Here is the preview of the coming week on the S&P 500 from Traverse City, Michigan.
The S&P 500 closed higher in three of the five trading days this past week and managed to finish the week with a small gain of 0.31%. The week started with the largest session drop since Nov 14 with a 1.15% pullback Monday and spent most of the rest of the week recouping those loses. The index has closed higher in 18 of the past 28 sessions and for six consecutive weeks.
The S&P500 had another busy week of earnings reports. I did not complete a tick sheet this week as I saw some conflicting reports on a couple of the constituents, however I went over the list of reports given for the week and it looks like the constituents are maintaining near a 70% beat rate. Again many are beating these reports by in high double digit percentages and several beat by triple digits percentages this past week. Most misses continue to be small, and it looks like fewer than 25% of those that missed did so by double digit percentages.
Major Stock Market Indexes
The five major stock market indexes, the DJIA, S&P 500, NASDAQ, NYSE and Russell 2000, continued to show bullish tendencies in the past week.
The S&P 500 saw the largest single day drop since Nov 14 on Monday, with this drop rebounding higher off the 13 EMA. The S&P 500 rebounded to finish the week at a new 52 week high and in the process it also covered one of the remaining three open drop resistances.
The NASDAQ also had the largest single day drop since December on Monday, it also rebounded off the 13 EMA and pushed to the highest close in the past 52 weeks on Friday, the last of the five indexes covered in this section to reach a new 52 week high in this rebound. It continues to seem likely the NASDAQ will eventually mount a catch up rally.
The Russell 2000 also took a large drop Monday and much like the drop seen in the preceding week, it rebounded off the 13 EMA and continued on to a new all-time high Friday.
The DJIA broke lower Monday and slipped back below the 14000 level, and it too rebound off the 13 EMA. But it failed to recapture the 14000 level before the week finished, although it spent part of the day Friday above this level, and broke its consecutive week higher close streak. The Dow Jones chart shows a wedge forming against the resistance at the 14000 level. It seems likely this wedge will break in one direction or other, possibly in the coming week.
The NYSE also slipped lower Monday finding support near the 13 EMA, but like the Dow Jones, failed to push to a higher high by the finish of the week and it too broke its consecutive week higher close streak. The New York Stock Exchange chart appears to be in the early stages of a topping pattern, but this chart is not showing any signs of failure and overall it looks more like it is working its way through resistance.
The current uptrend is reaching a duration that is likely to see a pullback of one to three weeks. Two of the indexes broke their consecutive week higher close streaks this past week, but finished the week only slightly lower after rebounding from large single day drops.
The rebounds near the 13 EMA in all the indexes this past week after the largest single day drops seen in some time on the indexes, with several returning to new 52 week highs by the week’s close, could indicate that the indexes are not yet ready to fall to the lower trend line in this uptrend. These large single day pullbacks that fell to depths not seen in months could be the deeper drop that is often seen at about this time.
Treasuries also appear to have bottomed earlier than expected, and have already rebounded to levels near the upper trend line in their current downtrends. It doesn’t seem unlikely they could begin to selloff again in the week ahead and this selloff could help push stocks higher.
Most company’s reporting earnings during the week continued to report earnings above expectations. Given the overall strength in reports to this point, it doesn’t seem likely this will change much for the remainder of the earnings season.
Although it is still possible the indexes could test the lower trend line in the major uptrend from lows last November in a pullback over the next week or so, there does not appear to be a catalyst for this drop and many of the timing patterns that could have aided in this drop did not pan out as expected. The recent rebounds from the large single day drops at or near the 13 EMA with returns to higher highs on most of the indexes, the current economic data and the strength in earnings reports makes it seem less likely this drop will occur at the current time. If this drop were to still develop, it continues to look like it will probably a good time to add.
The indexes continue to strengthen bullish tendencies and it continues to look likely the indexes could hold in or near overbought for extended timeframes. It also seems possible the indexes will remain trading near the upper trend line and pullbacks could remain light for the time being. Pullbacks to or near or even above the 13 EMA again appear to be buy signals. A drop to the lower trend line looks less likely at the current time, although this drop will likely be seen at some point in the future.
S&P 500 Constituent Charts
Many of the S&P 500 constituents’ charts continue to show strong uptrends and very bullish characteristics.
The charting source that is easiest to view the constituent charts on for this section was not available in time for publishing this Preview. Although I could have looked at these charts elsewhere, it would have taken a considerable amount more time so I did not look at the current charts prior to publishing; however I looked at many of the constituent charts during the week.
Although some of the constituents fell fairly deeply due to earnings that missed expectations, most of the charts I looked at continued to exhibit the bullish tendencies they have been giving for several months. Some broke resistance and started higher, and many continue to hold near overbought conditions in long uptrends.
Overall earnings continued to be very good in the past week and the economic data continues to show expansion.
The constituent charts I looked at during the week continue to look very bullish. It continues to seem likely stocks will move higher in the weeks ahead. Although the index has reached a run duration that a pullback could be expected and this pullback is often deeper than seen earlier in the run, the index already took a deeper pullback than we have seen in some time and it might be the deeper drop normally seen at about this point. The pullback to the lower trend line is still likely to happen at some point in this run, but the rebound to a new high from this deeper pullback might mean this run will continue further for now.
The -2% H (precautionary) is currently active. See a more detailed description of the indicators I have developed through my research here.
The relative absence of indicators is generally bullish as it shows a declining chance of volatility.
The -2% H (precautionary), indicator did not provide a correct indication in the past week. It continues to look unlikely that we will see a downward move of this proportion in a session. This indicator will continue in the precautionary state until the S&P 500 moves above the 1520.27 drop resistance, at that time the precautionary status will be removed and it will become a normal -2% H.
Friday’s close of 1517.93 covered the 1515.96 drop resistance. For my record keeping purposes I have also closed this drop resistance level.
I completely redid the spreadsheet for the half percent rule, starting from scratch including verifying all data as it appears the in data the old spreadsheet was verified manually instead of by using formulas. I found a few minor errors in the first spreadsheet, but these errors made less than a 0.32% difference in the final numbers.
There was one more failure that went uncovered for more than 100 trading days after this spreadsheet was made, giving a total of four. The April 27, 2010 drop of 2.34% rebounded within 0.5% of the drop price on April 29 but did not fully cover the drop price until Nov 4, 2010 lasting 133 trading days. The failure at 1520.27 has already taken the longest time of any of these four to fully recover.
I misread the data on the spreadsheet when I said the same resistance has never failed the half percent rule twice, there were five at the time the original spreadsheet was made and there has been one since, but none of those five or the one since failed a second time when using a ten day recovery time. This data is not considering the current second three trading day failure of the 1520.27 drop resistance as it has not yet covered.
One thing I have tried to do when making an indicator is to use the shortest time period possible that covers the most instances. There have been 325 single session drops of 2% or greater since Jan 1, 1957. All but two of these drops have recovered. Of the 323 that have covered, 279 or about 86.4% recovered the drop price within three days or less after a close within a half percent or less to the drop price. This is by far the greatest recovery amount in the shortest timeframe. When extending this timeframe over threefold to a ten day recovery time, there are a total of 303 or 94.4%.
After revisiting this indicator, I believe I may have allowed data that should not have been considered to obscure my perception in my initial analysis of this data. The above data includes 188 drops that closed above both the half percent threshold and the drop price on the same day. When considering only the closes within a half percent that did not cover the same day, 66.4% covered within three trading days, 83.9% covered within ten trading days and 91.2% covered within 20 trading days.
At the time this data was being gathered and analyzed, during the crash in 2008, it is quite possible I was looking at this data in a different context than I am today. It was likely I was looking at these drops as investment opportunities at that time and this data probably would have fit that context very well.
After looking this data over again I can also see I was considering using a ten day timeframe to eliminate multiple failures, but probably opted for the shorter timeframe since extending the timeframe over threefold only increased the indicators success by about 8%. This consideration was made when using the full data series and not just the half percent data. I will continue to look at this indicator, but it would appear using the basis that I have applied to other indicators I have developed, that a ten trading day timeframe is probably more appropriate for this indicator.
Current Cautions
The S&P 500 has pushed slowly, but steadily higher into the 1515.96 and 1520.27 drop resistances, covering the 1515.96 resistance with Friday’s close. It appeared earlier that the bulk of the resistance in these drop resistances was in the lower ranges; however the slow accent through the upper levels of these resistances seems to show otherwise. As the index neared these resistances it also reached the lower resistance in the 1540.38 drop resistance, with the initial slowdown coming at about the 1508 resistance seen in this level. Although these resistances appeared to be light, the combination of resistances that were reached simultaneously has slowed the index accent. It continues to seem likely the 1520.27 resistance level will be covered in this run higher. There continues to be very little chance this resistances will cause another significant pullback (one of 3% or greater).
The push higher through these resistances has brought the index within the influence of the final drop resistance at 1549.38. This resistance holds a higher chance of producing a significant pullback, however historically resistance drops seen in the upper levels when nearing new all-time highs tend to remain fairly shallow. If a significant pullback is seen at this level, it will probably remain less than 5% and might not reach a significant level. It seems most likely if this level provides a significant or near significant pullback, it will come nearer the upper levels of this resistance.
Many of these sources of information were used in this article.
Have a great day trading,
ronz
Disclosure: I am about 89% invested long in stocks in my trading accounts. I made no investment changes in the past week. I will receive dividend payments from 8 issues in the coming week and 4 in the following week, if I make no further investment changes during this timeframe, these dividend payments will not change my investment level.
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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