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Stock market preview for the week of June 9, 2014

The S&P 500, Dow Jones and New York Stock Exchange finish four of five sessions in the past week at record high closes.
The S&P 500, Dow Jones and New York Stock Exchange finish four of five sessions in the past week at record high closes.
Photo by Spencer Platt/Getty Images

The S&P 500 pushed to record high closes in four of five sessions during the past week, with Tuesday’s slight retreat providing the only setback. The index pushed 1.34% higher during the week and has increased in 27 of the past 38 sessions.

Average daily volume levels decreased 4.57% compared to the average daily volumes of the four days of the previous holiday shortened week. The week’s largest volume was seen in Thursday’s break above the 100 L resistance and the week’s lowest volume was seen during Monday’s push into that resistance. The five day volume variance decreased 10.67% under that of the previous week to 24.08%.

The S&P 500 spent the early part of the week breaking the resistance in the upper level of the 100 L at 1925. It pushed strongly above this resistance early Thursday and into likely potential resistance within the Midrange Resistance Level (MRL) found between 1940 and 1955. After Thursday spent a large portion of the day bouncing near the 1940 lower resistance, Friday pushed above the 1940 level finishing the week at record and session highs of 1949.44.

Major Stock Market Indexes

The index charts of the Dow Jones Industrial Average, S&P 500, NASDAQ, New York Stock Exchange and Russell 2000 continued to show bullishness in their charts.

The Russell 2000 continued lower early in the week, filling the previous Tuesday’s gap higher in Monday’s retreat and Tuesday continued somewhat lower. The lows Monday and Tuesday slipped below the 13 EMA, but the index rebounded to finish each session above it. Tuesday’s low was higher than that seen in the previous cycle. After again slipping below the 13 EMA on Wednesday, it began to rebound finishing the session above the 13 EMA and just lower than the 50 EMA after bumping into it. Thursday slipped slightly below the 13 EMA before rebounding strongly higher and finishing at session highs well above the 50 EMA. Friday gapped higher at the open and continued higher, finishing the session at the highest close since April 3 giving the index a third consecutive high higher than the previous cycle. Although lacking a second higher low, the combination of the four highs (three higher highs and one higher low) would indicate an uptrend is likely underway. Friday also saw a bullish cross of the 13 EMA back above the 50 EMA.

The NASDAQ also continued slightly lower on Monday and Tuesday, but the drop failed to fill the gap from the previous Tuesday. It turned higher on Wednesday rebounding as it neared the 13 EMA and from a higher low than the previous cycle establishing an uptrend. Thursday pushed strongly higher and Friday gapped slightly higher at the open and continued higher to finish just off the session highs. Friday’s close was the highest since March 20 and the index is near to recovering from the significant drop it had seen from the March 5 close. Friday’s higher high is often considered a confirmation move in the recently established uptrend.

The Dow Jones, S&P 500 and New York Stock Exchange each finished at record highs in four sessions and each slipped slightly lower in Tuesday’s session. Each rebounded from intraday lows on Wednesday that were higher than the previous cycle. The Dow Jones and NYSE rebounded as they neared the 13 EMA but maintained a gap above it. The S&P 500 closed the gap it was riding above the 13 EMA, but maintained a much wider gap above the 13 EMA at its rebound point.

All the indexes pushed strongly higher Thursday and Friday, and although this push higher was very bullish, it appears to have spiked above the recent trend on several of the index charts. Spikes out of trend sometimes lead to a period of weakness, allowing the index to fall back into trend. If this weakness develops it seems fairly likely it could be short term and dips to or near the 13 EMA still appear to be buy signals. Occasionally this spike above trend also signals a trend change higher.

US Treasury Charts

The 20 year US Treasury Bond slipped fairly steeply in the first three sessions this past week. Monday broke below the 13 EMA and finished below it as has each session since. Wednesday’s low rebounded at the 50 EMA to finish above it, but closed with the fifth consecutive loss. Thursday opened with the fifth consecutive gap lower, starting the session below the 50 EMA, but rebounded to finish the session slightly higher and back above the 50 EMA recording the week’s only gain. Friday gapped higher at the open and pushed higher initially, but was turned bearishly back as it reached the 13 EMA, falling to finish the session unchanged and near session lows. Friday’s gap higher was the first to fail to finish higher in the past seven opening gaps higher, possible showing an increased level of profit taking on these gaps. The long string of gaps lower seen this week could also show profit taking is underway, possibly in Bond funds that are traded at closing prices. The 20 year Bond fell to a low lower than that seen in the previous cycle during the past week. It has closed higher only five times in the past 20 sessions and has fallen into fully oversold conditions for the first time since April 3. Although not yet bearish, the chart has begun to show bearish signs and continues to show signs of faltering.

Long term Treasuries price charts are showing some bearish signs. At this time 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. All five sessions finished above the 50 EMA, the first time the index has seen five consecutive closes above this barrier since a five day string was broken after the March 25 close. Wednesday’s highest close for the week finished at the 13 EMA after breaking briefly above it. Thursday pushed higher above the 13 EMA, but slipped to finish below it and lower for the session, providing the week’s only loss. The 10 year Note pushed to a high higher than that seen in the previous cycle and has moved higher in six of the past seven sessions. It has finished lower only five times in the past 15 sessions. Without the May 28 opening gap lower, it seems likely the 10 year Note could be very near to establishing an uptrend during these 15 trading days. It pushed to fully overbought conditions in the past week for the first time since April 3. Although not yet bullish, the chart has begun to exhibit bullish signs.

Gold

Gold trended lower after the open early Sunday night reaching a low of about 1246 in Sydney, then traded flatly near the low to finish the night at about 1247.

Monday gold slipped to the day’s lows of about 1240 during Hong Kong trading before rebounding to about 1245 by the London open. It trended slowly higher to about 1250 in early New York trading before slipping fairly quickly back to about 1242. It then traded more or less flat for the remainder of the day, finishing at about 1243.

Tuesday spent nearly the entire day within about two points of 1244, breaking briefly above 1246 several times and to about 1247 five times during the day. It also slipped slightly below 1242 once in New York and finished the night at about 1245.

Wednesday was more less a repeat of Tuesday, with the exception of a bounce briefly to 1249 in New York and a drop to 1241 after the Hong Kong open, it also spent the day within a couple points of 1244, finishing at about 1243.

Thursday looked to be on a path to repeat the previous two days performance until a quick spike higher from 1244 to 1258 within the first hour of New York trading. It slipped back to about 1251 before rebounding to 1254, trading within about a point of that rebound for the remainder of the day and finishing the night at about 1253.

Early Friday gold pushed higher to about 1256 in Hong Kong before beginning a long trend lower that reached about 1251 in London just before the New York open. It bounced to about 1253 and then settled lower to start the New York Session at about 1252. Gold pushed higher to about 1257 in the first hour, but fell sharply lower off that rally to 1246. It rebounded back to about 1254 before again trending flattish to slightly lower into a New York Spot close of 1252.30 but higher than the previous week’s New York Spot close of 1249.30.

After spending most of the week below the previous week’s close and trading incredibly flatly, a five minute rally on Thursday in New York probably kept gold from a lower close for the week. Gold fell off Thursday’s spike into another flat trading period before a brief rally on Friday in New York fell short of Thursday’s spike higher and it dropped lower than it started from before rebounding. That resulted in Friday having both a lower high and lower low off that high along with a lower close than seen on Thursday. This along with the lower early week flatness gives the gold charts a somewhat bearish feel going into next week.

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.

There was one exception, as the staggering pattern saw a larger percentage of constituents move towards overbought conditions during the week. The large late week surge on the index took many of the constituents bullishly higher with the index, bringing them into fully overbought conditions early. Some have begun to turn lower and it seems fairly likely they could continue lower briefly, making a pullback on the index seem somewhat likely in the week ahead.

The staggering pattern was not broken in this move, only weakened somewhat due to a larger number reaching overbought together. It appears some could continue to hold in or near these overbought levels, and it seems likely others that have established this trend could continue to do so, which is also a part of this pattern.

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.

Other constituents remain suspended between fully overbought or oversold conditions; leaving upside potential in runs higher or the potential for earlier turns higher in continued falls.

Upward tensions remain intact in many of the constituent charts, so it seems fairly likely they could continue higher.

Although it seems possible the index could retreat briefly, it seems likely the remaining staggering pattern conditions could limit the size of that retreat, or possibly even edge the index higher in the week ahead after this retreat. It appears drops to or near the 13 EMA on the index could be buy signals.

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 and -2% L indicators are currently active. The 100 L indicator became dormant with the S&P 500’s push above this resistance level while the MRL indicator became active with the push into the potential resistance within the 1940 to 1955 range. A 90 E indicator will become active at Thursday’s open and due to possible activity on the fringe days leading into this indicator’s active period, the +2 %L and -2% L indicators become active at Monday’s open. 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.

+6.16% / -1.12% / 6.16%

The +/(-) 90 D will expire in 22 trading days. Due to this expiration a 90 E will become active in 4 trading days. The indicator becomes active 13 trading days before the expiration of a 90 D indicator and remains active for 13 trading days after the expiration resulting in a 27 trading day active period.

Due to the increased chance of volatile moves during the 90 E indicator’s presence, the potential that the indicator could act either bearishly or bullishly and past occurrences of these volatile moves occurring within a few days just before or just after this indicator’s active period; the +2% L and -2% L indicators became active with Friday’s close.

Activation dates in these articles are sometimes noted at the open of the date of activation, in this case Monday’s open, or the close of date prior to this activation, in this case Friday. This interchange is more or less meaningless other than for noting the actual date of activation (Monday) and the closing date comparison data would be based upon (Friday).

Normally the 100 L would not have become dormant until the S&P 500 closed 1% above this resistance level; however the index reached a higher potential resistance before it had moved the required 1% higher. Since the S&P 500 finished within a higher potential resistance on Thursday the lower resistance indicator, in this case the 100 L, became dormant when the higher potential resistance, in this case the MRL at 1940 to 1955, became active.

Expiration or dormant dates are always noted at the close of the expiration date or the close on the date the indicator was considered to have become dormant. For data collection purposes the 100 L at 1900 become dormant with Thursday’s close.

Unlike indicators that have a set time for activation, resistance indicators like the MRL at 1940 to 1955 became active when the index enters within its influence and data is compared to the close on the date of activation. Sometimes this is a judgment call, as these resistance levels sometimes react close to potential resistance without actually moving into the resistance level or as in this case there were conflicting resistance levels. Since the index moved into the higher potential resistance and closed within this range, the activation date was easily determined for the MRL and was also on Thursday.

When the 100 L at 1900 became active the interpretation of this resistance level was noted in the Stock Market Preview for the Week of March 10, 2014 as:

“It seems unlikely a significant pullback will be seen in the 100 L at 1900, but if one were to be seen, it probably would not exceed 3% by much.”

This resistance did in fact cause a significant pullback, with that pullback reaching 3.98% and nearly a full percent larger than that expected if one was seen. The resistance at 1883 was much more formidable than projected and the index also stalled much longer than expected at 100 L resistance as noted in projections made in earlier and later articles near the time 100 L at 1900 became active. It was also expected that the 90 E indicator that became active within this resistance level could react bullishly, and although it finished bullishly near the beginning of the recent bullish move higher, it reacted bearishly first. Therefore it is felt in this instance the interpretation of this resistance level was mostly incorrect.

The S&P 500 spent the early part of the week working its way above the upper level resistance of the 100 L at 1925. Monday finished at a record high of 1924.97, Tuesday finished slightly lower at 1924.24 and Wednesday finished just above this resistance at a record high of 1927.88. After Thursday started lower it rebounded strongly near the 100 L resistance at 1922.93. That push higher flattened after reaching the lower level of the MRL at 1940 at about noon and the index traded within less than two points of this resistance for the remainder of the session finishing at 1940.46. Friday gapped slightly higher at the open after an encouraging jobs report was released prior to the market open, and continued higher into the MRL resistance finishing at session highs and a record close of 1949.44.

Current Cautions

The index moved above the upper resistance of the 100 L and finished Thursday’s session within the higher resistance of the Midrange Resistance Level (MRL) at 1940 to 1955. In doing so the 100 L became dormant and the MRL became active. Other than a relatively brief stall at the lower resistance level on Thursday, the index has continued higher into the MRL rather freely to this point.

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.

Although the moves higher seen on Thursday and Friday were very bullish, they also caused several of the indexes to spike above recent trends. The spike took several of the components or constituents of these indexes into overbought conditions earlier than would have been seen in a slower rise. Therefore these spikes are sometimes seen just prior to periods of weakness. If this weakness develops, recent chart formations make it seem fairly likely it could remain fairly shallow, short term and possibly provide an investment opportunity.

The index is within a timeframe that is sometimes somewhat bearish, but this timeframe has also been bullish in the past.

The 90 E becomes active at Thursday’s open. The 90 E indicator is potentially bearish as the S&P 500 has often exhibited bearish traits during the active periods of this indicator in the past. 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.

Due to past occurrences of volatile moves within a few days before or after the 90 E indicator’s active period, the +2 L and –2 L indicators become active at Monday’s open. The presence of these indicators is generally a somewhat bearish indication as the presence of these indicators increases the chances of volatility. However, this volatility is not always bearish and it 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.

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 or are due to become active shortly. 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 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. Not all of these stocks with upward tensions moved higher with the index late in the week, so there is some extra reserve left to limit downward movements.

Recent chart action in Treasuries and Gold make it seem possible they could add to pushes higher in equities. Although the Treasury Bonds charts are not yet bearish, they are showing increasing instances of bearish traits and continue to show signs of faltering. Selloffs in Treasuries often make their way into equities.

Although gold finished slightly higher in the past week, the charts continued to show some bearishness. As noted in the previous week’s article; it seems possible gold could continue lower due to the recent break lower off the upper trend line of the long term trend lower beginning in 2012. If this selloff develops it could also add to a move higher in equities.

If this selloff is deep, it could also set up a large rebound in gold later. This rebound would probably coincide with a large drop in equities during that time frame, possibly from the 2040 resistance. Although it might not seem so at the time, if this drop and rebound in gold were to occur; it would probably be a good time to exit gold completely and enter equities.

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 4.57% compared to the average daily volumes of the four days of the previous holiday shortened week. Lower volume levels are common during bullish runs higher. The week’s largest volume was seen in Thursday’s break above the 100 L resistance and the week’s lowest volume was seen during Monday’s push into that resistance. The five day volume variance decreased 10.67% under that in the previous week to 24.08%, remaining 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.

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.

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 80% invested long in stocks in his trading accounts and his investment level decreased over the past week. His investment level was affected by the purchase of one issue and dividend reinvestments in three issues with the cost of these purchases only partially offset by the sale of one issue and dividend payments. These actions would have caused his investment level to increase slightly had Ron not also deposited additional funds that were not fully invested causing the overall reduction in his investment level. Ron feels he is slightly oversold at the current time. However he has and will continue to sell stocks that reach long or short term targets 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 21 issues in the coming week and 8 in the following week. If no further investment changes are made during this timeframe these dividend payments will reduce his investment level.

The recent deposit by Ron was made on the potential of current conditions, and does not reflect upon projections made at higher levels. Ron plans to fully invest the recent deposit, provided of course the stocks he is interested in reach buy orders he has set for them or he finds alternate investments if they do not. He also plans to treat it separately from his current investments as it is earmarked for specific future purposes. Provided there are favorable moves in the stocks he invests in, he will try to increase these holdings. He may or may not move this investment into cash as the index nears the level of concern. He may also add additional funds later.

As can be seen in past disclosures, Ron has been slowly reducing his investment level as the index nears the level of concern (2040) that he has identified as a potential crash level. He plans to continue this slow reduction in his investment levels as the index nears this level.

Ron has no plans to be fully flat once the index reaches the level of concern.

There are several reasons for this. One is that he has worked long and hard building his portfolio. Even though the data is very compelling that the index could crash at the level of concern, there is no way to tell for certain that it will. He would rather weather the down turn with the bulk of his investments intact, than be flat and find his interpretation of this level was incorrect.

Ron also feels he could be greatly distracted from the overall picture if he was concerned about the reinvestment of his entire portfolio. Instead he has decided to divest in some smaller positions, with the hopes of increasing these holdings in a draw down. He feels that even without a market crash, he is likely to be able to get some of these stocks back lower later, and if not, find suitable replacements.

Ron often tends to be somewhat stubborn when buying pullbacks. He often waits for a level he feels a stock should reach, and if it does not reach this level, allows it to turn and carry higher without investing. He feels he could do this into a larger downturn, and miss reinvesting some of his portfolio if he was to go entirely flat.

Ron found that income from his investments in the previous crash proved to be very useful during the pullback and rebound. The purchases made with this income further increased this income stream and increased buying opportunities in stocks that were very much underpriced. Being flat would have eliminated this income and many of the purchases he made with it. Ron also tends to be somewhat impatient in long down turns; since he seldom shorts he tries to time pullbacks and rebounds in the fall with longs. Dividend income will allow him to stay in the game, without reinvesting funds meant for lower levels.

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.