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Stock market preview for the week of June 16, 2014

After finishing Monday at another record high, the S&P 500 slipped in the next three sessions before beginning to rebound on Friday. For the week the index slipped 0.68% lower breaking a three week string of gains. The three consecutive midweek losses was the longest string of losses since a three day string broke after the April 7 lower close. The index has increased in 29 of the past 43 sessions.

Average daily volume levels decreased 2.01% compared to the average daily volumes of the previous week. The week’s largest volume was seen in the drop on Thursday and the week’s lowest volume was seen in Friday’s rebound. The five day volume variance decreased 7.06% under that of the previous week to 17.02%.

After Monday began to pullback from just above the upper boundary of the Midrange Resistance Level (MRL) the S&P 500 found support at two prior resistances during the midweek slip lower. First Wednesday rebounded near the 1940 lower boundary of the MRL, but the S&P 500 slipped lower still on Thursday before finding support near the upper boundary of the 100 L. The S&P 500 slipped below the 13 EMA in its fall Thursday and again early Friday, but rebounded to finish each session at or above it. The pullback looked much like a bullish round of profit taking resulting after a spike above trend and it seems possible the index could continue higher in the week ahead.

Major Stock Market Indexes

The index charts of the Dow Jones Industrial Average, S&P 500, NASDAQ, New York Stock Exchange and Russell 2000 continued to show bullishness even though all five finished the week lower.

After finishing Monday higher, the Russell 2000, New York Stock Exchange and S&P 500 all slipped lower in the next three sessions before closing higher on Friday.

The midweek drop on the Russell nearly covered the previous Friday’s gap higher in the fall before beginning a rebound just above the 13 EMA on Friday. If this rebound continues, it would be from a higher low than the previous cycle and the low would also be higher than the previous cycle’s high and establish an uptrend on the index. The current push higher on the Russell is quite steep and appears to be a catch up rally. Catch up rallies are common in lagging indexes, as the Russell was the last index to turn bullish after the rebound from lows began.

The NYSE closed Monday at a record high before turning lower, with the drop rebounding just below the 13 EMA on Thursday and finishing the session above this indicator. Friday also fell to and rebounded higher off the 13 EMA before continuing to close higher.

The S&P 500 also closed Monday at a record high before turning lower midweek. That drop rebounded near the upper resistance of the 100 L Thursday, after also slipping slightly below its 13 EMA but finishing the session at the 13 EMA. Friday again slipped slightly below the 13 EMA before rebounding higher above the upper resistance of the 100 L and continuing higher to finish with a gain.

The Dow Jones and NASDAQ both pushed higher in three sessions during the week.

The Dow Jones finished Monday at a record high and increased the record with a slightly higher close on Tuesday being the fourth consecutive record close. The Dow slipped fairly steeply in the next two sessions, with Thursday’s drop taking it well below the 13 EMA, being the deepest drop below the 13 EMA seen on the indexes. The Dow began to rebound near previous resistance found near 16700 and although the Dow finished well off lows, it failed to recapture the 13 EMA in this rebound. The rebound off Thursday’s low continued into Friday and the Dow pushed back above the 13 EMA in the rebound, but slipped to finish just slightly below it. The Dow’s two finishes below the 13 EMA were the only seen on the indexes during the week.

The NASDAQ also pushed higher on Monday and Tuesday, but the pullback during the next two days appeared to be the shallowest seen on the indexes, with Thursday’s low maintaining the widest gap above the 13 EMA before turning higher. Although Friday slipped slightly lower during the session, it rebounded higher than Thursday’s low to finish with a gain.

The earlier spike above trend seen in many of the index charts appears to have settled back within trend. Although some slipped below it, the indexes appear to have rebounded near their 13 EMA and or other potentially bullish support levels. All the indexes maintained within developing or established uptrends during the pullback. All began higher Friday at lows higher than the previous cycle. All have fallen back from fully overbought conditions and although still near overbought, it seems possible they could continue to maintain in or near these conditions. The charts make the pullback appear to be a bullish round of profit taking and it seems possible it could continue higher from the late week rebound.

US Treasury Charts

The 20 year US Treasury Bond slipped in the first two sessions this past week. Monday broke below the 50 EMA but rebounded to finish above it. Tuesday opened with a gap lower and spent the entire session below the 50 EMA. Wednesday nosed back above the 50 EMA, but slipped to finish below it with a small gain. Thursday retreated, but rebounded to break above and finish above both the 50 EMA and 13 EMA. Friday opened with a gap below the 13 EMA, and although it finished the session back above the 13 EMA, it finished with a loss. The 20 year US Treasury Bond has closed higher only three times in the past 12 sessions. Although not yet in an established downtrend, it has fully broken from its uptrend and the chart continues to show bearish signs. This chart looks bearish.

Long term Treasuries price charts have broken from uptrends and continue to show bearish tendencies. The Treasury charts appear to be somewhat bullish for US stock prices.

The interest rate on the 10 year US Treasury Note pushed higher in four of five sessions during the past week. Monday pushed and closed above the 13 EMA and the higher closes on Tuesday and Wednesday maintained above the 13 EMA. Thursday saw the only loss for the week as it slipped back below the 13 EMA and slightly below the 50 EMA before rebounding to finish back above the 50 EMA. Friday opened with a gap above the 13 EMA, and although it continued higher and finished with a gain, it slipped off the highs and finished slightly below the 13 EMA. The 10 year interest rate has finished higher in 10 of the past 12 sessions and fully broken from its earlier downtrend. Although not yet in an established uptrend; the chart continues to show bullish tendencies. This chart is looking bullish.

Gold

Gold traded within less than two points of 1252 Sunday night and finished a bit above 1252.

After starting the day out with a slight dip in Hong Kong Monday, gold trended higher to about 1257 just after the New York open. It trended mostly lower off that high to reach a low of about 1250 in Sydney, rebounding off that low in Hong Kong to finish the night a little under 1254.

Tuesday began the day trading within two points of 1254, until rebounding sharply to 1263 shortly after the New York open. It trended mostly lower to a low of about 1259 in Sydney, but rebounded in Hong Kong to finish the night above 1261.

Wednesday spent most of the day within a couple points higher of 1260, but reached 1265 in New York and fell to 1259 in Hong Kong before finishing the night a little above 1260.

Thursday began the day trading within a point higher of 1260 until a rebound began to develop midway through the London session that reached 1266 in the late morning session of New York and then spiked quickly to 1274. It stayed within a couple points of that high in a long slow trend lower that spiked briefly to about 1275 at the Hong Kong open. It settled lower to finish the night a touch over 1273.

Friday held between 1271 and 1275 until it pushed higher late in the New York session, carrying up to 1278 before slipping to finish with a New York Spot close of 1275.90 and a fair amount higher than the New York Spot close of 1252.30 of the previous week.

Gold rebounded mostly on short bursts higher in New York during the week, but it continues to appear to have trouble increasing value outside London and New York. Instead gold trends mostly lower outside the London and New York opens and has all year. Although the news in Iraq might continue to bring some buyers in, upside seems limited.

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.

Many of the constituents that reached overbought conditions in the previous run higher have retreated from these levels. The fall from these levels is already showing the constituents moving back towards a more varied staging between oversold and overbought, showing the staggering pattern is beginning to strengthen again.

Several stocks that had been maintaining overbought conditions did begin to slip from levels they had previously maintained, however several appear to be beginning to maintain overbought levels. Stocks that maintain near overbought for extended periods do occasionally pullback more deeply than previously held levels but often return to maintaining overbought levels later. There also appears to be near to an even match of those beginning to hold in or near overbought and those retreating from extended periods of overbought. These drops do not raise a concern at this time.

There were several constituents that pushed considerably higher due to better than expected earnings. Many have maintained higher moves after these initial bursts higher.

Several of the constituents that have begun rebounds saw bullish crosses of the 13 EMA over the 50 EMA.

Many of the constituents that have maintained bullish pushes higher riding above the 13 EMA, have rebounded off drops to their 13 EMA or have seen falls reach this rebound point. Some stocks fell somewhat deeper in the recent pullback, but have reached alternate rebound points like the 50 EMA, lower trend lines or previous support levels.

Several constituents broke above resistances in the past week.

Many of the constituents that moved lower during the past week have reached or are near likely rebound points, such as the lower trend line in uptrends or downtrends, the 13 or 50 EMA, or levels that offered previous support. Many of these constituents have also reached fully oversold conditions.

A fairly large number of constituents have reached fully oversold. Many of the constituent’s charts appear to be at or near bullish rebound points. Several are in runs that look like they could continue higher. Several constituents broke above resistance even into an overall index retreat. Overall the recent pullback looks like a healthy round of bullish profit taking, and it seems fairly likely many of the constituent stocks could move higher from this retreat in the week ahead.

Indicators

Although the indicators featured in these articles are not always correct, they have been many times and being so they are worth reading about and taking note of.

The +/(-) 90 D, MRL, +2% L, -2% L 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 that became active on Feb 21, 2014 has performed as follows to this point in the format: highest close / lowest close / last close.

+6.26% / -1.12% / +5.44%

The +/(-) 90 D will expire in 12 trading days.

The S&P 500 pushed to an intraday high of 1955.55 on Monday, just slightly above the upper boundary of the MRL from 1940 to 1955, before settling back to close at a record high of 1951.27. Tuesday slipped slightly lower to finish at 1950.79. Wednesday continued lower to near the lower boundary of the MRL with an intraday low of 1940.08 and then rebounded to finish at 1943.89. Thursday started the session at its high with a gap slightly lower than Wednesday’s close and continued lower until rebounding near the 1925 upper boundary of the 100 L at the intraday low of 1925.78. It broke below the 13 EMA in the fall before rebounding to finish the day at about the 13 EMA with a close of 1930.11. Friday slipped briefly back below the 13 EMA but again found support above the upper boundary of the 100 L, this time higher at 1927.69 and rebounded to finish the session with a gain and closed at 1936.16.

Rebounds off or near previous resistance are often bullish indications.

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.

Current Cautions

The index pulled back from slightly above the upper resistance of the MRL; however it appears to have rebounded bullishly off a previous resistance in the ensuing drop.

The Midrange Resistance Level (MRL) between 1940 and 1955 appears to have the potential to cause a significant pullback (that of 3% or greater), but probably not a large pullback if one were to be seen there. It also seems possible the index could move past this level without incidence.

There are reasons to remain cautious as the index enters this potentially bearish resistance level, but there is also reason to remain bullish.

The spike above trend seen in several of the index charts earlier appears to have settled back into trend. Many of the components or constituents that had pushed to fully oversold conditions have fallen from these extremes. Most of the indexes rebounded higher close to the 13 EMA and several at or near other bullish support levels. The charts leave the impression of a bullish round of profit taking that renewed upward thrust potential in the indexes and stock prices.

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.

There have been three 2% moves lower without an offsetting 2% move higher. Offsetting moves are most often seen within 30 trading days of the opposing move, however when these moves are not seen during this time period, they are most often seen during the presence of a 90 E indicator.

Most 2% moves are offset after one or two occurrences of moves in the same direction. The chance that an offset will occur during a potential offsetting period also increases as the number of consecutive moves without an offset increases.

The last time an offsetting move higher occurred was on Oct 10, 2013. That move higher was well outside the 30 day period most offsetting moves are seen in, but the move higher was three days into a 90 E indicator’s active period. That 90 E had toggled on during the expiration period of a 90 day indicator that became active on June 18, 2013. That volatile move higher also ushered in a bullish time period on the index.

Several indicators became active recently. Increasing numbers of indicators shows an increasing chance of volatility. If volatility were to increase, it is generally a bearish indication. However; a short burst higher that reached volatile levels and provided an offset for the earlier 2% retreats, perhaps after a retreat to bullish rebound point like the 13 EMA, would probably continue bullishly higher and probably not result in bearish overtures.

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 also appears fairly likely many could remain intact until at least into the 100 L at 2000. These tensions could work to reduce bearish volatility at the potential resistance within the 1940 to 1955 MRL.

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 are beginning to look bearish; although not in established downtrends, they have completely broken from recent uptrends and continue to show bearish traits. Selloffs in Treasuries often make their way into equities.

Gold finished a fair amount higher in the past week, but as with the majority of higher moves this year; these pushes higher were mostly within very short bursts mostly during New York or London trading and not sustained runs indicating widespread support of higher prices. These bursts higher appear to be setups for sellers, as the spikes often deteriorate shortly after they are made and most often continue to deteriorate at least somewhat outside London and New York market hours. Despite the claims of large increases in purchases in Asia, aside from a couple large ten minute bursts higher early in the year, most of the price movements during Asian market hours would make it appear they hold mostly sellers. Gold continues to maintain within the long term trend lower beginning in 2012. It seems possible it could retest lows seen earlier in the fall.

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.

Ultimately the direction that the market takes from here could be influenced by news events. Most of the recent economic news is encouraging and most earnings reports are good. Even some of the earnings reports that were perceived by investors as disappointments held silver linings that have helped to move some of these stocks higher since. Some have continued to be overlooked, but future earnings reports will likely uncover these gems.

Average daily volume levels decreased 2.01% week over week and the five day volume variance decreased 7.06% to 17.02%. Both remain within bullish levels.

There is a slight chance that resistance could be seen at 1970, but this resistance does not appear to have the potential to cause a significant pullback. If the resistance at 1970 is seen at all, it will probably do little more than slow the index’s ascent for a relatively short duration. This resistance is within a short distance of the lower boundary of the 100 L at 2000 seen at 1975.

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 100L resistance at 2000 has the potential to produce a large drop, these evaluations suggest it is probably the least likely level within that 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.

Although the 100 L at 2000 does not appear to hold crash potential, it does have the potential to provide a significant drop. It also seems possible recent upward tensions in many of the constituent stocks could be exhausted by the time the index reaches this level. If these upwards tensions do exhaust as the index reaches the 100 L, it makes it seem more likely a significant drop could be seen at this level. If in fact this drop is seen, it seems possible it could reach near 5% and probably remain within the 3% to 5% range. This is a preliminary projection; several factors could change these projections once the index reaches this level.

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 is still fairly low.

Findings published in an earlier article show that all published average P/E’s of the S&P 500 include periods it was not an index and many average P/E’s are adjusted to decrease the average by eliminating years with high P/E levels.

The absence of an apparent catalyst for this crash does not mean one would not materialize as the index reaches this level.

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. Moderately priced stocks tend to lose less on a dollar per share basis.

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 although some flexibility in these investments could become necessary later.

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.

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.

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 is currently about 82% invested long in stocks in his trading accounts and his investment level increased over the past week. His investment level was affected by the purchase of one issue with the cost of this purchase partially offset by the sale of one issue 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 five in the following week. If no further investment changes are made during this timeframe these dividend payments will reduce 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.