Here is the preview of the coming week on the S&P 500 from Traverse City, Michigan.
The S&P 500 closed lower in three of the five trading days this past week, but still finished with a small gain of 0.68%. The index has closed higher in 15 of the past 23 sessions and for five consecutive weeks.
The S&P500 had another busy week of earnings reports. I found 106 of the S&P 500 constituents’ reported earnings for the week. The tick count shows the constituent earnings were again very good this past week.
The unofficial totals show that about 67% beat the current estimates, and most were beating well above the 2% projected growth rate for the quarter, with about 40% of those that reported beating the estimates by double digit percentages.
Again the misses remained below 30% for the week and generally those that are missing were missing by small percentages and amounts, with about a quarter of the misses being of double digit percentages.
Friday Legg Mason (LM) reported a loss of $3.45, even worse than the lowered estimates made later than those noted in part one of the January Earnings Update report, and that probably killed any chance of a quarterly earnings record. The record would have been tough to reach even without their loss, although some of the beats in the Energy and Utilities Sectors this week made it look possible again.
I wasn’t able to spend much time on earnings reports this week. In addition to work and other obligations, I had a sinus condition that put me under for a few days and I did little more than sleep.
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 Dow Jones Industrial Average broke and closed above the 14000 level Friday. It was the tenth time it closed above this level, although it spent parts of many other days above this level. It was also only the third time it has finished the week higher than this level. The DJIA is now only 144.75 points from an all-time high close.
The S&P 500 spent most of the week breaking resistance before pushing higher through this resistance Friday. The S&P 500 is resting only 51.98 from its all-time highest close.
The NASDAQ pushed to a daily high just 0.81 short of the highest 52 week close, before settling slightly lower to close Friday 4.85 off the highest close in the past 52 weeks.
The Russell 2000 saw the largest single day drop in a month Wednesday, rebounding off the 13 EMA Thursday and continued on to a new all-time high Friday.
The NYSE continued to trade tightly within the trend it set at the beginning of the year, moving higher above the 13 EMA. The NYSE chart continues to look the most bullish.
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. We are nearing a duration that sometimes sees larger pullbacks as noted in last week’s preview. If this drop were to occur, the indexes could finish lower for one to three weeks, and the drop could test the lower trend line in the major trend from the November lows, or like seen on the Russell 2000 this week, rebound directly off the 13 EMA. The drop may or may not occur, but it is probably a good time to add if it does.
S&P 500 Constituent Charts
Many of the S&P 500 constituents’ charts continue to show strong uptrends and very bullish characteristics.
The constituents continue to break resistances and many have taken very steep moves higher after these resistance breaks. They continue to ride on or above the 13 EMA higher. They continue to hold in or near overbought conditions. They continue to push to higher highs and rebound from high lows, etc.
Overall earnings in the past week were again very good.
Many of the constituents in the Utilities, Materials and Energy Sectors reported very strong earnings this past week, making recent forward earnings reductions in these sectors look way overdone. The three doing better than expected makes it look like manufacturing could be rebounding now too.
Several of the constituents that are trading with P/E’s in the single digits rebounded very strongly after better than expected earnings this past week. These moves sent several of these stocks through resistance. Although some have pulled back slightly from initial runs, it does not seem unlikely many will continue higher from here.
Overall the constituent charts continue to look very bullish. It continues to seem likely stocks will move higher in the weeks ahead.
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 1515.96 and 1520.27 drop resistances, at that time the precautionary status will be removed and it will become a normal -2% H. The reason being the index will be within the influence of the next higher drop resistance at 1549.38 and although it seems likely this resistance will not increase volatility or cause a significant pullback, it is an untested drop resistance and being so it holds a higher likelihood that a drop of this proportion could happen.
The resistance the S&P 500 spent the past week breaking was at about 1508, which was found in the lower levels of the 1549.38 drop resistance level. The push and close higher Friday appears to have broken through this resistance and it seems extremely likely the index will cover the lower two drop resistances before we see much of a pullback, if a pullback is seen at all. The S&P 500 is now in the influence of all three of the remaining open drop resistance levels.
One of the reasons it seems extremely likely the index will cover these resistances is the half percent rule. In the vast majority of 2% drops, if the indexes closes within a half percent or less of covering the drop, it covers the drop within the following three trading days. Friday’s close of 1513.17 was less than a half percent from both of these resistance levels.
Does the half percent rule always work? Nope. There have been over 300 instances of 2% drops since 1957 and most have followed this rule, probably near 90% have covered within this timeframe, but not all. I did a spreadsheet on this long ago, but it needs to be updated. I will try to include some data on this later.
Note: The 1520.27 drop did not cover within the three days the first time when the S&P 500 rebounded to 1515.96; proof this rule does not always work. It is also one of only three that have extended past 100 days. However, to the best of my knowledge and based on a spreadsheet that has not been updated in over four years, the same resistance has never failed the half percent rule twice. The spreadsheet I kept is the final version, not the one with all the formulas required to sort the data, so it will take some time to redevelop.
Current Cautions
The S&P 500 has pushed steadily higher into the 1515.96 and 1520.27 drop resistances. It would appear the bulk of the resistance in these drop resistances was in the lower ranges and the push through and above this resistance will likely continue. There continues to be very little chance these two 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, and the past week was spent breaking the lower resistance in this drop resistance. The apparent break of the lower resistance makes it seem even more likely that if a pullback was to occur at this resistance, it will probably be seen near the upper resistance band.
Current timing patterns continue to suggest a pullback could be seen near the upper levels of the 1549.38 resistance. It seems fairly likely this pullback could rebound off the lower trend line of the current uptrend. The lower trend line is still about 3% lower than this Friday’s closing price, and within normal levels seen at drop resistances this near to fully recovering from a crash. If this pullback develops, it will probably be a good time to add.
The Ten Year Treasury is bouncing against the 2% resistance level noted in the Treasury Charts Video I provided last summer. It still seems possible the ten year note could rebound to as high as 2.25% or even 2.4% in the short to medium term and probably back to or above 4% in the long term, but it is also possible this resistance might hold lower in the initial test.
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 covered my short on 20 year US Treasuries during the past week along with purchasing two issues with the cost of these purchases more than offset by the proceeds from the sale of five issues and dividend payments. I continue to plan to offset sales with purchases relatively quickly. Although I feel Treasuries are likely to continue lower, I decided to take profits here as there are several reasons to believe there might be a short term direction change. I may or may not reopen this position as I did better in stocks over the same time period. I will receive dividend payments from 3 issues in the coming week and 8 in the following week, if I make no further investment changes during this timeframe, these dividend payments 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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