Russia and the Ukraine took center stage in the markets on Monday and as a result the S&P 500 posted it largest loss in a session since Feb 3. Investor skittishness vanished overnight, as the S&P rebounded on Tuesday with the gains more than double of the previous session’s losses. The index gave back a dime on Wednesday then posted modest gains on Thursday and Friday to finish the week with a gain of 1.00%. All three of the higher closes in the past week were at record high closing prices. The index has finished higher in 16 of the past 23 sessions.
The S&P 500 pushed above the midrange resistance level (MRL) at 1850 to 1865 and into the 100 L resistance level during the past week. The slowdown in the rise coupled with Monday’s pullback has allowed many stocks to slip from fully overbought conditions and this could provide the boost needed to push higher into the 100 L resistance in the week ahead.
Volume curtailed during the past week, with the daily average 6.41% lower than that of the previous week. The pullback Monday had the lowest volume in five trading days and set the tone for reduced volumes during the remainder of the week. Monday’s steep drop was followed by the week’s strongest volume during the rebound on Tuesday and the lowest volume was seen on Thursday. Although volume levels were lower, the five day variance between high and low volumes continued to tighten and had fallen to 12.06% on Friday.
Despite the potential for increased volatility due to news out of the Ukraine, investors didn’t seem to bite. Volume levels remained very stable for the week and there were no volatile daily moves of 2% in either direction.
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 break through resistances. All of the indexes continued in bullish moves higher during the past week.
All of the indexes fell to or near the 13 EMA in Monday’s drop with all finishing the session at or slightly below this level, but all rebounded strongly from this drop. The S&P 500, Russell and NYSE finished Tuesday’s session at record closes and the NASDAQ at a 52 week high.
The Dow Jones finished Tuesday higher than it fell from Monday, but has yet to recover the Dec 31 record close. Even so the Dow’s chart looks very bullish as it and the S&P 500 led the charge higher. Each index pushed higher in three sessions and finished only slightly lower on Wednesday.
The NASDAQ and NYSE finished the week with only two higher closes, but both managed to increase on Tuesday’s highs later in the week. The Russell managed only one higher close for the week, but the three day slip off Tuesday’s record close has been shallow.
The indexes continued to work higher through resistances and some of these resistances have fallen during the past week’s climb.
All of the indexes continued to hold in overbought conditions and it does not seem unlikely the indexes could continue to hold in or near these levels. Any drops to or near the 13 EMA are probably buy signals. Although the indexes have held fairly tightly to overbought conditions, the past week relieved many stocks as they fell from fully overbought conditions. It seems likely many of these stocks could rebound before reaching fully oversold and in turn push the indexes higher in the week ahead.
US Treasury Charts
The 20 year US Treasury Note pushed higher into Monday’s downturn in stocks, but the day’s high and close finished short of both matrixes in the previous top. It fell rather steeply and steadily from this high, breaking and finishing slightly below the 13 EMA on Tuesday after starting the day from far above it. Wednesday continued lower early before rebounding to finish just above the 13 EMA. It fell directly off this rebound finishing lower in the next two sessions. It broke and finished below the 50 EMA for the first time since Jan 10 on Friday. Friday also reached a lower low and close than that of the previous cycle. This lower high lower low combination is often considered a confirmation move and generally considered trend setting. It is also generally a bearish indication. It seems fairly likely the 20 year Treasury note is transitioning into a downtrend.
Long term US Treasury charts continue to appear to be transitioning into downtrends. This is somewhat bullish for stocks.
The interest rate on the 10 year US Treasury Note fell considerably lower on Monday, but still rebounded from this drop at a higher low than that seen in the previous cycle. Tuesday broke to and finished at about the 13 EMA and on Wednesday it broke and finished above it. The 10 year has held above this level since. Thursday bumped into and slightly above the 50 EMA before slipping to finish below it. Friday pushed strongly higher breaking and finishing well above the 50 EMA. It was the index’s first close above the 50 EMA since Jan 22. Friday’s intraday high and close were also higher than that seen in the previous cycle. Although the interest rate fell further first, the rebound was at a higher low and pushed to a higher high, generally considered a confirmation move in an uptrend and a bullish indication. This chart is taking on a bullish look again.
Gold moved quickly higher at the open Sunday night, reaching about 1344 before trending lower to finish at 1341.
It bounced higher to about 1350 during Hong Kong trading Monday, slipping from that high at the London open to about 1343 before reversing and trending higher into New York trading reaching about 1355 before taking a bouncy trend lower to finish the night at about 1350.
It traded tightly to 1350 early Monday morning before dropping sharply from 1351 to about 1337 during Hong Kong trading. It rebounded to about 1340 and leveled out but began trending slowly lower at the London open before falling more abruptly to about 1332 later in the session. It trended higher to about 1341 in New York and then slipped back to 1334 trending in shallow bounces higher in Sydney and Hong Kong to finish the night at 1337.
Wednesday morning gold trended lower to about 1333 in early London trading, reversed trend higher to about 1342 midway through New York trading, then fell in a flattish downtrend to finish the night at about where it began near 1337.
Gold poked up to about 1338 and slipped back to 1332 in Hong Kong and then traded between the two until moving steeply higher after the New York open to 1352, It traded flatly between 1350 and 1352 for the rest of the night with two exceptions; breaking once higher to 1354 in New York and once lower to 1348 in Sydney. Gold finished the night at 1350.
Friday traded between 1348 and 1352 until shortly after the New York open when it dove from 1352 to 1334 in less than 15 minutes, flattened out then continued lower to 1330 in another quick drop. It trended slowly back to about 1340 then traded within +/- 2 points of that into the New York Spot close of 1340.40 finishing the week higher than the previous week’s close of 1325.90.
Gold rebounded to expected resistance around 1354 very quickly twice in the past week, but failed to break much above this resistance and retreated from these highs very sharply twice in the past week. It could go in either direction from here, but it might be a good time to watch from the sidelines.
S&P 500 Constituent Charts
Overall the constituents continued to hold very bullish trends.
Many of the constituents continue to trade in or near overbought conditions. But many of these stocks also fell from fully overbought conditions during short pullbacks or sideways moves during the past week. It seems likely they could continue to trade in or near overbought conditions, so rebounds seem likely in many of these stocks.
Others have fallen more deeply, reaching or nearing fully oversold conditions while nearing likely rebound points in their established trends.
Although the index is still near fully overbought, overall the constituents appear to be lower than these levels. This renews upward potential in many stocks.
Many of the constituents continue to push to new highs, while many others appear to be in rebounds that seem likely to take them back to new highs.
Some of the indicator stocks are currently in pullbacks, but these pullbacks are in step with the normal cycles these stocks have been trading in and therefore do not appear to be bearish indications.
It looks likely most of the constituents 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 (-)/+ 90 D, +2% L, +10 E, +/(-) 90 D, 100 L indicators are currently active. The +10 E indicator expired after Tuesday’s close. The 90 E expired after Thursday’s close and with this expiration the -2% H indicator became dormant and the +2% H indicator to fell to a low (L) state. The resistance at the MRL appears to have been broken and the index moved into the lower boundary of 100 L resistance at 1875, activating the 100 L. See a more detailed description of most of the indicators developed through research and featured in these articles here.
The (-)/+ 90 D indicator that became active on Nov 25, 2013 has performed as follows to this point in the format: highest close / lowest close / last close.
+4.19% / -3.36% / +4.19%
The (-)/+ 90 D indicator will expire in 21 trading days and therefore a 90 E will become active in eight trading days.
Although the S&P 500 took a fairly steep retreat on Monday, it rebounded quickly and as a result appears to have broken the resistance in the Midrange Resistance Level (MRL) from 1850 to 1865. It has since finished more than three consecutive days above this resistance and entered into a higher resistance level as the index began pushing higher through the 100 L. Tuesday’s low found support near previous resistance in the MRL at 1849.23 and finished at 1873.91 after being turned back at 1876.23 by the lower resistance in the 100 L found at 1875. Wednesday’s high reached 1876.53, before again being turned back by the 100 L and finishing at 1873.81. Thursday broke above the lower boundary resistance reaching a high of 1881.94 and finished atop the resistance at 1877.03. Friday pushed higher into the 100 L with an intraday high of 1883.57 and closed higher above the lower boundary at 1878.04.
The index appears to be working its way higher through the 100 L resistance level. This resistance holds significant drop potential, but it seems likely the index could work its way past it without seeing a significant drop.
The -2% H indicator did not provide a correct indication during the past week and became dormant with the 90 E expiration on Thursday. It will return to a low state on or about March 19 when a new 90 E becomes active, provided there are no volatile moves that would activate it before this time. During the -2% indicator’s active period there were two daily drops that exceeded 2%, the first was 2.09% drop on Jan 24 and the second was a 2.28% drop on Feb 3. In this instance the -2% indicator appeared to be correct in projecting potential volatile conditions.
The +2% H indicator did not provide a correct indication during the past week and returned to a low state (+2% L) with the 90 E expiration on Thursday. Although most indicators suggest volatility could remain absent, this indicator will remain active due to a continued possibility that an offsetting move higher could occur in response to the most recent 2% drop seen on Feb 3. This indicator would have become dormant at the close on March 18, but is expected to reactive on March 19 returning it to a low state when a new 90 E becomes active.
The 90 E expired at Thursday’s close. During this indicator’s presence the index saw one volatile move lower. It also saw one volatile move lower just prior to it activating. Volatile moves within a few days of this indicator’s presence are seen occasionally. Although this volatile move was not seen during the indicator’s active period, it seems likely it was influenced by the indicator. The S&P 500 also saw a significant market price direction change higher while this indicator was active as it rebounded from the Feb 3 low to recover the significant drop on February 25 and has since continued higher.
The interpretation of the 90E indicator included an early activation of the 2% indicators in the weekly preview just prior to the 2.09% drop Jan 24, due to the possibility of a volatile move prior to this indicator becoming active. It seemed fairly likely that volatile conditions could last for a relatively short duration, probably exiting before or with the expiration of the 90 E. It also seemed likely that this indicator could point to a significant direction change higher. Given the outcome, it would appear that the interpretations of this indicator were mostly correct in this instance.
A 10 E indicator expired with the market close on Tuesday and finished its active period as follows in the format: highest close / lowest close / last close.
+1.80% / -0.65% / +1.80%
The 10 E indicator suggests the index could finish higher during the ten trading day period it is active. This indicator does not project the gains expected during this time period. This indicator appeared to be correct in this instance.
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.
+2.28 / 0.00% / +2.28%.
The lowest close only considers closes lower than the S&P 500 closing price on the starting date, if there are none lower it is reported as zero percent.
The S&P 500 finished more than three consecutive sessions above the MRL and appears to have broken this resistance. The index also moved into the influence of 100 L resistance. At this time the index appears to be working its way upward through this resistance, and it seems possible it could continue to move higher through this resistance level.
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. It seems possible the index might remain within this resistance level at the time the 90 E reactivates in eight trading days. The 90 E is often active during volatile market conditions and the market often exhibits other bearish tendencies during its presence. Although most occurrences of this indictor covered in past articles were during bearish appearances, the indicator is not always bearish; it has also been seen during very bullish conditions. It seems possible this indicator could be bullish in this appearance.
Average daily volume decreased during the past week and the five day volume variance also decreased. Volatile conditions generally have large five day volume variances and bullish conditions generally have lower variances.
News out of the Ukraine could rile the markets, but the initial market reaction throughout the world turned out to be quite bullish. Although it began with a bearish pullback, the rebound was quick and bullish and volatility indicators have netted a reduction since the news was released.
Many indicators have expired, became dormant or moved to a low state in the past few weeks, and decreasing numbers of active indicators are generally seen during market periods with low volatility. Generally periods with low volatility are bullish in nature.
Some of these indicators will reactivate within the next couple weeks and increasing numbers of indicators generally happen during market periods with increasing chances of volatility. Most of the other indicators used to interpret market behavior appear to be maintaining a bullish stance and volatility indicators appear to be moderating further. Market conditions do not appear ready to change this stance.
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 eight to 17 months if it reaches this level near the upper trend line and within 35 to 41 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. If this is actually the level it appears to be, the index will probably reach it while it is near or possible above the upper trend line making this appearance probable within the next 12 months. If this is the actual level of concern, the pullback off this level is likely to be in the 25 to 35% range, but would probably not exceed 30%. The rebound from this crash would likely come near the tops seen in 2000 and 2007, although it could come somewhat higher or lower than this level. If this pullback comes earlier than expected (at a lower price level), it seems likely it could be much shallower, possibly not reaching crash levels. If seen later in the run than expected (at a higher price level), it could be somewhat deeper. It also seems possible the index could run above the upper trend line into the 2040 level of concern. If it does it could reach this level sooner than the 12 months expected.
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 allows 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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Disclosure: Ron is currently about 87% invested long in stocks in his trading accounts. The increase in his investment level over the past week was due to the purchase of one issue and monthly dividend reinvestments in three issues with the cost of these purchases partially offset by dividend payments. Ron feels comfortable at his current investment level and plans to try to maintain near this 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 17 issues in the coming week and 12 in the following week. If no further investment changes are made during this timeframe these dividend payments will not change 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.