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Stock market preview for the week of February 3, 2014

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The Traverse City area had been in a deep freeze over the past month, with many record lows set throughout the area in January. The month was credited as the coldest January in 100 years. Stocks seemed somewhat chilled during the cold snap too, but look like they might be ready to heat back up.

The S&P 500 slipped in three sessions during the past week and finished with a 0.43% loss. The index has finished lower in 14 of the past 24 sessions and four of the past five weeks. Wednesday’s close was the lowest seen so far and finished 4.01% lower than the record high seen on Jan 15.

The index rebounded off support near the upper boundary of the second 1700 MRL of 1760 to 1770 from an intraday low of 1770.45 on Wednesday. Friday’s intraday low of 1772.26 also rebounded higher off this support level indicating it could be strengthening and it makes it seem possible this support level could hold. Many of the chart formations also make a continued rebound seem likely.

The average daily volume decreased 3.20% over the previous week’s average. Friday, which spent most of the day rebounding from losses early in the session had the week’s strongest volume. Tuesday had the weakest. The five day volume variance dropped to 18.09%.

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 look bearish to somewhat bearish at the current time.

The Dow Jones continues to have the most bearish looking chart. The rebound Thursday fell short of the previous high Tuesday and it fell to a lower low on Friday. The Dow has slid lower in 12 of the past 17 sessions and has fallen quite deeply below the 50 EMA. The 13 EMA made a bearish cross below the 50 EMA. Friday’s close was the lowest seen so far in this pullback and finished below the Dec 12 close, the lowest close seen in a 2.22% pullback from the Nov 27 high. The Dow finished Friday 5.03% below its highest close in 2014 on Jan 7 and 5.30% below the Dec 31 record high close.

The Russell fell through the 50 EMA and although it pushed back above it on Thursday, it slipped back below it before the close and has closed five straight sessions below to 50 EMA. The Russell broke below the lower trend line in the uptrend it established last April, but has remained stubbornly close to it since. Although it closed below it twice and spent parts of each day beneath it this week, the index rebounded back above the trend line in each session. The Russell finished Friday 4.27% below the Jan 22 record high and Wednesday finished 4.98% below that high.

The NASDAQ chart maintained the most bullish appearance, although it too is seeing some bearishness. It fell deeper during the week and slipped below the 50 EMA, closing below it on Monday and Wednesday, but it has rebounded quickly back above this level and maintained the past two closes above. Thursday’s rebound took the index back above the Jan 13 low, being the lowest drop seen before the recent pullback, and also above the high seen Tuesday. The NASDAQ has maintained above the lower trend line of the steeper push higher it began last April. The NASDAQ finished Friday 3.28% below the Jan 22 high. Wednesday finished 4.51% below the 52 week high seen Jan 22.

The NYSE failed to finish higher than Tuesday on Thursday, but did finish higherFriday than it did on Wednesday. Wednesday’s close also finished above the low seen Dec 12. The NYSE remains quite far below the 50 EMA, and has seen a bearish cross of the 13 EMA below the 50 EMA. The NYSE finished Friday 3.89% below its Jan 10 high and 4.16% below the Dec 31 record high close. The lowest close in the pullback on Wednesday was 4.20% below the Dec 31 close.

The S&P 500 finished Friday higher than Wednesday and Thursday’s rebound topped Tuesday’s. Wednesday’s low was slightly lower than the Dec 12 close, the lowest close seen during that pullback. The S&P 500 remains quite deep below the 50 EMA, and the 13 EMA is near a bearish cross below the 50 EMA. The S&P 500 finished Friday 3.56% below the Jan 15 high and the lowest close to this point on Wednesday finished 4.01% below the high.

All of the indexes are fully oversold and the Dow is very deeply oversold. Although the indexes dropped somewhat lower during the week, most have begun trading in sideways patterns and are finding support higher in recent pullbacks. All gapped lower on Friday but most finished the session well off session lows that in most cases occurred early in trading. Most of the indexes reached or neared drop levels that seemed likely earlier.

The duration of the pullback has reached a length that rebounds often begin in. It seems possible the indexes could finish the coming week higher.

US Treasury Charts

The 20 year US Treasury Note price looked to have turned lower in a price drop on Monday, but it rebounded in three of the four sessions that followed and pushed higher for the week. The cautious atmosphere due to emerging market stumbles appears to be drawing emerging markets holdings into US Treasuries. These stumbles appeared to overshadow the Fed announcement of further reductions in the purchase of long term Treasuries, at least temporarily. It doesn’t seem unlikely the 20 year could find resistance near the current price. It is also overbought so a pullback does not seem unlikely. This chart continues to look bullish at the current time.

The recent bullishness in US Treasury prices is somewhat bearish for stocks, but these runs appear close to likely turning points lower.

The 10 year US Treasury Note interest rate slipped in three trading days again this past week. It fell to and bounced higher off the lower trend line Monday and continued higher Tuesday, but slipped off these highs and finished that session lower with the rebound falling well short of the upper trend line. It fell steeply to the lower trend line again on Wednesday, rebounded slightly on Thursday and retreated back to the lower trend on Friday. Friday finished with the lowest 10 year Treasury Note interest rate since Nov 7. The 13 EMA fell through the 50 EMA and has continued lower. This chart currently looks very bearish; however it is nearing a likely support level.

Gold

Gold began Sunday night with a push up into resistance reaching about 1279 shortly after the Sydney open but slipped from this high to finish the night at about 1271.

Gold continued to trend lower Monday morning during Hong Kong trading to about 1266, then rebounded to 1271 shortly after the London open, but the rally faded and the downtrend continued to about 1252 during New York trading. Gold rebounded to about 1257 before the NY close and traded flatly between 1255 and 1259 for the rest of the night.

Tuesday morning it pushed to about 1261 before slipping to finish Hong Kong trading at about 1254. It trended higher off this low during London and NY trading to reach about 1259, but slipped back to about 1250 in NY before rebounding to about 1256 by the close. It dropped sharply at the Sydney open to 1249, then rebounded quickly to about 1253 and traded within a point of that for the rest of the night.

Wednesday morning traded in a little wider band from 1251 to 1256 until it began a move higher during London trading that continued during early NY trading to about 1268. It slipped off that high to about 1260 then rebounded back to about 1270 before the NY close. Gold trended lower from that high for the remainder of the night taking the bulk of loses during Sydney and Hong Kong trading to finish the day at about 1263 and just off the nightly low.

Gold held steady early Thursday morning before sliding quickly to about 1255 before the Hong Kong close, it leveled off and traded within a point of that until the New York open where it dropped steeply to 1239. It mounted a choppy comeback but failed three times to break much above 1245, then slipped to finish NY trading at about 1243. It traded flatly in Sydney and Hong Kong, twice more failing at about 1245 but maintaining about a 1243 floor for the remainder of the night.

Friday morning saw yet another failure at 1245 and the floor shifted lower as a downtrend began to form during Hong Kong trading. The low had reached 1239 at the London open, but the trend reversed and gold pushed higher topping early in NY at 1254 and then turned lower again just before the London close. It fell back to 1240 before trending higher in the last few hours to finish with a New York Spot of 1245.90, which was lower than last week’s close of 1268.90.

Gold finished January higher. The Dec 31, 2013 New York Spot closed at 1205.50 compared to Friday’s 1245.90 close. The last London PM Fix of 2013 on Dec 30 was 1204.50 versus Friday’s PM Fix of 1251. The past week saw failures on both trend lines of the established uptrend for the month as the high failed to reach the upper trend line and low fell through the lower trend line.

This coupled with the break lower from resistance early in the week makes it seem fairly likely gold could retest the December lows in a continued pullback.

Overall gold reacted negatively to news of the increased reductions in QE during the week. This reaction is a bullish indication for stocks, as further QE reductions loom ahead.

S&P 500 Constituent Charts

There were difficulties viewing the constituent charts from the source normally used for this week’s article. These difficulties were exacerbated by a power failure during a time that much of the research for this article is made. Many of these charts were viewed during the week and some of the observations below were noticed during these earlier viewings or from data downloads. Fortunately much of the data used had already been downloaded and a battery backup allowed work on the data and article to continue through the first few hours of the power outage.

Many of the constituent charts appear to show this round of profit taking may be nearing completion. A fairly large number of the constituents have formed “V” rebound patterns, although a few in these patterns later failed. Many that have not yet rebounded appear to be at or near support and rounding out of the recent fall. Quite a few have continued in runs higher through the recent downturn. Many of the indicator stocks rebounded strongly and some pushed to new 52 week highs in the past week. Overall most of the constituents are in or near oversold conditions, while many of those that are not continued to hold in or near overbought through the downturn.

Not all of the constituents are rebounding or rounding out of recent falls. Some continued to trend lower or have established downtrends and it looks possible some of these stocks could continue lower in these trends even into an overall market rebound, but many of these stocks are also in areas that they are likely to rebound from at least temporarily and are deeply oversold.

Many of the chart formations mentioned above are also apparent in the data. Below is a comparison of the weekly percentage change of each sector.

Format: Sector: Weekly Percentage Change from Jan 17 to Jan 24 / Weekly Percentage Change from Jan 24 to Jan 31

Energy: -1.38% / -0.59%

Materials: -4.39% / -0.14%

Industrials: -4.39% / 0.26%

Consumer Discretionary: -2.06% / 0.15%

Consumer Staples: -1.61% / -0.88%

Health Care: -2.35% / 1.27%

Financials: -3.39% / 0.19%

Information Technology: -2.34% / -0.29%

Telecommunications Services: -2.55% / -0.31%

Utilities: -0.45% / 2.87%

As seen in the charts, this data appears to be showing the index is beginning to round out of the fall. Drops have diminished in all sectors that continued lower and some have begun to rebound from these lows.

The following is a comparison of stocks near 52 week highs.

Format: Price percentage from 52 week high: Number of constituents on Jan 24 / Number of constituents on Jan 31

Less than 1%: 3 / 19

Less than 2%: 6 / 29

Less than 3%: 27 / 57

Less than 4%: 59 / 82

Less than 5%: 101 / 111

Less than 10%: 311 / 305

Less than 15%: 407 / 407

Less than 20%: 454 / 452

The totals far from highs have changed little week to week, but the numbers nearing or reaching new highs are increasing again. The low numbers near 52 week highs on Jan 24 is consistent with rounds of profit taking nearing lows and the rebound in the numbers of stocks heading back to or near 52 week highs during the past week is consistent with rounds of profit taking nearing their end.

Here is a comparison of the other end of the scale, the stocks near 52 week lows.

Format: Percentage from 52 week low: Number of constituents on Jan 24 / Number of constituents on Jan 31

Less than 1%: 10 / 6

Less than 2%: 19 / 20

Less than 3%: 24 / 31

Less than 4%: 34 / 38

Less than 5%: 39 / 45

Less than 10%: 82 / 88

Less than 15%: 128/ 135

Less than 20%: 183 / 181

Greater than 100%: 10 / 11

At first glance these numbers might not seem as encouraging as the increases beginning in the highs, but they are an early indication that a rebound is beginning. Although we have seen small increases in the numbers in the mid ranges, we are seeing fewer stocks very near 52 week lows and beginning to see increases in those moving towards highs again on the other end of the scale. The midrange numbers likely fluctuated higher as stocks are in the process of rounding out of their falls but still fell slightly deeper. They were also affected by stocks that fell due to earnings misses, downgrades or other factors. Even in the most bullish market not all stocks do well on every earnings report.

As the data indicated earlier the drop was mostly top down. Based on the numbers published in the Jan 20 edition, there were 159 less than 1% from a 52 week high on Dec 31 and 68 on Jan 17. On Dec 31 there was only one less than 1% from a 52 week low and two on Jan 17. The numbers near highs diminished greatly, but those near lows didn’t increase much, remaining consistent with a round of profit taking and not bearish divergence.

Price drops on many of the constituents appear to have taken them to appealing valuations. Overall the constituents are oversold. Some continued to hold in or near overbought even into the recent pullback and it looks likely that many of these constituents could continue to do so. The charts make it seem possible this round of profit taking may be near completion and the constituents may have already begun to rebound.

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, (-)/+ 90 D, MRL, -2% L, +2% H and 90 E indicators are currently active. 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 activate on Oct 7, 2013 will expire on Feb 14 or in ten trading days. It has performed as follows to this point in the format: highest close / lowest close / last close.

+10.28% / -1.23% / +6.35%

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% / -1.57% / -1.10%

Monday continued lower before rebounding at 1772.88 and near previous support offered by the second 1700 MRL of 1760 to 1770. Although this support was probably from the MRL, since the price was slightly closer to the 1775 lower resistance of the 100 L it was credited with support in that drop for record keeping purposes. Stocks rebounded to close higher Tuesday, but slipped again on Wednesday. Wednesday’s intraday low reached 1770.45 rebounding off support found in the second MRL and continued to push higher on Thursday, with that close being the highest of the week. Friday gapped lower and pushed to the session low of 1772.26 within the first 15 minutes, but again found support near the upper boundary of the MRL and trended higher off that low through most of the session before slipping lower as it neared positive territory in the final hour.

Friday’s rebound higher in the MRL level makes it seem possible this support level is strengthening and could hold. Although it seemed possible this drop might continue closer to the 5% level on the S&P 500 earlier, the solidifying of support at a likely rebound level makes it seem possible it could turn higher earlier than originally thought. Flattening near support in most of the index charts makes also this rebound seem likely. Many of the constituent charts and other data appear to be echoing this possibility. All four of the major indexes covered in this article dropped more deeply than the S&P did, and this drop reached or was near to the 5% level on some of the other indexes.

The -2% L did not provide a correct indication during the past week. At this point it appears bearish volatility could remain calm, although not a certainty, it does not seem likely that another drop in this range will be seen during this indicator’s active period.

The +2% H indicator did not provide a correct indication during the past week. There is still a heightened chance of a move of this proportion higher to offset the earlier 2% drop. If a move of this proportion is seen, it would be a bullish indication.

The 90 E became active on Tuesday and this indicator is often active during volatile conditions. Although a volatile move lower was seen a couple days prior to this indicator becoming active as is sometimes the case, most other indicators suggest volatility could remain calm, although it is not unlikely an offsetting rebound could still be seen.

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 occur during this indicator’s presence.

The +10 Day indicator is near a high state. Although it seems possible this indicator might not toggle on, near toggles of this indicator are also generally bullish indications.

Current Cautions

The recent drop on the index has reached significant levels and the index has had a volatile trading session. These are bearish indications, so there is reason to have some continued caution.

However, the pullback continues to fit normal patterns seen during rounds of profit taking and it seems likely it will probably remain in or near the 3% to 5% drop level.

Support at the upper boundary of the second 1700 level MRL from 1760 to 1770 appears to be strengthening and it seems possible this support could continue to hold. Many of the charts and indicators seem to suggest a rebound could be near.

If support levels in the second 1700 MRL were to be broken, alternate support in the first 1700 level MRL at 1735 to 1745 (or possibly 1750) seems likely to hold.

Concerns in the emerging markets appear to be far overblown, but it is possible they could rile the US markets further.

Most constituent earnings reports for the fourth quarter have been good, and it still seems possible the earnings for the index could reach quarterly record levels and will nearly undoubtedly extend the streak of TTM earnings records. Most economic data continues to be good too. There continued to be some earnings and economic data bumps and it isn’t unlikely there could be more ahead, but the overall picture might be good enough to relieve some of the investor anxiety normally seen this time of year.

Earnings levels normally drop in in the first quarter as it is the earnings offseason for many businesses, and these seasonal earnings changes will likely be seen in guidance given in upcoming reports. This “softness” is often misread as signs of weakness. As a result investors tend to become more cautious early in the year and are easily spooked.

Volume decreased 3.20% and the five day variance also dropped to 18.09%. Friday had the week’s highest volume, and although it finished the session lower, it spent most of the session in a rebound off early lows, indicating much of this higher volume was generated by buyers in the rebound.

The 90 E became active Tuesday and this indicator is often active during volatile conditions. It also has a strong history of pointing to market price direction changes and it seems fairly likely it could point to a move higher in this occurrence.

The -2% L and +2% H indicators are currently active and these indicators are often active during volatile conditions. The S&P 500 has seen one volatile daily move 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.

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.

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.

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,
ronz

Access to all of Ron’s past articles.

Disclosure: Ron is currently about 88% invested long in stocks in his trading accounts. The increase in his investment level over the past week was due to the purchase of three issues with this cost partially offset by 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. He will also continue to add stocks he feels are at a great value through a variety of buy orders. He will receive dividend payments from seven issues in the coming week and eight 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.

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