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Stock market preview for the week of August 4, 2014

The S&P 500 saw it largest weekly loss since a 3.02% drop was seen in the week ending June 1, 2012.
The S&P 500 saw it largest weekly loss since a 3.02% drop was seen in the week ending June 1, 2012.
Photo by Spencer Platt/Getty Images

The S&P 500 saw a volatile market session on Thursday dropping 2.00%. It was the first session with a loss of 2% or greater since a 2.09% drop on April 10. The continued pullback on Friday brought the drop on the index to significant levels, as it finished the session 3.16% below the July 24 highest close.

The S&P 500 fell in three sessions and the two that posted gains were each less than a point higher. The index lost 2.69% during the week giving it the largest weekly loss since a 3.02% drop was seen in the week ending June 1, 2012.

See related story.

Average daily volume levels increased 22.54% compared to the average daily volumes of the previous week. The week’s highest volume was during the large drop on Thursday and the lowest was seen during Monday’s small gain with Monday being the only session to finish with volume lower than the previous week’s average volume. The difference between five day volume variances more than doubled as the variance increased 26.89 above that seen in the previous week to 49.57%.

The S&P 500 saw the stall within the 100 L continue early in the week as Monday finished with a small gain and then slipped lower on Tuesday before posting another small gain Wednesday. The stall broke lower on Thursday with a volatile retreat and the drop on Friday brought the pullback to significant levels. Friday’s retreat found support within the upper resistance band of the 100 L at 1900 before rebounding and finishing the session slightly above that upper resistance.

Major Stock Market Indexes

The index charts of the Dow Jones Industrial Average, S&P 500, NASDAQ, New York Stock Exchange and Russell 2000 all saw steep downturns in the past week.

All of the indexes gapped lower at the open on Thursday, although some of these gaps are hidden by the previous day’s tail. All fell steeply off the gaps and those that had not already broken below the 13 EMA fell steeply below that level. All but the NASDAQ, which fell to and finish slightly above the 50 EMA, continued and finished below the 50 EMA in Thursday’s fall, but fell below it on Friday.

All continued lower on Friday widening the distance between their price and earlier drops below the 13 EMA and 50 EMA. All also appeared to find support near a previous resistance in this fall on Friday, and rebounded off this support level to finish the session above it.

Several saw the deepest weekly pullback in quite some time and some the deepest weekly retrace seen in over a year.

The Dow Jones and New York Stock Exchange saw their 13 EMA fall and near a bearish cross below the 50 EMA. The Russell 2000, which has already seen this bearish cross, saw the 13 EMA slide deeper below the 50 EMA. The NASDAQ and S&P 500 saw their 13 EMA begin to bend lower, but it maintained a fairly large gap above the 50 EMA.

The Dow, NASDAQ and NYSE saw only one small gain during the week, falling in the other four sessions. The Russell and S&P 500 managed two small gains while dropping in three.

All fell into or very near fully oversold conditions except the NASDAQ, which maintained the most bullish posture into this bearish pullback. Most have fallen the deepest towards or into oversold they have seen in several months. The Russell has held in or near fully oversold levels for an extended time.

This pullback was steep and reached volatile levels on several of the indexes on Thursday. Several stocks broke below previous support levels in topping patterns in these falls during the past week, indicating possible failures in these patterns, so there is reason to remain cautious.

However the indexes appeared to rebound at or near a previous resistance on Friday and most have fallen into or very near fully oversold conditions. Many of the stocks in failing patterns have fallen in every session or nearly every session for an extended time, some for two weeks or more, making at least a temporary rebound in these falls seem possible. Although a continued fall is possible, the indexes could rebound in the week ahead.

US Treasury Charts

The 20 year US Treasury Bond slipped slightly Monday before rebounding higher again on Tuesday. It fell fairly sharply Wednesday to finish back below the 13 EMA and below the previous cycle low. It opened lower Thursday and although it finished at a loss, it also finished higher than it opened. Friday continued lower before it rebound near the 50 EMA and pushed back above the 13 EMA, slipping off the day’s high to finish at about the 13 EMA. This chart appears to have broken its uptrend, although it found bullish support at the 50 EMA and rebounded to finish at the 13 EMA on Friday. Thursday’s selloff decoupled from normal trading in treasuries, as the price slipped into the large selloff in stocks.

The long term Treasury charts appear to have broken uptrends, but rebounded bullishly on Friday and continue to appear somewhat bearish for stocks.

The interest rate on the 10 year US Treasury Note finished Monday with a small gain, dipped a little lower on Tuesday then saw Wednesday rebound sharply breaking above both the 13 EMA and 50 EMA and it finished the session at the 50 EMA. Thursday saw the rate continue higher into the selloff in stocks, but slipped to finish the session only slightly higher. Friday finished back below both the 13 EMA and 50 EMA. Tuesday’s retreat rebounded from a higher low than the previous cycle and the midweek rebound also pushed higher than the previous cycle, breaking the just established downtrend in this chart. The rebound also broke an extended period the ten year rate had been in fully oversold conditions. The bullish rebound in rates Thursday went against the norm, as stock selloffs tend to push investors into Treasuries, thereby reducing rates.

Gold

Gold began trending lower at the Sydney open on Sunday night, falling to about 1301 in Hong Kong before rebounding to finish the night a bit below 1305.

The rebound continued early Monday in Hong Kong, reaching about 1309 before slipping quickly back to about 1304. Gold took a shallow bounce to 1305 and continued lower to 1303 reaching it just after the London open. Gold trended between that low and a touch over 1305 until the Hong Kong open that night, where it pushed modestly higher to about 1306 and finished the night less than a dollar lower.

Tuesday gold slipped back to about 1304 and rebounded strongly into the London open almost reaching 1312, but began a bouncy trend lower to about 1306 into the New York open. It rebounded to about 1309 after the NY open, but then fell steeply lower below 1300 and then more slowly lower to about 1296. It rebounded to a touch over 1300 and then traded within about a point higher or lower of 1299 for the remainder of the night, finishing a bit above1298.

Wednesday continued in a flattish pattern from about 1297 to just below 1300 until gold broke lower to about 1294 shortly after the New York open. It rebounded quickly to 1298, but fell just as quickly back under 1295 before trending more slowly lower to about 1293. It trended slowly higher to about 1297 at about the Sydney open and then trended slowly lower to finish the night under 1295.

Thursday gold traded flatly between 1293 and 1296 until again breaking lower after the New York open from about 1295. It fell steeply to about 1287 and then more slowly to about 1284. It rebounded to about 1287 before reversing lower fairly steeply to a bit below 1280. Gold rebounded back to about 1285 before slipping back to 1280 and rebounding to about 1284 just before the Sydney open. Gold traded very flatly within a point or so lower of that high to finish the day at 1283.

Friday gold continued to trade flatly within a point or so of 1284 until breaking lower to 1279 just after the New York open and rebounding sharply off that low to almost 1296. It slipped back to about 1292 and bounced between 1290 and about 1294 into the New York Spot close of 1294.20, which was a fair amount lower than the New York Spot close of 1307.20 seen last week.

The price of gold also slipped into Thursday’s stock selloff. With both US Treasuries and gold seeing selloffs into a large pullback in stock prices, it seems likely investors could have moved holdings back into sidelined cash.

Gold finished the third consecutive week with losses based on the close in New York.

S&P 500 Constituent Charts

Some of the constituent charts continue to hold bullish trends, but many are showing bearish tendencies in their charts.

The past week saw several more constituent charts establish downtrends. Several in established or nearly established downtrends broke steeply lower into the large pullback seen on the index this past week.

A fairly large number of the constituents saw bearish crosses of the 13 EMA below the 50 EMA during the week, while others are now nearing this bearish cross. Most that saw these crosses earlier fell deeper below the 13 EMA as these stocks have continued lower.

Some in bullish runs have continued in breaks lower deeper than any seen in the past several months to a year.

Many in flattish trends that appeared to begin rounding lower earlier continued to roll over. Many saw the deepest pullbacks in quite some time. Some maintained in this flatness without breaking lower.

There are a fairly large number of constituent stocks showing possible topping patterns in their long term charts as they have stalled at long term resistances near previous highs. Several of these stocks have established downtrends off these highs. Several appeared to break below previous support indicating possible failures in these patterns during the past week. Some that held at or near these support levels earlier slipped lower in the past week. Although several also appeared to hold previous support levels and turn higher off them, several have not yet reached these support levels in their falls. The increase in possible failures of those that have broken below these levels is a concern for a possible deeper drop later. Much like an increase in resistance breaks tends to increase resistance breaks, an increase in failures tends to increase failures.

Few are breaking higher through resistance near these tops and several that have, moved only a short distance higher before finding new resistance or turning lower again. Many of those that reported better than expected earnings have continued to fail to move above these levels and some pulled back into or shortly after these reports. Several constituents also appear to be stalling near previous resistance below long term highs.

These charts appear to be showing a larger drop is possible, but the durations that many of these stocks have fallen make a short term rebound seem somewhat possible too. If this rebound develops and few constituents break above resistances in this rebound, it seems possible it could fall lower from that rebound.

It appears upward tensions in constituents stocks have begun to wane. Although many still appear to have upward tension, some appear to have burnt out in these climbs and will likely need to retreat further to refuel for a push higher again. The pullback in the past week could have added a short term boost to upward tension, but if seen it seems likely it could remain intact relatively briefly.

Although there is still reason to be bullish as earnings and economic data are mostly good, as the numbers of stocks in possible failures in topping patterns increases, investment caution levels should also increase. Failures from long term highs are often seen during large drops on the index. At the same time a drop from these resistance levels could be just what the constituents stuck at these levels need to refuel for a rebound that carries them through these resistances. If a drop is seen, it seems likely it could be an opportunity to add. It seems possible the index could rebound from the current significant drop without falling any or much further, but could retreat further from a higher resistance. As explained in earlier articles and videos, waiting for a drop to one of three possible lower support lines might provide the best opportunities.

Not all of the constituents are showing bearish signs and several continue to show bullishness in recent runs. Chart formations appear to suggest there is reason to remain cautious. An increase in breaks in these formations is of concern; although it seems possible a rebound could be seen, it also seems possible this rebound could fail after pushing the index somewhat higher. Continued caution could be the wisest choice.

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% L, -2% L and 100 L indicators are currently active. The +10 day indicator toggled into a high state on Friday. See a more detailed description of most of the indicators developed through research and featured in these articles here.

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

The –2% L provided a correct indication during the past week, as Thursday’s session slipped 2.00%. This was the first volatile move (that of 2% or greater during a session) seen on the S&P 500 since April 10. The return of volatility followed a period with relatively few moves in excess of 1% seen since the April 10 retreat of 2.09%. The index saw only two sessions seeing moves greater than 1% higher and one seeing a move of greater than 1% lower between the two volatile drops.

Although many consider a volatile move to be much less, research has led to the conclusion that to be considered a volatile daily move the index needs to increase or decrease by 2% or greater during a session.

Since the S&P 500 came into existence in 1957, there have been 331 volatile drops on the index and 339 volatile increases. This was the fourth consecutive volatile drop without seeing an offsetting volatile increase. Including the current streak of four, streaks lasting four or more consecutive drops without an offsetting increase occur in only 11.73% of the total decrease streaks. Streaks lasting more than four consecutive drops only account for 4.67% of the total decrease streaks. None of the 179 decrease streaks finished with more than six consecutive losses without an offsetting move higher.

When considering only the current market conditions; a streak reaching four is very rare as most of the longer streaks occurred during market crashes or rebounds from crashes. Only 2.79% of the streaks of four or more occurred or continued after the S&P 500 returned to new highs and only one of those reached five. One of the streaks of four also occurred in the near crash of 1990, when the index dropped 19.92% from highest to lowest close, with the fall finishing just shy of the 20% required for a crash.

The S&P 500 fell to a significant level (that of 3% or greater) within the 100 L at 2000. Although drop levels are calculated off of closing prices, resistances and supports are often found at daily highs or lows. In this case the pullback began when the July 24 high at 1991.39 retreated from likely resistance within the lower level of the 100 L resistance found between 1980 and 1995. The presence of a volatile pullback during the past week begins to make this resistance level potentially more dangerous.

As explained in the two videos released on Wednesday current chart formations make a larger drop seem fairly likely at some point, but it continues to seem possible that this significant drop at the 100 L could remain within the earlier projected levels of 3% to 5%.

The first video shows it is not uncommon for the index to see one or more significant drops after breaking above the upper trend line before seeing this larger drop and falling back to either the lower trend line or lower support line. This is the second significant pullback after the initial break above the upper trend line on the index. Several of these larger drops broke lower after just one significant drop, so it is possible that this larger drop could occur now, yet some pieces seem out of place.

The second video shows some of the chart formations the S&P 500 constituents are currently in. This pullback began with several of the constituents falling short of resistance levels that would normally cause these types of pullbacks. It doesn’t mean the index won’t continue to fall, but it does seem unlikely these constituents would see a large drop without first hitting a resistance level. They could move higher while the index continues lower, but this seems somewhat unlikely.

It also seemed fairly likely earlier a pullback could recharge stocks briefly, but that this recharge could only last briefly in a rebound too. It seems possible this brief recharge occurred in this pullback.

The index has seen one volatile move, but it also seemed likely we could see several before the index gives way in a larger drop lower, possible three or four within a few weeks or so. These volatile moves could continue, but as noted above it is very rare that the index has seen more than four consecutive volatile drops without a volatile rebound. It doesn’t mean there won’t be more volatile drops before a volatile rebound, but this is uncommon and makes it seem fairly likely we could see a volatile move higher before the next volatile move lower.

When a volatile move higher is seen on the index after a significant drop, it is often a bullish turning point higher that sends the index higher to the next higher resistance level, provided of course this drop does not fall to crash potentials. Both significant drops and rebounds are common during crash retreats.

It seems likely the significant pullback within the lower half of the 100 L could considerably soften resistance in the upper half of the 100 L likely to be seen from 2010 to 2020. It therefore seems possible the index could move past the upper half of this resistance level without further incidence if it breaks above the lower resistance in a rebound.

The research suggested this larger pullback probably wouldn’t happen until the index moves above 2000. It pointed to the 100 L resistance at 2000 as probably the least likely resistance to cause this pullback. It pointed to resistance at 2040 within the next higher resistance level, the 2035 to 2055 MRL as the most likely resistance this fall could come from. Most times this research has been pretty close, but it has been off by a few percent a couple of times.

Each of the times the index retreated before likely levels the drops came earlier than expected. Being so it is possible the larger drop could come earlier than expected here too, since the index retreated very close to the 2000 level.

Although it seems somewhat unlikely, the current drop could continue lower than the projected levels and possible fall to the lower trend or support line or possibly even to or near the 2000 and 2007 crash highs. If this is the case, it seems fairly likely the drop at the 100 L could exceed 10% and possibly reach crash potential.

The +10 day indicator toggled into a high state Friday, indicating a high likelihood the index could move 3% to 5% higher in the next ten trading days. This could mean the index is ready to rebound. Even so some caution should be exercised on this indication in this instance.

Significant drops seldom finish after just one week of losses. Although the drop actually began in the previous week, the index finished the previous week with a small gain.

Although this indicator has a fairly high success rate, and has provided at least 2% gains in nearly all failures to reach the 3% level, a couple of this indicator’s past failures were catastrophic as this indicator remained in a high state while the index continued lower, losing in excess of 5% during the ten active days before rebounding. The index regained these losses a relatively short time later in each instance and then continued higher to provide the gains normally expected in a high toggle of this indicator before turning significantly lower again.

In nearly all other instances the indicator toggled off relatively quickly as stocks began to rebound. An indication to determine for certain if this initial toggle to a high state could remain high in a continued move lower has not been found, but current market conditions seem to be somewhat near those that these failures occurred at in the past.

It seems probable the index could rebound first, but it also seems somewhat possible a larger downturn may have already begun as conditions on the constituent charts appear to have begun to deteriorate. Research indicates the index moved very near a level that could provide a large drop, possibly reaching crash potentials. Index and constituent charts seem to be in patterns that suggest a larger drop on the index could be forthcoming.

In the outside possibility the current drawback falls to crash potentials, the current +10 day indicator has not yet been fully tested in actual crash conditions. Although it had seen success early in its development during the later stages of the previous crash, it was not in use during the initial turn lower. Although much of the historical data used for this indicator can be found, not all of the tools used in determining its state are available, so there is no way to fully back test it.

After rebounding higher off a low of 1965.77, the S&P 500 finished Monday higher by $0.57 at 1978.91. Tuesday started the session higher and reached a higher intraday high than Monday, but slipped to a loss and finished at the session low of 1969.95. Wednesday slipped to a low of 1962.42 before rebounding to finish with a $0.12 gain at 1970.07. Thursday opened with about a 5 point gap lower and continued lower, finishing at the session low of 1930.67. Friday opened slightly lower but managed to push back to a high of 1937.35 during the session. It rebounded within the upper resistance level of the 100 L at 1900 off a session low of 1916.37 and also finished the session at 1925.15 and just above the upper resistance of the 100 L at 1900 found at 1925.

Friday’s rebound near a previous resistance level is potentially bullish.

The past week saw a continued drop from the third failure to break above resistance within the lower level of 100 L at 2000. As a result the index reached a significant pullback aided by a bearish 2% drop on Thursday.

Upward tensions in constituent stocks appear to have subsided during the stall at this level, although quite a few still appear to have upside potential. Unlike the stall at the 1883 resistance of the 100 L at 1900 that created these upward tensions, the stall at the 100 L at 2000 could burn the remaining tensions out. The significant drop at this level could provide a brief regeneration of these tensions, but they are likely to remain intact only briefly too. At this point it still seems possible the full exhaustion in these runs could happen at a higher level, provided the stall at this lower resistance does not drag on for too much longer.

The index has been running above the upper trend line off crash lows for a duration that makes a drop to at least the lower trend line seem somewhat likely.

Current Cautions

The earlier turn lower from resistance within the lower half of the 100 L continued during the past week with the fall reaching significant levels. The index also saw a bearish 2% drop. Index and constituent chart formations appear to be giving reason for added cautions. Friday turned higher in a previous resistance range, and could indicate a bullish rebound.

As the index works its way into the 100 L at 2000 (from 1975 to 2025) it will begin to enter the level identified as a potential topping area during data evaluation beginning in 2008. These data evaluations make it appear resistances met between 2000 and about 2140 could have the potential to cause a large drop, possibly reaching crash proportions.

Although the 100 L at 2000 does not appear to hold crash potential, it has provided a significant drop. It seems possible this pullback could reach near 5% and probably remain within or near the 3% to 5% range. It also seems likely the significant pullback within the lower half of the 100 L could considerably soften resistance in the upper half of the 100 L likely to be seen from 2010 to 2020. It therefore seems possible the index could move past the upper half of this resistance level without further incidence.

The next higher resistance once the index moves past the 100 L is likely to be seen in the midrange resistance (MRL) from 2035 to 2055. This level appears to have the potential to cause a very large drop possibly reaching crash potential. The 2035 to 2055 MRL also holds the level of concern at 2040. Recent data evaluation pointed to resistance at 2040 as the most likely area that a crash would be seen between 2000 and 2140. The research also suggested if this crash were to occur, it probably finds bullish support somewhere near the two previous tops in 2000 and 2007. Although the crash potential is within the 25 to 35% range, this evaluation makes a fall from near 2040 seem more likely to produce a drop of less than 30%.

Current chart formations tend to make a fall in excess of 10% seem possible within the 2035 to 2055 MRL, depending partly on the outcome within the 100 L resistance level. If the significant drop within the 100 L stays within projected levels, it seems possible the MRL could produce a drop that reaches the lower trend line or lower support line and probably stays within the 10% to 18% range, but could possibly fall to crash potentials if the drop is steep or falls to a rebound point near the tops seen in 2000 and 2007. Although chart formations are beginning to make it seem somewhat more possible a drop that reaches crash proportions could be seen, it still seems somewhat remote at this time.

A possible signal that an area of resistance could hold potentially larger drop potentials would be the presence of several volatile daily moves (those of 2% or greater) within a relatively short time period, for instance three or four within a few weeks more or less. The larger the number of volatile moves, the more potentially dangerous a resistance becomes. These volatile moves won’t necessarily all be seen within the resistance level, but they could be.

Some concerns as the index moves above the 2000 level include:

Until recently the index was running above the upper trend line in the trend off crash lows. Although runs above the upper trend line have extended for several months in the past and often contained several significant pullbacks before finally breaking lower, when a pullback is seen from above the upper trend line it tends to be deeper than those normally seen during the run. These pullbacks often fall to or below the lower trend line and sometimes to or below the lower support line.

The numbers of the constituents showing possible long term topping patterns continues to grow. The numbers in downtrends off these tops is also growing, as are the numbers that have failed support in these patterns and broken lower. Few have broken higher and maintained these trends afterwards. Most that have broken higher in these patterns recently only went a short distance higher, then flattened again or fell off these highs. Recent increases in these failures are reason for concern, but are probably not yet at levels that would cause a large drop. Current chart formations make additional failures in these patterns seem somewhat more likely.

Although the numbers of constituents in this category is not large, chances seem remote that some of the constituents that have continued in runs or held high prices could produce earnings to justify their current stock prices in timeframes investors are normally willing to wait. These runs higher could continue, but any sign that longer term earnings projections are too high, failures or continued failures to meet expectations, or an overall change in market direction could cause stocks trading well forward of current earnings to see large fold backs. Some of these stocks have broken considerably lower after recent earnings reports.

Some constituents appeared to over extend moves higher caused by earlier upward tensions. This could increase downward pressure on these stocks when they finally turn lower. These numbers are also small at this time. Although too early to tell for sure, it seems possible some of these stocks have turned lower.

Several of the indicator stocks taken across sectors fell significantly lower in the large pullback in the 100 L. Many of these stocks fell through short term support and all the way to long term support. This makes a larger drop on the index seem somewhat more likely.

It also appears upward tensions in the constituents are beginning to wane, although most have seen pullbacks, some of these upward tensions appear to have remained intact into the significant pullback.

At the current time there does not appear to be an outside catalyst for a crash. Many crashes occur due to stocks becoming overpriced to earnings. Without a substantial reduction in earnings, it would be difficult to consider stocks overpriced based on the actual unadjusted average P/E’s during the time the S&P 500 was an index. Although some are overpriced, most are not and the average P/E is still fairly historically low.

Chart analysis makes it seem possible this catalyst might not be from an outside influence as earlier thought, but instead from a pullback caused by a large number of failures in current topping patterns. Chances still seem somewhat remote that a fall would reach crash proportions in this drawback, although several have dropped in excess of 20% in earlier pullbacks from highs.

Earnings reports for the second quarter have been mostly better than expected; although not all beating projections are seeing their stock prices increase. It seems possible that overall earnings could come in 2% to 4% above the early projections.

The absence of an apparent outside catalyst for this crash does not mean one would not materialize as the index reaches this level. There is also the possibility investors could overreact to news events that probably should not take the market to these depths. Pullbacks seen during the summer of 2010 and 2011 were much deeper than rational evaluation of the data indicated they probably should have been. These falls also came during a time when huge increases in earnings were being seen, with near or over 70% of the constituents beating their earnings projections. This makes it seem somewhat possible this fall could come even if earnings are reported higher than expected.

The overall number of active indicators was decreasing generally indicating a decreasing chance of volatility and a possible bullish period. This decrease has occasionally acted contrarian to the norm in the past. Due to the volatile move on Thursday and a drop to significant levels on the index, it appears to have acted contrarian in this instance.

Ultimately the direction that the stock market takes from here could be influenced by news events.

Average daily volume levels increased 22.54% week over week and the difference in the five day volume variance decreased 26.89 to 49.57%. Volume levels were highest into the volatile pullback Thursday and all but Monday had volumes above the previous week’s average. The large increase in volume and variance were consistent with the volatility seen on the index.

There continues to be many reasons to be bullish at the current time; however the index is nearing an area of potential concern and some caution should be exercised. Any pullbacks in stock prices seen along the way are probably a good opportunity to add although some flexibility in these investments could become necessary later. If a large pullback is seen on the index, it could be prudent to increase equities holdings into this drop. It could also provide the best remaining opportunity to take profits in gold holdings.

If the index continues within the trend established off the crash lows, it seems possible it could reach the 2000 to 2100 level in five to 14 months if it reaches this level near the upper trend line and within 32 to 38 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.

It appears the index is running somewhat ahead of the projection to reach 2000, indicating it is running above the upper trend line.

These data evaluations do not mean a crash is certain within the 2000 to 2140 range. The data evaluations only identified this level as one with a high potential to cause a large drop, possible reaching the 25% to 35% range; although a fall seen low in this range might not reach these levels. This range also holds most of the specifications identified in the first crashes of a market entering into a secular bull.

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 always exact, and these resistances could react sooner or later than expected, it is also possible the resistance will not be seen at all.

If the market should fall to crash levels, the blue chips, stocks with very low or no debt, and stocks with histories of stable dividends tend to fair best in pullbacks on a percentage basis. Caution should be used in stocks that have seen dividend increases well beyond those normal seen. Moderately priced stocks tend to lose less on a dollar per share basis. From a psychological standpoint this could be an important consideration, it is easier for an investor to hold a stock that falls from $50 to $25 without selling than it is to hold a stock that falls from $100 to $50. Even though the percentage lost was the same, the larger dollar value erosion of share price gives many the perception of a greater loss and a much larger distance for the stock to rebound to regain these losses, and this perception could lead to further sales of higher priced stocks in a downturn.

A crash in stock prices could be the last hurray for gold investors for many years to come.

Data provided for the S&P 500 was derived from the historical daily data tables provided by Yahoo Finance.

Stock and Treasury charts used for analysis and commentary were provided by ScottradeELITE.

Gold charts used for analysis and commentary were provided by Kitco.

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Have a great day trading,
ronz

Disclosure: Ron is currently about 75% invested long in stocks in his trading accounts, reflecting a decrease in his investment level from the past week. This decrease was due to the sale of one issue and had dividend payments. Ron feels comfortable with his investment 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 two issues in the coming week and ten in the following week. If no further investment changes are made during this timeframe, his investment level would not change due to these dividend payments. Ron postponed dividend reinvestments scheduled for the first of the month.

Some of the trades made during the past week may have been due to repositioning investments as discussed in previous articles.

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.