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Stock market preview for the week of July 28, 2014

The S&P 500 finished two session at record highs during the week, but Friday's retreat nearly earsed midweek gains.
The S&P 500 finished two session at record highs during the week, but Friday's retreat nearly earsed midweek gains.
Photo by Spencer Platt/Getty Images

The S&P 500 pushed higher in three sessions during the week. It posted a record intraday high on Tuesday that was broken in each of the following two sessions. Wednesday and Thursday also finished with record high closes. The two sessions that finished lower nearly offset the midweek gains as the index finished just $0.12 higher for the week for a gain of 0.006%. The index has finished higher in 47 of the past 72 sessions.

Average daily volume levels decreased 10.90% compared to the average daily volumes of the previous week. The week’s highest volume was seen in Thursday’s push higher and the lowest was seen during Monday’s drop. The five day volume variance decreased 0.85% below the previous week to 22.69%.

The S&P 500 slipped in Monday’s session and then finished higher in the next three before dipping lower again on Friday. The index pushed progressively higher into the 100 L lower resistance level found between 1980 and 1995 during the midweek run, but for the third time in as many weeks pulled back before breaking above the upper resistance. A continued stall at this level could work against the remaining upward tensions in the index constituents.

Major Stock Market Indexes

The index charts of the Dow Jones Industrial Average, S&P 500, NASDAQ, New York Stock Exchange and Russell 2000 were somewhat mixed for the week.

The S&P 500 slipped lower on Monday, falling below the 13 EMA before rebounding to finish the session above it. It then began a three day run with the largest gains seen on Tuesday as it broke to a new intraday high, but slipped to finish off record levels. Wednesday and Thursday pushed to new high closes, and higher intraday highs before Friday took back nearly all of the week’s gains. The index again slipped below the 13 EMA in Friday’s session, but again rebounded to finish above this level.

The New York Stock Exchange also had a midweek rally sandwiched between two losses. Monday slipped and finished below the 13 EMA, and after rebounding above it on Tuesday and continuing higher Wednesday and Thursday, it fell and finished below it again on Friday. Before turning lower again the NYSE did manage to push to a high higher than the previous cycle.

The NASDAQ managed only two gains during the week. After slipping below the 13 EMA on Monday it rebounded to close above it, but with a loss. The rebound continued higher on Tuesday and Wednesday as each session finished with gains. Although Thursday reached the week’s highest intraday high, it slipped to finish the session with a loss. Friday continued lower, but rebounded just below the 13 EMA to finish the session back above it. Although very close it, the NASDAQ failed to reach a high higher than the previous cycle before turning lower on Thursday.

The Dow Jones seemed to struggle this week, managing only one higher close. Monday slipped below the 13 EMA before rebounding to finish the session above it and Tuesday continued higher for the Dow’s only gain. Although Wednesday and Thursday finished lower, losses we small for the session and the index maintained above 17,000. Friday saw new component Visa (V) report earnings that missed expectations and as a result saw its stock price plunge $7.97, weighing the index down. The session finished below the 13 EMA and with only its second close below 17,000 in the past ten sessions.

The Russell 2000 rebounded from a drop on Monday during Tuesday and Wednesday’s sessions that took it back up to the 13 EMA and 50 EMA as they began to make a bearish cross. The two day run managed to delay the 13 EMA’s drop below the 50 EMA, but not avert the bearish cross. Although Thursday finished lower, the break of the 13 EMA below the 50 EMA was not evident until Friday slipped further. Even though the Russell saw a bearish cross, it has pushed higher in three of the past six sessions and broke from the steep fall it was in earlier. If it should rebound from Friday’s low, it would begin from a higher cycle low than the one before it. The Russell’s chart is showing some signs it could again begin to move higher.

The week’s economic data was fairly good in the past week with initial and continuing claims for unemployment, existing home sales, core CPI and durable goods orders coming in better than expected while new home sales missed. Overall earnings look fairly strong, although there were some big name misses, most appear to be doing well.

US Treasury Charts

The 20 year US Treasury Bond moved higher in the first two sessions before slipping slightly Wednesday. Thursday opened with a large gap lower and continued lower finishing near session lows, but only a little lower than it began. Friday gapped widely higher and continued higher finishing near session highs. The turn higher from Thursday’s low was higher than the previous cycle and Friday pushed to a higher high, establishing an uptrend in this chart. This chart is looking bullish again.

The long term Treasury charts continue to appear bearish for stocks.

The interest rate on the 10 year US Treasury Note fell in four sessions, but nearly finished the week higher. The only day to finish with a gain was Thursday, it gapped higher at the open and continued higher breaking above the 13 EMA before slipping to finished at the 13 EMA. Friday slipped fairly steadily lower to finish near session lows and back below the 13 EMA. If the drop Friday holds without rebounding above Thursday’s highs, the chart will have a second lower high to match the two lows lower than the previous cycles, establishing a downtrend. This chart remains fully oversold, and has been for an extended time.

Gold

Sunday night gold pushed to about 1312, slipped to about 1307 and then rebounded again to finish the night little changed just below 1311.

Monday saw gold trend mostly higher in bounces until reaching 1318 just before the New York open. After the New York open it fell fairly sharply off that high to reach a low of about 1311, it then bounced between that low and about 1314 until after the New York close. It slipped back to about 1311 after the Sydney open before trending mostly higher to close the night a little lower than 1312.

Tuesday gold slipped fairly quickly back to about 1305, after which it bounced between that low and about 1308 until dipping to 1302 just after the New York open. It spiked higher to 1314 off that low and held near this high for a few hours before sliding steeply lower to about 1305. Gold rebounded to about 1309 off that fall before returning to the day’s earlier trend of bouncing between about 1305 and 1308, and finished the night at 1307.

The bouncy trend between 1305 and 1308 continued Wednesday until gold broke higher to about 1310 shortly after the New York open. Gold trended lower in bounces off this high, falling to about 1303. It trended very slowly back to about 1305, then very slowly lower to about 1303 and flat lined at this low until breaking steeply lower after the Hong Kong open, then bouncing lower after the initial fall to finish the night near the day’s lows a little above 1297.

Thursday traded in bounces between 1295 and 1300 until again breaking lower after the New York open from near the day’s highs and falling to about 1288. Gold trended slowly higher to about 1295 off that low, then slowly lower after the Sydney open to finish the night just under 1291.

Friday gold trended slowly higher before flattening near 1295 about mid-session in London. This flatness continued until late morning in New York when it began to push higher in steps. It first moved to about 1298 and then flattened for a few hours before pushing to about 1303, flattening for several more hours before yet again pushing higher to about 1308 and again flattening into a New York Spot close of 1307.20, which was a little lower than the New York Spot close of 1311.00 seen last week.

Gold finished the second consecutive week with losses at the close of trading in New York.

S&P 500 Constituent Charts

Many of the constituent charts continue to hold bullish trends, although the numbers showing bearishness tendencies in their charts is increasing.

The past week saw several constituent charts establish downtrends. Several in established or nearly established downtrends broke fairly steeply lower due to poor earnings or other news events.

Several constituents saw bearish crosses of the 13 EMA below the 50 EMA. There are a quite a few nearing this bearish cross. Several that saw these crosses earlier and looked like they might rebound, have instead seen the 13 EMA fall deeper as these stocks have continued lower.

Some in bullish runs had breaks lower deeper than any seen in the past several months to a year.

Probably the greatest concern seen in this week’s charts is that several in flattish trends appeared to begin rounding lower, although few have broken below support levels in these falls that would indicate failures at these highs.

There are a fairly large number of constituent stocks showing possible topping patterns in their long term charts as they have stalled at long term resistances near previous highs. At this time there are few that appear to be seeing failures in these patterns, although several are trending lower from these highs and it seems possible more could be turning to trend lower.

Few are breaking higher through resistance near these tops and several that have moved only a short distance higher before finding new resistance or turning lower again. Many of those that reported better than expected earnings have continued to fail to move above these levels and some pulled back into or shortly after these reports. Several constituents also appear to be stalling near previous resistance below long term highs. If these resistances don’t begin to fall, it seems fairly likely stock prices could.

Some that were in runs to new all-time highs appear to be showing some signs of faltering in these runs. Several have stalled longer at current levels than at any point in their climb, while others are near the longest timeframes.

It appears upward tensions in constituents stocks could be beginning to wane. Although many still appear to have upward tension, some appear to have burnt out in these climbs and will likely need to retreat to refuel for a push higher again. The longer the index stalls at current resistance, the more likely others will reach points of exhaustion in these runs.

Although there is still reason to be bullish as earnings and economic data are mostly good, as the numbers of stocks in possible topping patterns increases, investment caution levels should also increase. Failures from long term highs are often seen during large drops on the index. At the same time a drop from these resistance levels could be just what the constituents stuck at these levels need to refuel for a rebound that carries them through these resistances. If a drop is seen, it seems likely it could be an opportunity to add. As explained in more depth below, waiting for a drop to one of three possible lower trend lines might provide the best opportunities.

Not all of the constituents are showing bearish signs and several continue to show bullishness in recent runs. It still seems possible the index could move higher, but it also is beginning to look more likely a larger retreat could be seen in the future. Chart formations appear to suggest there is reason to remain cautious. Until these formations make or break, caution could be the wisest choice.

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 +2% L, -2% L and 100 L indicators are currently active. The 90 E expired after Monday’s close. See a more detailed description of most of the indicators developed through research and featured in these articles here.

The +2% L did not provide a correct indication in the past week.

The –2% L did not provide a correct indication in the past week.

The 90 E expired after Monday’s close. None of the bearish indications often seen during the presence of this indicator were seen in this instance. As seemed possible, for the most part the index remained in a bullish stance during its tenor. This is usually a bullish indication going forward.

The S&P 500 finished Monday lower at 1973.63, but continued a trend of higher lows with a low of 1965. 77. Tuesday saw the week’s largest session gains, gapping slightly at the open to the session low of 1975.65 and after pushing to a record intraday high of 1986.24, slipped to finish short of a record close at 1883.53. Wednesday again gapped slightly higher at the open, but slipped to a low of 1982.44 during the session before it continued higher, pushing to a high of 1989.23 and further into the lower level of likely resistance of the 100 L from 1980 to 1995. It finished the session at a record close of 1987.01. Thursday again saw a small opening gap higher, but slipped to a low of 1985.79 during the session. It also pushed higher into the lower resistance of the 100 L reaching a high of 1991.39, before slipping and settling for a small session gain and a record close of 1987.98. Friday provided the week’s largest losses, as it gapped slightly lower at the open and broke the string of higher session lows in a continued fall to a low of 1974.37, but that low rebounded near the lower resistance boundary of the 100 L at 1975 and it finished the session above this resistance at 1978.34.

A third pullback in as many weeks was seen from likely resistance at 1980 to 1995 within the lower level of the 100 L with a fall from Thursday’s high of 1991.39. Even so the index appears to be pushing higher through this resistance, so it seems possible it could break above it in the next push higher.

Upward tensions in constituent stocks appear to have subsided somewhat during the stall at this level, although quite a few still appear to have upside potential. Unlike the stall at the 1883 resistance of the 100 L at 1900 that created these upward tensions, a continued stall at the 100 L at 2000 could burn the remaining tensions out. At this point it still seems possible the full exhaustion in these runs could happen at a higher level, provided the stall at this lower resistance does not drag on for too much longer.

As the index works its way into the 100 L at 2000 (from 1975 to 2025) it will begin to enter the level identified as a potential topping area during data evaluation beginning in 2008. These data evaluations make it appear resistances met between 2000 and about 2140 could have the potential to cause a large drop, possibly reaching crash proportions.

These data evaluations do not mean a crash is certain within the 2000 to 2140 range. The data evaluations only identified this level as one with high potential to cause a large drop, possible reaching the 25% to 35% range; although a fall seen low in this range might not reach these levels. This range also holds most of the specifications identified in the first crashes of a market entering into a secular bull.

At the current time there does not appear to be a catalyst for this crash, but chart formations in the index and the constituent charts are beginning to be of concern. It is beginning to seem possible the chart formations themselves could be the catalyst.

As pointed out in earlier articles as discussions over the potential resistance at 2000 to 2140 were opened, a large drop is more likely to originate near or above the upper trend line. The index has since moved above and held above the upper trend line off crash lows. It has also held above this trend for some time now.

Although this trend could continue for many months and push higher above this trend line, breaks above the upper trend line tend to eventually fall back to or below the lower trend line. This break to the lower trend line is not always seen in the first significant pullback back below the upper trend line. The index often rebounds in this first retreat to regain new highs, before a second failure drops more deeply.

Ron often uses two lower trend lines when looking for potential turning points in drops, a high line and a low line. The two trend lines that he feels could serve as the potential lower trend line were determined as follows:

The first is a parallel line to the upper trend line that was established earlier in the trend off crash lows and held up until the large drop during the summer of 2011. This trend line became resistance in the initial rebound off that drop’s lows, and was often broken in the early trend after the index began to move higher again from that drop, but the majority of the index moves are contained above this line. The second trend is also a parallel line to the upper trend line drawn from the crash low to the low seen in the summer of 2011.

The lower trend the index established after the 2011 drop could also serve as this potential turning point, but it fell between the two levels chosen.

Ron is a firm believer that trend lines should be parallel; if they are not parallel he believes they are wedge lines and not trend lines.

The first trend line is a little over 15% below the current highest close on the index, that being Thursday’s record close. The second trend line is a little over 22% below Thursday’s close. Since these trend lines are rising, a drop to either trend line would likely provide a smaller retreat from a high unless the index falls very quickly to these trends. Since these lines are parallel, the point drop potential from the upper trend line to this evaluation’s potential lower trend lines will remain consent in a continued run higher, with added point drop potential for moves above the upper trend line. However; the percentage of the drop from the upper trend line to the potential lower trend lines would reduce somewhat into the move higher, due to the increase in the divisor.

As discussed earlier, if the index were to fall to crash levels from a drop in resistances between 2000 and 2140, it seems likely it could rebound bullishly near the tops seen in 2000 and 2007. The higher trend line used in this evaluation broke above a line drawn near the 2007 top several months ago and the second lower trend line will intersect with the line off this high on or about Sept 15. The highest close on the index to this point is currently a little over 21% above the 2007 high, which was not much higher than the 2000 high.

The constituent charts are showing a large number have stalled near all-time highs or near resistances that have caused a large previous drop. The numbers that have failed to move above these resistances for long durations is a concern. The longer a stock fails to move higher, the more likely investors are to begin to move investments elsewhere looking for a better return. This tends to set downtrends in motion. Some of these stocks are already in established downtrends, others are near established downtrends and quite a few look to have turned lower in the past week, some very steeply due to earnings misses or guidance concerns.

Relatively few of these stocks have broken below support seen earlier in this flatness. If they turn higher at support levels, it seems likely the index could continue higher. Even if they move higher again, if they continue to fail at long term resistance in these rebounds, it seems fairly likely they could begin to fall through this support at some point later.

The charts also show that earlier upward tensions in stocks appear to be beginning to subside. Although a brief pullback could reignite these tensions, this recharge is likely to only remain briefly too. It seems fairly likely a larger drop could be needed to fully recharge these upward tensions. It also seems likely a long sideways move at the 100 L of 2000 is more likely to burn out the remaining upward tensions, than create new ones as the sideways move at the 1983 resistance did.

Although the 100 L resistance at 2000 has the potential to produce a large drop, these evaluations suggest it is probably the least likely level within the range that a drop reaching crash proportions would be seen at. It is still possible a crash could be seen there, it is just not as probable as at other resistances within this range.

The resistance within the 100 L at 2000 does appear to have the potential to cause a significant drop, possibly nearing the 5% level, but probably remaining within or near the 3% to 5% range if a significant drop is seen there. Since first breaks below moves above the upper trend line often rebound before reaching the lower trend line, if a significant drop is seen within this level it still seems possible it could remain within the originally projected range.

The numbers of the constituents showing possible long term topping patterns continues to grow. Although some are in downtrends off these tops, relatively few of these patterns have failed and broken lower, but few have broken higher and maintained these trends either. Many that broke higher in these patterns only went a short distance higher, then flattened again or fell off these highs.

Failures from long term topping patterns are not at levels that would be of concern at this time, but continue to pose somewhat of a threat for a possible move lower later. Current chart formations make failures in these patterns seem somewhat more likely. It also appears upward tensions in stocks are beginning to wane. It still seems possible enough of these tensions could remain intact to carry the index past the 100 L without a significant pullback, if the delay within likely resistance levels of the 100 L is not too long.

It looks likely the bulk of the resistance in the lower half of the 100 L could be seen from 1980 to 1995 with the index seeing a third retreat from within this resistance in as many weeks. A fall to and rebound from a significant drop in the lower half would probably soften resistance in the upper half of this level likely to be seen from 2010 to 2020 considerably. Although the climb would likely slow as it reaches the upper resistance in this rebound, it seems fairly likely the index could move past it without further incidence.

If the index moves into the upper resistance level without first seeing a significant pullback, the resistance in the upper half becomes somewhat more potentially dangerous due to entering into the level research has identified as a possible topping area from 2000 to 2140. Since this research suggests the resistance of the 100 L at 2000 is probably the least likely area this top would occur, it still seems fairly likely a significant drop from this level probably remains within or near the 3% to 5% range, but the move above 2000 increases the risk it could fall deeper, possibly to crash levels.

The index has been running above the upper trend line off crash lows for a duration that makes a drop to the lower trend line seem somewhat likely.

Current Cautions

For a third time the index turned lower from resistance within the lower half of the 100 L during the past week. Index and constituent chart formations appear to be giving reason for added cautions.

As the index works its way into the 100 L at 2000 (from 1975 to 2025) it will begin to enter the level identified as a potential topping area during data evaluation beginning in 2008. These data evaluations make it appear resistances met between 2000 and about 2140 could have the potential to cause a large drop, possibly reaching crash proportions.

Although the 100 L at 2000 does not appear to hold crash potential, it does appear to have the potential to provide a significant drop. It seemed possible earlier upward tensions in many of the constituent stocks could exhaust as the index moves through this level. Some of these upward tensions have begun to exhaust and if the delay within this resistance last for very long, these tensions could continue to exhaust. If in fact a drop is seen within the 100 L, it seems possible it could reach near 5% and probably remain within or near the 3% to 5% range.

The resistance within the 100 L at 2000 does appear to have the potential to cause a significant drop, possibly nearing the 5% level, but probably remaining within or near the 3% to 5% range if a significant drop is seen there. Since first breaks below moves above the upper trend line often rebound before reaching the lower trend line, if a significant drop is seen within this level it still seems possible it could remain within the originally projected range.

If the index moves into the upper resistance level of the 100 L (or past it into a higher resistance level) without first seeing a significant pullback, the resistances above 2000 becomes more potentially dangerous due to entering into the level research has identified as a possible topping area from 2000 to 2140.

The next higher resistance once the index moves past the 100 L is likely to be seen in the midrange resistance level (MRL) from 2035 to 2055. This level appears to have the potential to cause a very large drop possibly reaching crash potential. This resistance level also holds the level of concern at 2040. Recent data evaluation pointed to resistance at 2040 as the most likely area that a crash would be seen between 2000 and 2140. The research also suggested if this crash were to occur, it probably finds bullish support somewhere near the two previous tops in 2000 and 2007. Although the crash potential is within the 25 to 35% range, this evaluation makes a fall from near 2040 seem more likely to produce a drop of less than 30%.

Current chart formations tend to make a fall in excess of 10% seem possible within the 2035 to 2055 MRL, depending partly on the outcome within the 100 L resistance level. Although chart formations are beginning to make it seem somewhat more possible a drop that reaches crash proportions could be seen, it still seems somewhat remote at this time.

A possible signal that an area of resistance could hold potentially larger drop potentials would be the presence of several volatile daily moves (those of 2% or greater) within a relatively short time period, for instance three or four within a few weeks or less. The larger the number of volatile moves, the more potentially dangerous a resistance becomes.

Some concerns as the index moves above the 2000 level include:

The index appears to be running high in the trend off crash lows. Although runs above the upper trend line have extended for several months in the past, when a pullback is seen from above the upper trend line it tends to be deeper than those normally seen during the run. These pullbacks often fall to or below the lower trend line, as do many other pullbacks, but they start at a higher level providing for a larger retreat.

The numbers of the constituents showing possible long term topping patterns continues to grow. Although some are in downtrends off these tops, relatively few of these patterns have failed and broken lower, but few have broken higher and maintained these trends either. Some that broke higher in these patterns only went a short distance higher, then flattened again or fell off these highs. Failures from long term topping patterns are not at levels that would be of concern at this time, but continue to pose somewhat of a threat for a possible move lower later. Current chart formations make failures in these patterns seem somewhat more likely.

Although the numbers of constituents in this category is not large, chances seem remote that some of the constituents that have continued in runs or held high prices could produce earnings to justify their current stock prices in timeframes investors are normally willing to wait. These runs higher could continue, but any sign that longer term earnings projections are too high, failures or continued failures to meet expectations, or an overall change in market direction could cause stocks trading well forward of current earnings to see large fold backs. Some of these stocks have broken lower after recent earnings reports.

Some constituents appear to be over extending moves higher caused by earlier upward tensions. This could increase downward pressure on these stocks when they finally turn lower. These numbers are also small at this time.

It also appears upward tensions in stocks are beginning to wane. It still seems possible enough of these tensions could remain intact to carry the index past the 100 L without a significant pullback, if the delay within likely resistance levels is not too long.

At the current time there does not appear to be an outside catalyst for a crash. Many crashes occur due to stocks becoming overpriced to earnings. Without a substantial reduction in earnings, it would be difficult to consider stocks overpriced based on the actual unadjusted average P/E’s during the time the S&P 500 was an index. Although some are overpriced, most are not and the average P/E is still fairly historically low.

Chart analysis makes it seem possible this catalyst might not be from an outside influence as earlier thought, but instead from a pullback caused by a large number of failures in current topping patterns. Chances still seem somewhat remote that a fall would reach crash proportions in this drawback, although several have dropped in excess of 20% in earlier pullbacks from highs.

Earnings reports for the second quarter have been mostly better than expected; although not all beating projections are seeing their stock prices increase. A large number of reports were made during the past week and overall earnings appear to be very good. It seems possible that overall earnings could come in 2% to 4% above the early projections.

The absence of an apparent outside catalyst for this crash does not mean one would not materialize as the index reaches this level. There is also the possibility investors could overreact to news events that probably should not take the market to these depths. Pullbacks seen during the summer of 2010 and 2011 were much deeper than rational evaluation of the data indicated they probably should have been. These falls also came during a time when huge increases in earnings were being seen, with near or over 70% of the constituents beating their earnings projections. This makes it seem somewhat possible this fall could come even if earnings are reported higher than expected.

The overall number of active indicators is decreasing, another expired on Monday and two others could become dormant once the index moves out of potentially volatile levels. Decreasing numbers of active indicators generally indicates a decreasing chance of volatility. Periods of low volatility are generally bullish. This decrease has occasionally acted contrarian to the norm in the past.

The long sideways move at the 1883 resistance appeared to increase upward tensions in many of the constituent stocks. Some of these upward tensions appear to have exhausted, but several remain intact. It still seems possible enough could remain intact to push the index past the 100 L at 2000, if delays at resistance within this level do not drag on for too long. These tensions could work to reduce bearish volatility at the potential resistances within the 100 L at 2000.

Ultimately the direction that the stock market takes from here could be influenced by news events.

Average daily volume levels decreased 10.90% week over week and the five day volume variance decreased 0.85% to 22.69%. Volume levels were lowest into the two pullbacks in the previous week. Overall volume and variance levels appear to be maintaining near bullish levels.

There continues to be many reasons to be bullish at the current time; however the index is nearing an area of potential concern and some caution should be exercised. Any pullbacks in stock prices seen along the way are probably a good opportunity to add although some flexibility in these investments could become necessary later. If a large pullback is seen on the index, it could be prudent to increase equities holdings into this drop. It could also provide the best remaining opportunity to take profits in gold holdings.

If the index continues within the trend established off the crash lows, it seems possible it could reach the 2000 to 2100 level in five to 14 months if it reaches this level near the upper trend line and within 32 to 38 months if it reaches this level near the lower trend line. The data suggests the Midrange Resistance Level (MRL) at 2035 to 2055 could hold the resistance level of concern within this range at 2040. More details of this potential resistance can be seen in past articles.

It appears the index is running somewhat ahead of the projection to reach 2000, indicating it is running above the upper trend line.

These data evaluations do not mean a crash is certain within the 2000 to 2140 range. The data evaluations only identified this level as one with a high potential to cause a large drop, possible reaching the 25% to 35% range; although a fall seen low in this range might not reach these levels. This range also holds most of the specifications identified in the first crashes of a market entering into a secular bull.

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 always exact, and these resistances could react sooner or later than expected, it is also possible the resistance will not be seen at all.

If the market should fall to crash levels, the blue chips, stocks with very low or no debt, and stocks with histories of stable dividends tend to fair best in pullbacks on a percentage basis. Caution should be used in stocks that have seen dividend increases well beyond those normal seen. Moderately priced stocks tend to lose less on a dollar per share basis. From a psychological standpoint this could be an important consideration, it is easier for an investor to hold a stock that falls from $50 to $25 without selling than it is to hold a stock that falls from $100 to $50. Even though the percentage lost was the same, the larger dollar value erosion of share price gives many the perception of a greater loss and a much larger distance for the stock to rebound to regain these losses, and this perception could lead to further sales of higher priced stocks in a downturn.

A crash in stock prices could be the last hurray for gold investors for many years to come.

Comments:

It seems many writers believe the Dow Jones weighting system is flawed, especially when one component that is highly priced drops and drags the index down or one with a lower price runs but has a small effect on the index’s overall value.

Changing the Dow’s weighting system won’t fix it; it will only ruin it for those that study the data it provides. Due to its small component base changes to the components like those recently made could skew data for years, but a weighting or methodology change (for instance adding components) could make the data it provides virtually worthless for at least 25 years, and possibly much longer.

Complaints like these caused the index to wrongly include Visa to begin with. If you don’t like the way the Dow is weighted, please pick another index that is weighted the way you like it. Better yet, make your own; others have become rich and famous doing so.

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

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Have a great day trading,
ronz

Access link to all of Ron’s past articles.

Disclosure: Ron has no investments in V. Ron is currently about 76% invested long in stocks in his trading accounts, reflecting a virtually unchanged investment level from the past week. Although this level remained unchanged, Ron sold one issue and had dividend payments. Ron feels comfortable with his investment level 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 12 issues in the coming week and two in the following week. If no further investment changes are made during this timeframe, his investment level would not change due to these dividend payments.

Some of the trades made during the past week may have been due to repositioning investments as discussed in previous articles.

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.