Monday finished less than a dollar lower while the next three sessions finished at new record highs and as a result the S&P 500 finished the week 1.44% higher. The index has increased in 39 of the past 57 sessions.
Average daily volume levels for the four days of the holiday shortened trading week decreased 13.39% compared to the average daily volumes of the previous week’s five days. The decrease in volume levels was mainly the result of the shortened trading session on Thursday that produced the week’s lowest volume, although volume was somewhat lower during the other sessions. The week’s highest volume was seen during the week’s largest gain on Tuesday. The five day volume variance increased 56.85% above that of the previous week to 114.73%. The five day variance increase was due to the combination of the large increase in volume seen last Friday and the extremely low volume seen on Thursday due to a shortened session.
The S&P 500 traded flatly Monday with the high and low only 6.02 apart as the index finished 0.73 lower. Tuesday gapped slightly higher at the open and continued higher to finish with the week’s largest gains and at a record high. The index again traded flatly on Wednesday with the high and low only 4.09 apart, but finished the session higher. Thursday’s holiday shortened session finished near session highs with the third consecutive record high close of 1985.44.
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 pushed higher during the week, reaching highs higher than the previous cycle and began from higher lows in the previous week.
All five indexes continued in rebounds from support levels found during the previous week’s pullback and all five widened gaps they are riding above their 13 EMA during the week.
The NASDAQ continued to narrow the gap left to a new all-time high. It finished Thursday with the highest close since March 31, 2000 and has seen only 28 closes higher. The NASDAQ pushed higher in three sessions during the week, with the 0.92 drop Wednesday providing the only loss.
The Russell 2000 pushed higher in three sessions during the week and finished Thursday just 0.50 short of the March 4 record high close.
The Dow Jones, S&P 500 and New York Stock Exchange finished at new record highs on Tuesday, increasing these records in each of the following two sessions.
The Dow Jones slipped below and finished below the 13 EMA in Monday’s pullback, but rebounded strongly above it Tuesday to finish the session well above it. It has increased on this gap in each session since. The Dow broke above and finished above the 17000 level in Thursday’s session.
The S&P 500 slipped just 0.73 in the week’s only loss on Monday, but followed this small loss with the week’s largest gain on Tuesday to close at a record high.
The New York Stock Exchange was the only index to push higher in all four sessions during the past week and has now finished higher in five straight.
The Dow Jones break above 17000 could help to drag the S&P 500 above 2000 and if so, the other indexes will likely continue in bullish moves during the next week also.
US Treasury Charts
The 20 year US Treasury Bond opened with a small gap higher on Monday and finished with a gain, but slightly below this open. Tuesday opened with a fairly large gap lower and continued lower breaking below the 13 EMA in the drop and finishing below it near session lows. Wednesday also gapped considerably lower at the open, starting the session below the 50 EMA and continuing lower to finish near session lows. Thursday again opened with a fairly large gap lower, but this time it was near session lows and it finished higher than the open, but at a low lower than the June 19 close giving it three consecutive lower cycle lows. It has pushed higher in two straight cycles though, so it has not established a trend. Although this chart lacks a trend, the 13 EMA appears to have turned lower off its highs and the 50 EMA has flattened. It seems possible this chart could be signaling a move lower.
The fall to a lower low in long term treasury prices is somewhat bullish for stocks.
The interest rate on the 10 year US Treasury Note started out with a gap lower on Monday, but rebounded back to a gain before slipping lower to finish slightly lower than it began. Tuesday opened with a gap higher, but slipped lower before rebounding to finish slightly higher than it began. Wednesday also opened with a gap higher starting the session above the 13 EMA and near session lows. It pushed higher from that start through the 50 EMA finishing the session above it and near session highs. Thursday started slightly higher and pushed considerably higher breaking above the 2.65% resistance, before settling lower to finish just under this resistance. The 10 year rebounded from a higher low in the previous cycle and Thursday’s high reached a higher high in this rebound. This chart is not yet in an uptrend, but it looks possible it could be developing into one.
The following clarification is offered due to possible confusion over the content presented in last week’s “Something to think about when buying Treasury Bonds”
This comparison was intended to be of Funds that invest in Treasuries, not the actual investment in Treasury bonds, notes or bills. Any marketable Treasury bond, note or bill could rise or fall in price due to changes in the prevailing interest rate if it is redeemed prior to maturity or sold in the open market. At the same time, holding any bond, note or bill to maturity will result in the redemption at the face value, regardless of the prevailing interest rate.
The interest rate is set at the purchase of Treasury bonds, notes or bills, purchases of Short Term Treasuries will not see rising rates into rate increases, but Stable Value Funds that invest in Short Term Treasuries will likely redeem maturing purchases at lower rates and purchase those at higher rates into a rate increase, increasing the interest paid by these funds.
Gold traded very flatly within about a point of 1315 Sunday night, finishing slightly above 1315.
Monday saw gold continue to trade tightly to 1315 until it began to trend lower about midway through the Hong Kong morning session from about 1316. The trend continued lower until reaching about 1310 at the New York open where it reversed trend and moved strongly higher until reaching 1329 just before the close. It slipped slowly off that high to about 1325 just after the Hong Kong open, where it spiked to about 1333 and fell nearly as fast off that high back to about 1326. Gold then traded within a couple points of that to finish just below 1327.
Tuesday traded mostly flat, falling to about 1324 in Hong Kong’s morning session and almost reaching 1331 in a New York rebound before slipping back to about 1324 early in the session in Hong Kong. It slowly rebounded from that low to finish a bit lower than it started the day near 1327.
Wednesday’s chart looked much like Tuesday’s for much of the session. After starting out with a dip in Hong Kong it trended slowly higher to about 1329 just after the New York open, where it slipped quickly to about 1322 and rebounded back to about 1331. It slipped off that high to about 1328 and trended slowly back to 1330 by the NYMEX close. It trended lower nearly in step with Tuesday’s drop in Sydney and Hong Kong until it reached Tuesday’s rebound point, but this time it continued lower to finish the night a bit below 1323.
Thursday gold pushed to about 1324 in Hong Kong before beginning to trend slowly lower. The trend broke steeply lower just after the New York open to fall to about 1311, before rebounding back into the original trend lower at about 1322. After falling to the lower trend line at about 1317, it rebounded back to about 1322 and the trend turned flattish lower to finish the night a little below 1319.
Friday gold kept very close to 1319 in Hong Kong until it began to move higher just before the London open, reaching the day’s high of about 1323 just after the open. It trended lower from there into the holiday shortened session’s New York Spot close of 1320.50, finishing with a fourth straight week of gains as it topped the previous week’s New York Spot close of 1315.10.
Another of the Gold bug’s doomsday deadlines passed without incidence on July 1, as the financial markets did not collapse overnight as predicted due to the US requiring foreign banks to report US citizen holdings in these banks. Most had complied well before this deadline, or required US residents to close these accounts prior to this deadline making it seem unlikely it would cause much of a glitch.
The law change follows many years of the US trying to close loopholes used by those depositing funds in foreign bank accounts to evade taxes, so it seemed reasonable the change was made to do just that. It seems likely many of the scare tactics used leading into the law change including currency control, a planned devaluation of the dollar and financial market turmoil were put out in hopes of drumming up support to pressure a law change prior to the deadline.
S&P 500 Constituent Charts
Overall the constituent charts continued to show bullishness and most of the bullish tendencies noted in recent articles continued to strengthen.
This week we will look at a smaller portion of the constituents in more depth. Analysis of the constituents trading over $100 was included weekly for a short duration earlier and will be revisited.
In total 111 of the current constituents have 52 week highs of $100 or greater, although six of them finished Thursday lower than $100.
Evaluations of stocks that have reached prices of over $100 shows that, with the exception of those relatively recently reaching these levels, these stocks have for the most part become very flat to down during the past six months to a year. The charts show most of the stocks left moving higher in this range are those still in their initial moves above the $100 level, but even some of those in their initial runs above $100 have begun to slip from these highs or trade very flatly.
Only four of the 24 constituents with 52 week highs over $200 reached a new 52 week high in the past month. Of the remaining 20, the last to reach a 52 week high was on April 3 with the next most recent on March 21. Two have not increased on earlier highs in over a year. These 24 stocks average 7.46% below 52 week highs, while the average of the entire S&P 500 is 5.60%. In comparison nine of the 24 lowest priced stocks in the index reached 52 week highs in the past month.
Further, only 11 of the 40 constituents stocks that finished Thursday at prices over $150 have reached new 52 week highs in the past month. Thursday saw 11 of the 65 that finished with a stock price over $100 but less than $150 reach new 52 week highs during that session, with an additional constituent stock reaching a 52 week high above $100 on Thursday but finishing the session below $100.
Earlier emphasis on these stocks was directed towards stocks that lack splits once moving above the $100 level. The flatness seen in these high priced stocks is not that unusual when looking at it only from that standpoint. The data also shows that many of those that have been above the $100 level for a long duration have failed to retest previous highs and move higher during a time span that the S&P 500 was pushing to new record highs. This is somewhat of a concern. Although some of these stocks are currently in moves that could reach new 52 week highs, this flatness has created patterns in the long term charts of many of the stocks that moved above $100 that are not uncommon to those seen in the high flyers prior to a large downturn in stocks.
These patterns do not always lead to such a downturn. The economic news continues to be mostly very good and it continues to look like upcoming earnings reports could come in higher than expected. Several of these stocks are in moves that could bring them back to new highs. The lower priced stocks are pushing the index higher into the softness of these high flyers much like the analysis of stock splits would tend to support. It doesn’t look like it is time to jump ship, but these chart formations could be reason to show a little added caution as the index moves above 2000.
A relatively small number of the constituents may have exhausted recent upward tensions during the week, but it is early to say if these moves have actually expired. Most of these moves appear intact, and look likely to continue higher at this point. Some also appear to extend moves past levels it seemed likely they would exhaust at. This makes a significant drop at current resistance seem somewhat less likely at this time.
Although the index has reached an area of possible resistance within the 100 L and a drop could be seen at this resistance, overall the constituents appear to have upside potential left. Although a pullback would not be a surprise, it seems possible the index could continue higher in the week ahead.
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, 90 E and 100 L indicators are currently active. The +/(-) 90 D indicator expired with Tuesday’s close. The 1970 MRL indicator also deactivated Tuesday with the index’s move into the higher resistance of the 100 L at 2000, activating the 100 L indicator. See a more detailed description of most of the indicators developed through research and featured in these articles here.
The +/(-) 90 D that became active on Feb 21, 2014 expired after Tuesday’s close. The +/(-) 90 D finished as follows in the format: highest close / lowest close / last close.
+7.46% / -1.12% / +7.46%
The summary of the evaluation of this indicator as it appeared in the first publication after it had activated was as follows:
“Most indicators appear to be bullish or are turning bullish. An upcoming potentially bearish indicator is sometimes bullish and it appears possible it could be so in this occurrence. There appears to be a lot of good reasons to believe stocks could run higher in the months ahead. It also appears a run is beginning as the index breaks free of the MRL at 1850 to 1865. There are some resistances in the path and some timing issues that might provide a significant pullback if the potentially bearish indicator is actually bearish and hits resistance during its active period. One of the resistances at the 100L at 1900 or MRL at 1940 to 1955 might provide a significant pullback, but probably not both. If a significant pullback is seen, it probably does not exceed 3% by much. If the index reacts as it seems possible to that point, it could leave time for it to reach the upper resistance levels. The resistance at the 100L at 2000 could provide a potentially large pullback, but a pullback here probably does not exceed 5%. If it slips past this resistance without a significant pullback or one that is shallow it could reach levels necessary for a plus (+) rating. It does not seem likely that it will remain active long enough to pass the MRL at 2035 to 2055, whether a large drop is seen there or not. It seems possible this indicator could start out bullishly, and could possibly see this run reach levels needed for a plus (+) rating. It also seems possible it could expire during a significant drop at one of the two upper resistance levels, but probably finishes higher than it began. Therefore it is rated as a +/(-) 90 D.“
The full evaluation of the +/(-) 90 D indicator was quite lengthy due to a larger than normal number of factors to be explored. The full evaluation can be seen in the Indicators section of the Stock market preview for the week of March 3, 2014. Other points of possible interest are also contained in that article.
The index did begin to rebound from the 1850 to 1865 MRL with this rebound lasting until the index reached the 1900 L resistance, where it saw a significant pullback that provided the lowest close in the +/(-) 90 D indicator’s active period of -1.12%. The retreat was somewhat deeper than the near 3% expected as the drop to the lowest close April 11 was 3.98% lower than the April 2 highest close. The delay at this level was also longer than expected, reducing the time available for the index to reach the upper resistances.
Although it finished bullishly, the 90 E indicator that was thought to be potentially bullish in this evaluation started out bearishly.
The index moved past the 1940 to 1955 MRL without a significant pullback and without much of a delay and only one of the two resistances to that point provided a significant pullback.
Overlooking the potential resistance in the 1970 MRL also meant missing the slowdown caused at this level. Although the index reached into the influence of the 2000 L before the +/(-) 90 D indicator expired on Tuesday, the slowdowns prevented the index from reaching a level that would cause a pullback prior to the expiration. As a result it finished at the highest levels during its active period, making the minus rating in parentheses (-) incorrect. The slowdowns also prevented the index from reaching the 10% gains needed for a plus rating for this indicator.
Several points in this evaluation appear to be mostly correct while others appear incorrect. The potential resistance at the 1970 MRL was also overlooked in this evaluation as it seemed the chances this resistance would be seen were slim. Although the index failed to reach levels thought it might, overall the projections made in this evaluation seem fairly close.
On Monday the S&P 500 traded flatly and finished slightly lower at 1960.23. Tuesday opened with a small gap higher at the session low and continued higher above the lower resistance of the 100 L at 2000 with a high of 1978.58, before retreating to finish a little below the 1975 lower resistance boundary but at a record high of 1973.32. Wednesday traded very flatly yet pushed back above the 100 L lower resistance boundary to 1976.67 before slipping and finishing slightly higher at a record high of 1974.62. Thursday gapped slightly higher to open at the session low and above the 1975 lower resistance at 1975.88, pushing steadily higher to finish just a bit lower than the session high at 1985.44.
The S&P 500 entered the resistance range of the 100 L during the push higher Tuesday activating that indicator. That push into a higher potential resistance level also deactivated the 1970 MRL.
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.
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. Upward tensions in constituent stocks appear to remain mostly intact as the index pushed into this resistance, making a significant drop at this level seem somewhat less likely.
It looks likely the bulk of the resistance in the lower half of the 100 L could be seen from 1980 to 1995. 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. Thursday the index moved into and finished within the area of likely resistance in the lower level.
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 would remain 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 +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.
Although the 90 E is a potentially bearish indicator, it is also occasionally bullish. Most of the other indicators continue to hold bullish postures. The 90 E will expire in 11 trading days. If no volatile moves are seen during this time period, the +2% L and -2% L indicators would also normally fall dormant, although they may be held open if the index remains within a potentially volatile resistance area.
The index moved into the resistance of the 100 L at 2000 during the past week and this move deactivated the 1970 MRL. The index slowed slightly near the 1975 lower resistance of the 100 L before pushing higher into this resistance. Thursday finished within the area most likely to give resistance in the lower half of this resistance level.
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 have the potential to provide a significant drop. It seemed possible recent upward tensions in many of the constituent stocks could exhaust as the index moves through this level. Some of these tensions appear to have been relieved recently while others appear to have renewed upward tensions. Some others have continued past levels it seem likely they would exhaust at. It currently looks like these upwards tensions could continue past the 100 L, making it seem somewhat less likely a significant drop could be seen at this level. 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 bulk of the resistance in the lower half of the 100 L could be seen from 1980 to 1995. 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. The index finished the past week within the likely resistance area of the lower level.
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. 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 above 2000 within the 100 L would probably still remain 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 next higher resistance once the index moves past the 100 L is likely to be seen in the midrange resistance 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%.
A large drop seems possible within the 2035 to 2055 MRL, depending partly on the outcome within the lower resistance level, but a drop that reaches crash levels 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 within a relatively short time period, for instance three or four within a few weeks to a month.
Some concerns as we move above the 2000 level include:
The index does appear to be running high in the trend off crash lows.
Several high flying stocks appear to be showing possible topping patterns common prior to large drops, although these patterns could be partly explained by the lack of splits in these stocks. These patterns do not always lead to large drops and several of these stocks appear to be in moves higher that could reach new highs.
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 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.
At the current time there does not appear to be a 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 low.
Early earnings reports for the second quarter have been somewhat mixed with some doing much better than expected and others not as well as expected. Early reports are sparse and a real feel for the quarter’s earnings won’t come until later in the month. It seems fairly likely that overall earnings could be very good for the quarter, possibly reaching 2% to 6% above the current projections.
The absence of an apparent 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.
There are reasons to remain cautious as the index enters potentially bearish resistance levels, but there is also reason to remain bullish.
The index is within a timeframe that is sometimes somewhat bearish, but this timeframe has also been bullish in the past.
The 90 E indicator is active and a potentially bearish indicator. The S&P 500 has often exhibited bearish traits during the active periods of the 90 E in the past, but most other indicators continue to exhibit bullish tendencies. The presence of this indicator does not necessarily mean that the market will turn bearish. Although not as frequently seen, the 90 E has also been seen during very bullish times.
The +2 L and –2 L indicators are also active. The presence of these indicators is generally a somewhat bearish indication as these indicators show an increased chance of volatility. However, this volatility is not always bearish and their presence also increases the chances that an offsetting move higher could be seen on the index.
The overall number of active indicators decreased in the past week, another will expire in the not so distant future and two others could become dormant with this expiration. Decreasing numbers of active indicators generally indicates a decreasing chance of volatility. Periods of low volatility are generally bullish.
The long sideways move at the 1883 resistance appears to have increased upward tensions in many of the constituent stocks. Many of these upward tensions appeared to remain intact. It now seems possible many could remain intact past the 100 L at 2000. These tensions could work to reduce bearish volatility at the potential resistances within the 100 L at 2000.
Recent chart action in Treasuries and Gold make it seem possible they could add to pushes higher in equities.
Long term Treasury bond price charts fell to a fresh low in the drop from the May 29 high on Thursday. The May 29 turn lower was also near the upper trend line of the downtrend established in the drop off of July 2012 highs. Selloffs in Treasuries often make their way into equities.
Gold finished with a fourth straight week of gains, but continues to find little support for these higher prices outside New York and London trading hours. Gold continues to maintain within the long term trend lower beginning in 2012.
Recent bullish moves on indexes like those seen on the NASDAQ and Russell 2000 most often continue to recover from the significant drops they had seen earlier and most often continue higher in this rebound before seeing another significant pullback. The NASDAQ has recovered and moved higher and the Russell finished the week just short of these previous highs.
Ultimately the direction that the stock market takes from here could be influenced by news events.
Average daily volume levels decreased 13.39% week over week and the five day volume variance increased 56.85% to 114.73%. Volume and variance levels were greatly affected by the low volume seen in Thursday’s holiday shortened session and the holiday shortened trading week that compared this extremely low volume to the higher than normal volume seen the previous Friday. These levels are likely to return to more normal levels in the week ahead.
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.
If the index continues within the trend established off the crash lows, it seems possible it could reach the 2000 to 2100 level in six to 15 months if it reaches this level near the upper trend line and within 33 to 39 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.
Many of these sources of information were used in this article.
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Disclosure: Ron is currently about 79% invested long in stocks in his trading accounts and this investment level decreased over the past week. This reduction was the result of dividend reinvestments in two issues with this cost more than fully offset by the sale of two issues and 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 eight issues in the coming week and 11 in the following week. If no further investment changes are made during this timeframe his investment level would not change.
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.