchase of three issues with the cost of these purchases partially offset by the proceeds from the sale of one issue and dividend payments. I consider myself somewhat oversold at the current time; however I have and will continue to sell stocks that reach long or short term targets. I will also continue to add stocks I feel are at a great value mainly through day and short term buy orders. I will receive dividend payments from nine issues in the coming week and 14 in the following week. If I make no further investment changes during this timeframe these dividend payments will reduce my investment level due to rounding.
Disclaimer: What I provide in the Stock Market Preview is my perception of the current conditions and what I think is the most probable outcome based on the current conditions, the data I have collected and the extensive research I have done into this data along with other variables. It is intended to provoke thought of the possible market direction in my readers, not foretell the future. I do not claim to know what the stock market will do. If the stock market performs as I expect, it only means I am applying the stock market history to the current conditions correctly. My 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.