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Stock market preview for the week of February 24, 2014

The S&P 500 slowed as it neared resistance within the MRL at 1850.
The S&P 500 slowed as it neared resistance within the MRL at 1850.
Photo by Spencer Platt/Getty Images

Although the S&P 500 spent much of Friday’s session trading at a gain, it slipped into the close to finish lower and as a result posted a 0.13% loss for the week. The index split the holiday shortened trading week finishing two of four higher and has finished higher in nine of the past 13 sessions.

Volume increased moderately during the past week, with the daily average 1.58% higher than that of the previous week. The week’s strongest volume came during Wednesday’s pullback, and the weakest was seen in Friday’s pullback. The five day volume variance fell slightly further during the past week to 17.56% on Friday.

Major Stock Market Indexes

The index charts of the Dow Jones Industrial Average, S&P 500, NASDAQ, New York Stock Exchange and Russell 2000 appeared to find some resistance in the past week, but continued to show bullish signs.

The NASDAQ pushed to new 52 week high close on Tuesday before snapping an eight day run higher with a pullback on Wednesday. Even though the NASDAQ finished lower in two sessions during the holiday shortened trading week, it still finished with a weekly gain. It continues to ride higher well above the 13 EMA and is seeing the 13 EMA widened the gap over the 50 EMA.

The Russell 2000 finished higher in three of four sessions and posted a gain for the week. It has finished higher in nine of the past ten sessions. The index saw a bullish cross of 13 EMA back above the 50 EMA early in the week and continues to run higher well above the 13 EMA. Although the Russell lagged in the initial rebound, it is now the nearest to recovering from the significant drop of the four left to do so.

The S&P 500 began to push back into the MRL resistance likely to be seen at 1850 to 1865 and as a result its rebound slowed. The index saw gains in two sessions, but slipped slightly for the week. Even so it continued to ride well above the 13 EMA and continued to widen the gap it has above the 50 EMA.

The New York Stock Exchange saw the 13 EMA make a bullish cross back above the 50 EMA. The NYSE slipped in two sessions during the past week but finished the week with a gain.

Even though the Dow Jones slipped in three of four sessions during the past week, it continued to hold above the 50 EMA and as a result the 13 EMA is resting on the 50 EMA and near a bullish cross. The Dow has become the laggard, and like the Russell it doesn’t seem too unlikely it could mount a catch up rally at some point in the rebound.

Most of the indexes appear to have hit some resistance, and although it has slowed their ascent, they appear to be working their way higher through these resistances. All of the indexes are in overbought conditions, although the slowdown during the past week has relieved overbought conditions somewhat and it does not seem unlikely the indexes could hold in or near overbought conditions. In order to break these resistances the indexes may need to continue to refuel. It therefore does not seem unlikely a drop and rebound off or near the 13 EMA could be seen on many of the indexes in the week ahead. Due to a slowdown in the push higher while the 13 EMA has continued a fairly steady increase, this pullback could be shallower than those seen earlier this week. It seems fairly likely that pullback could be brief and it doesn’t seem unlikely the indexes could still finish the coming week higher. Therefore drops to or near the 13 EMA are likely buy signals.

US Treasury Charts

The 20 year US Treasury Note bounced and closed slightly above the 13 EMA Tuesday, and again failed to hold this level as it slipped to finish below it on Wednesday. It continued lower Thursday but the fall bounced off the 50 EMA and the rebound continued to move higher on Friday to finish slightly above the 13 EMA. The 20 year has broken the recent uptrend and is near to establishing a downtrend. It is also beginning to form a wedge between the 50 EMA and the upper trend line of the forming downtrend. It seems possible this wedge could break in the coming week. It appears this wedge has a downward bias, but wedges do not always break to the direction of bias. Due to the possibility that stocks might need to refuel for a push higher and the 20 year continuing to be oversold, it seems possible the break could be higher. It also seems possible this break higher could give a false bullish signal. This chart is not yet bearish, although it is no longer bullish. It continues to seem possible the 20 year is transitioning into a downtrend.

Long term US Treasury charts appear to be transitioning into downtrends suggesting prices could continue lower. This is somewhat bullish for stocks.

The interest rate on the 10 year US Treasury Note broke and closed below the 13 EMA Tuesday, but rebounded to close above it Wednesday and in every session since. Thursday continued higher but the rebound again got turned back at the 50 EMA, while Friday broke above the 50 EMA before slipping to finish the session just above the 13 EMA. This chart is near to establishing an uptrend, and also appeared to be forming a wedge against the 50 EMA with the lower trend line in the establishing uptrend. Friday’s push higher may have broken this wedge or at least fractured this resistance level, making it seem fairly likely it will push higher through it later. The apparent need for stocks to refuel could cause rates on the ten year to fall as equities are exchanged for treasuries short term, and this could provide a false bearish signal in this chart. The chart has remained in overbought conditions and it doesn’t seem unlikely it could hold near these levels even into a slight downturn. Although not yet in an established uptrend, the ten year rate has broken the recent downtrend, has broken above resistance at the 50 EMA and appears to have broken a wedge pattern higher, as a result this chart is beginning to look bullish again.

Gold

Gold pushed higher Sunday night to about 1324 a few minutes after the Sydney open but trended back to about 1322 into the Hong Kong open. Shortly after that open it ran strongly to 1330 in a ten minute burst, but trended lower for the remainder of the night to finish at about 1326.

After slipping to about 1324 early Monday morning gold trended gradually higher in Hong Kong to 1327, but slipped back to 1323 before the London open. Gold began a long gradual trend higher to finish the holiday shortened New York spot at about 1329. It bumped to 1332 shortly after the Sydney open, but trended fairly sharply lower from there to about 1323 that lasted after the Hong Kong open. The trend turned gradually lower to 1321 before bumping up to 1322 to finish the night.

Early Tuesday morning gold slipped to 1317 and traded within a point higher until pushing to 1321 shortly after the London open. It trended slowly lower to 1318, then fell to 1315 shortly after the Hong Kong close. It traded between 1313 and 1316 until it began a steep rebound at 1314 at the New York open that carried to 1324, and then gradually trended to 1325 before gradually trending back to 1322 by the New York Close. It began a long bouncy trend lower at the Sydney open to finish the night at 1315.

Wednesday morning saw gold gradually push higher to about 1322 by the Hong Kong close. It traded between 1317 and 1322 until late in the New York session, where it fell to 1309 and then traded between 1308 and 1315 for the remainder of the night finishing at about 1312.

Thursday it traded between 1312 and 1315 until dropping to 1308 just before the New York open, it bounced back to 1316 shortly after the open and traded in a reducing ripple pattern higher to about 1317, then quickly higher to 1325 late in the session, finishing New York at about 1323. Gold again traded in a bouncy trend lower in Sydney and Hong Kong, reaching a low of 1316 before finishing the night at about 1317.

Gold slipped back to about 1316 first thing Friday morning but trended higher in a bouncy pattern to about 1328 in New York. It slipped off this high into the New York Spot close of 1323.60, which was higher than the previous week’s close of 1319.10.

Although gold finished somewhat higher for the week, it pretty much returned to a pattern of one market selling into another market’s run.

S&P 500 Constituent Charts

Most of the constituents are pushing strongly higher off recent lows. Several of the constituents have broken resistance in moves higher, and resistance breaks often continue higher.

Many have established “V” pattern rebounds off recent lows. Many are in runs riding higher on or above the 13 EMA. Many have seen bullish crosses of the 13 EMA back above the 50 EMA. Many are again reaching new 52 week highs.

Overall the constituent charts look very bullish and it seems likely most could continue to move higher. Many have not yet previous highs, while most of those that have moved higher have provided bullish reasons for these moves to continue higher.

The constituents are also mostly overbought, and some have begun pullbacks from these overbought levels. Although many will probably continue to trade in or near overbought levels, some will likely fall to or near oversold.

Quite a few have been trading flatly between the 13 and 50 EMA’s in these rebounds for several days. Although not always the case, this pattern often pushes lower before rebounding to break above resistance at the 50 EMA in a continued move higher.

The index’s climb appears to be stalling and has been turned back near the MRL resistance. Although it seems fairly likely this resistance could be broken, it seems possible a short pullback is needed to refuel the push higher through this resistance. If this pullback develops, drops to or near the 13 EMA are probably buy signals in most stocks and indexes.

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, MRL, -2% H, +2% H, 90 E and +10 E indicators are currently active. The +10 day indicator expired at Tuesday’s close, and a +10 E indicator became active at Tuesday’s close. A new 90 D indicator will likely become active soon. 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.

+2.55% / -3.36% / 1.87%

The index pushed to an intraday high of 1847.5 Wednesday and near enough to be within the influence of the lower resistance of 1850 in the Midrange Resistance Level (MRL). The MRL resistance is likely to be seen between 1850 and 1865; however it looks likely the bulk of this resistance could be broken in a push and hold above 1850. Wednesday’s intraday low was 1226.99 and Thursday’s intraday low reached 1824.58, rebounding higher near the upper resistance band of the 100 L found at 1825. Prior resistance levels providing support is often a bullish indication. Friday turned lower at 1846.13 possibly indicating additional refueling is necessary to break above the 1850 resistance. If so, a drop and rebound higher off or near the 13 EMA of the index probably indicates this refueling is complete, with this rebound likely to carry higher into or possible through the 1850 resistance.

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

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

The 90 E will expire in nine trading days. This indicator is often active during volatile conditions.

Even though the -2% H, +2% H and 90 E generally point to higher possibilities of volatility, most other indicators continue to suggest volatility could remain calm.

The 90 E indicator is also known for a high occurrence of market price direction changes while it is active. It continues to seem fairly likely a direction change higher could be in progress.

The +10 Day indicator expired with Tuesday’s close (this was mistakenly reported as Monday in the previous week’s article due to overlooking the market holiday on Monday). The +10 Day indicator finished as follows in the format: highest close / lowest close / last close.

+5.68% / 0.00% / +5.68%

The lowest close only considers closes lower than the starting date, if there are none lower it is reported as zero percent.

The +10 day indicator saw a highest close that exceeded the expected range of 3 to 5% for this indicator during the ten days it was active and therefore it was correct in the instance.

A 10 E indicator became active at the expiration of the +10 day. The 10 E indicator suggests there is a high likelihood the index could finish higher during the ten trading day period it is active, but it does not project the gains expected.

The volume stringer that controls the 90 D indicator has reached 11 days but has not yet broken. Any time this stringer reaches or exceeds ten days a 90 D indicator becomes active when this stringer is broken. The start date for the 90 D indicator is the last day the stringer remained intact and the active period is the following 90 trading days. Since this indicator has not yet become active, the interpretation of this indicator will not be given until it has, allowing extra time to research the possible outcome.

Current Cautions

The S&P 500 pushed into the influence of the Midrange Resistance Level (MRL) likely to be seen from 1850 to 1865 on Wednesday. This resistance is an established significant resistance and being so some caution should be exercised.

The pullback and rebound continue to fit normal patterns seen during rounds of profit taking. It seems most likely the MRL resistance could be broken in this retest. Although it continued to be a barrier in the initial push back towards this resistance and has slowed the climb the index was in, the index rebounded bullishly off prior resistance in the 100 L during the past week. It seems possible additional time for stocks to refuel is needed, but a drop to and bounce off the 13 EMA on the index could signal the push above this resistance has begun.

Once this MRL resistance level is passed, it seems fairly likely the index could move on to the next likely resistance level held within the 100 L at the 1900 level, seen between 1875 and 1925. This resistance level has the potential to produce a significant pullback.

However, preliminary data would suggest that it is unlikely a significant pullback will be seen at the 1900 100L, but if one were to be seen, it probably would not exceed 3% by much. Timing is somewhat critical in this projection. It is felt that it is not possible to give an accurate timeline that the index might reach this resistance level at this point. If the timing used in this projection is off, this projection could change substantially later.

Average daily volume increased slightly during the past week, but remained near more normal levels. This is generally an indication of low volatility.

The 90 E is active and is often active during volatile conditions. It also has a strong history of pointing to market price direction changes and appears it could have pointed to a move higher in this occurrence.

The -2% H and +2% H indicators are currently active and these indicators are often active during volatile conditions. The S&P 500 has seen two volatile daily moves while these indicators were active. It seems fairly likely that volatile conditions could last for a relatively short duration, probably exiting before or with the expiration of the 90 E.

The beginning of the year is generally a bullish timeframe; however rounds of profit taking that result in significant drops are more common during this timeframe.

A new 90 D indicator will become likely active soon.

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 nine to 18 months if it reaches this level near the upper trend line and within 36 to 42 months if it reaches this level near the lower trend line. The data suggests the Midrange Resistance Level (MRL) at 2040 could be the resistance level of concern within this range. If this is actually the level it appears to be, the index will probably reach it while it is near the upper trend line making this appearance probable within the next 13 months. If this is the actual level of concern, the pullback off this level is likely to be in the 25 to 35% range, but would probably not exceed 30%. If this pullback comes earlier than expected, it seems likely it could be much shallower, possibly not reaching crash levels. If seen later than expected, it could be somewhat deeper.

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.

Comments:

Overall earnings reported in the fourth quarter were very good.

The monthly earnings updates shows that the constituents are very near a quarterly earnings record based on the un-weighted operating earnings of the current constituents. Although a quarterly record is still a possibility, the low number of constituents left to report makes it seem somewhat unlikely the quarterly earnings record will be topped by the fourth quarter’s earnings, although it is likely to finish as the second best earnings quarter ever.

Even so, the trailing twelve month’s earnings record is nearly assured to increase with the fourth quarter’s earnings. Those that have already reported along with the current estimates of those yet to report are over 9% higher than the earnings reported by the current constituents a year ago. This follows a 9.14% year over year increase in the third quarter by the current constituents. First quarter earnings are currently expected to increase 7.05% over the year ago earnings of the current constituents .The projections for the first quarter earnings currently appear somewhat low.

Provided there are no very large unsuspected misses in those left to report fourth quarter earnings, the increase in the trailing twelve month earnings record would be the eleven straight based on the current constituent’s earnings. The fourth quarter’s year over year earnings increase would also be the 17th straight quarter with a year over year increase based on the current constituent’s earnings.

Even though there were some that did “poorly” and missed projections or warned of lower earnings in the fourth quarter, many of these companies reported (or are likely to report) the second highest quarterly earnings ever. Many of these “bad” reports or earnings warnings don’t appear to be as “bad” as they were made out to be and pullbacks seen in these companies appear to be buying opportunities.

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 86% invested long in stocks in his trading accounts. The decrease in his investment level over the past week was due to the purchase of one issue with the cost of this purchase more than offset by the sale of three issues and dividend payments. Ron feels he is slightly oversold 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 eight issues in the coming week and 17 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.