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Stock market preview for the week of December 23, 2013

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The S&P 500 broke a two week slide finishing the week at record high close of 1818.32 and 2.42% higher. The index pushed higher in three of four sessions during the past week and has risen in 143 of 246 trading days this year.

Volume rebounded strongly during the week with an increase of 20.61% over the previous week. Wednesday’s push to record highs saw the strongest volume since Sept 20, but it was only good enough for second best this past week. Friday’s record highs produced the strongest volume of the week. It was the highest index volume since June 21 and third highest seen this year. Monday saw the weakest volume.

The strong volumes coincided fairly closely with a rather large selloff in gold. These higher volumes may indicate not only an influx of sideline cash, but are probably indicative of a large amount of the proceeds from the recent selloff in gold were also invested in stocks.

Major Stock Market Indexes

The major index charts of the DJIA, S&P 500, NASDAQ, NYSE and Russell 2000, looked much more bullish in the past week.

The Dow Jones appeared to have the most bullish week. It began its move higher Monday after maintaining near its 50 EMA in the previous two sessions. Monday finished slightly above the 13 EMA, but it dipped slightly below it with the only loss of the week on Tuesday. The Dow popped back above the 13 EMA quickly as it finished the week with three straight record high closes.

The S&P 500 had two of its three higher finishes close at new all-time highs. The first was after Wednesday’s rebound that began when the intraday low bounced bullishly off the 50 EMA. Wednesday and Thursday’s intraday highs were both stopped at resistance the index has been finding between 1810 and about 1813, but Friday pushed bullishly higher through this resistance. Even so, the index has yet to clear the 100 L resistance level.

The NASDAQ pushed higher in three sessions maintaining the bullish trend it was in. It finished the week at a new 52 week high. It doesn’t seem too unlikely it could continue higher to reach this trend line. The NASDQ is less than 900 points from the all-time high. Although this might seem like a large distance, it took less than three months for the index to reach that record high from the current level the last time.

The Russell 2000 pushed back above the 13 EMA Monday, and has not finished below it since. The Russell pushed higher in three sessions with Friday finishing near a new all-time high. Although the index failed to reach a record high, the high in this rebound has already eclipsed the previous cycle’s high.

The New York Stock Exchange began the week by pushing back above the 50 EMA Monday, but the rebound was turned lower at the 13 EMA. Tuesday slipped to finish the session back below the 50 EMA and Wednesday fell deeper before rebounding and finishing back above both the 50 and 13 EMA. Thursday slipped slightly lower but Friday rebounded to finish slightly below the 52 week high.

Although several of the indexes have reached or are near new highs and are nearing overbought, they are all still quite a bit lower than the upper trend line in recent uptrends. It seems fairly likely the indexes could again begin to maintain in or near overbought and continue higher to or possible slightly above the upper trend lines.

US Treasury Charts

Although Tuesday finished higher the price on the 20 year US Treasury note basically trended lower through Thursday, nearing previous support at the lows seen during this downtrend. Defining the price action on the 10 year note, the 20 year’s price gapped much higher at the open Friday and well above the 13 EMA. It then fell back to the 13 EMA and again rebounded higher before getting stopped at the 50 EMA and closing just slightly below this level. The move was very bullish, although there appears to be little reason to be bullish on long term Treasuries at this time. Overall this chart continues to look bearish.

The US Treasury price charts continue to exhibit mostly bearish traits, which is generally bullish for stocks.

The 10 year US Treasury Note interest rate finished higher Monday then traded in nearly the same range but finished lower Tuesday. It fell slightly below the 13 EMA intraday Wednesday before rebounding and trending higher to finish both Wednesday and Thursday higher. It pushed to yet a higher intraday high Friday, but settled lower to finish at a loss and near Thursday’s lows. The 10 year continues to maintain near overbought conditions and it doesn’t seem unlikely it could continue to do so. This chart continues to show bullish traits.

Gold

Gold began to slip from Friday’s New York close Sunday night after the Sydney open. It continued to fall in Monday’s Hong Kong and London trading until reaching a low of about 1228, then rebounded modestly through the remainder of London trading to 1236. It then shot higher in New York trading to about 1252, but the run tapered off to close at about 1240. It traded within a couple points of that until bouncing in Tuesday’s Hong Kong trading to about 1246, but that rally also failed and slipped back to 1239 before the close. It trended lower into the New York open where it made a bounce higher from about 1231 that failed at 1240 and dropped sharply to about 1229. Gold traded within a bandwidth from about 1229 to about 1236 until Wednesday’s New York trading, where it rebounded sharply from about 1229 to about 1241. The run again failed and dropped abruptly to about 1219 before the close and continued lower into the Sydney open to about 1216 before beginning a modest rebound that carried it to 1226 early in the Hong Kong open. It slipped off that high and traded between it and about 1220 into early Thursday before falling abruptly to about 1213 before the London open. Gold trended lower to about 1187 late in New York trading before rebounding modestly to about 1197. It traded from about 1192 to 1197 until Friday’s New York trading where it again began to rebound. The rebound stalled at about 1207 and then slipped to about 1202 trading within a few points of that into the New York Spot close of 1203.50, and lower than the 1238.70 it closed the previous week.

Although Gold reached the lowest London Fix price seen in three years, gold turned higher above this year’s spot price low seen June 27 during Hong Kong trading, at least temporarily. Gold maybe near a previous low, but it is still quite far above the lower trend line in its established downtrend based on 60 day, six month, yearly and multiyear charts of London Fix prices. The daily spot price charts appear to be showing weakness in price rebounds, with selloffs hampering any progress higher. It therefore appears possible there could be additional downside in this break lower.

S&P 500 Constituent Charts

The past week’s rebound appears very bullish in the constituent stock charts. Many pushed to new highs and are continuing in very long bullish runs.

Many rebounded strongly from resent lows, yet are far from highs leaving a large potential for further increases.

Most stocks held recent uptrends through the downturn and have resumed in these trends. Others that broke trend and rebounded off alternate support levels appear to be returning to these uptrends.

Many of the constituents have reached overbought conditions, but many have not. It seems fairly likely that there could be increases in the numbers that hold in or near overbought levels again, as many that fell to or near oversold in the previous downturn have held in or near overbought for extended periods earlier. It seems fairly likely stocks could continue higher in the week ahead.

Indicators

The +/(-) 90 D, (-)/+ 90 D and 100 L indicators are currently active. See a more detailed description of the indicators developed through research here.

The overall reduction of active indicators seen earlier generally shows a reducing likelihood of volatility. Most other indicators suggest that volatility could remain calm and low volatility is most often bullish.

The +/(-) 90 D indicator that became activate on Oct 7, 2013 has performed as follows to this point in the format: highest close / lowest close / last close.

+8.48% / -1.23% / +8.48%

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.

+0.88% / -1.51% / 0.88%

The S&P 500 pushed to new all-time high closes on Wednesday and Friday, but has yet to break free of the influence of 100 L resistance. Friday pushed into the lower levels of the upper resistance at 1825, as the intraday high pushed to 1823.75. Although the index failed to push above the upper boundary resistance, the breach into this resistance began to weaken it for the next push higher.

There remains a potential for a significant pullback in the 100 L. Friday the index pulled back from very near the upper boundary which appeared to be the most likely place a significant retreat would begin if one were seen; however it continues to seem fairly unlikely this drop will materialize.

The midrange resistance likely to be found in the 1850 to 1865 range continues to have the potential to cause a significant pullback. If this pullback is seen, it is likely to remain within the 3% to 5% range.

The 10 day indicator did not toggled on and has since fallen back to a low state. Near toggles of this indicator are also often bullish, as appears to be the case in this instance.

Current Cautions

The index broke above resistance it was seeing at about 1813 Friday and pushed into the lower level of the upper boundary resistance at 1825, reaching a high of 1823.75. Thursday’s low bounced higher at 1801, showing the midline of the 100 L resistance might be offering support again. There is the potential for a significant drop at this resistance level, however it seems unlikely. It seems most likely that if a significant pullback is seen within the 100 L it would be seen in the upper portion of this resistance level, possibly falling from near the upper boundary. If a significant drop is seen, it does not seem likely it would exceed the 3% level by much.

There is reason to be cautious as the S&P 500 moves through the 100 L resistance. Although the index fell near the upper boundary of this resistance Friday, it appears to be maintaining a mostly bullish posture. It continues to find and rebound off support near recently broken resistances. Volume was also very strong in the two moves that reached new all-time highs during the past week.

These large volumes appeared to coincide with a fairly large drop in gold prices during the past week. It seems possible some of the proceeds taken in this selloff were shifted into equities. It also seems possible the rebound off recent lows brought more of the sidelined cash into stocks.

An overall reduction in active indicators over the past month or so generally shows a decreasing chance of volatility with times of decreased volatility generally bullish and most indicators continue to suggest volatility will remain calm.

There appears to be only one midrange resistance level between the 100 L’s once the index breaks above 1800. That resistance is likely to be seen from 1850 to 1865. Although it is still too early to tell for certain, it seems fairly likely this resistance could cause a significant pullback. If this resistance should cause a significant pullback, the timing that the index reaches this resistance could be a determining factor in the depth of this drop. Tensions likely to be seen as the index reaches this level reduced from earlier projections, but it seem possible this resistance could still cause a 3% to 5% pullback.

Not all data needed to determine how the index might react at this resistance level is available at this time and any projections about this resistance are preliminary. The projections made about this resistance level could change over time as this data becomes available.

Please note there is no established resistance at the MRL levels; the index has not reached these levels before. They are 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.

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.

Many of these sources of information were used in this article.

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Have a great day trading,
ronz

All of my past articles can be accessed here.

Disclosure: I am currently about 85% invested long in stocks in my trading accounts. My investment level decreased due to the purchase of one issue with the cost of this purchase more than fully offset by the sale of four issues and dividend payments. I consider myself slightly 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 through a variety of buy orders. I will receive dividend payments from 6 issues in the coming week and 22 in the following week. If I make no further investment changes during this timeframe these dividend payments will reduce my investment level. However and as noted at about this time each year; in order to present an investment level unaffected by market fluctuations week to week the investment level present in these articles is based on the yearly balance of the previous year. Due to the increases seen in balances this year the investment level will increase beginning with the New Year, which falls within this two week timeframe.

Some of the trades made during the past week were due to repositioning some investments as discussed in a previous article.

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.

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