The S&P 500 finished lower in four of five sessions and dropped 1.97% during the past week. Even with the recent slump, the index has finished higher in 17 of the past 28 sessions.
The S&P 500 found resistance within the 100 L from 1875 to 1925 at about 1883. The drop in the past week fell through the MRL at 1850 to 1865 without finding meaningful support at the prior resistances within the MRL.
Volume levels slipped into the past week’s selloff, dropping 4.97% lower than that of the previous week. The slight pullback Monday had the lowest volume and the strongest volume was seen during the week’s largest drop on Thursday. The five day variance between high and low volumes increased for the week to 21.50%.
Although the index slipped a fair distance during the past week, volume levels remained low into the selloff, with all but Thursday posting volumes less than the 13 DMA. Even the higher volume into Thursday’s fairly large drop was only 4.74% above the 13 DMA, hardly making it look like a run for the exits was in progress. Overall the pullback looked like a round of profit taking that has allowed the indexes to fall from fully overbought conditions.
Major Stock Market Indexes
The index charts of the Dow Jones Industrial Average, S&P 500, NASDAQ, New York Stock Exchange and Russell 2000 began to show some bearishness in their charts during the past week. All dropped and finished below their 13 EMA.
The Dow Jones has fallen in five straight, dropping 2.35% during the stretch. It fell through its 13 EMA Wednesday, but rebounded bullishly higher to finish above it. It continued higher early Thursday before reversing direction in a steep fall taking it well below the 13 EMA and also below the 50 EMA finishing the session below each. Although Friday rebounded back above the 50 EMA, it slipped off the high to finish the session back below it.
The New York Stock Exchange has fallen in six straight sessions, shedding 2.28% during the pullback. The NYSE fell to and rebounded off the 13 EMA Tuesday, but slipped through it Wednesday and has closed below this level in each session since. The lows Thursday and Friday neared the 50 EMA before rebounding to finish each session above it.
The NASDAQ has finished six of seven lower, slipping 2.58% during this time. It fell to the 13 EMA Monday, but rebounded bullishly higher into the close. It fell through the 13 EMA Tuesday, but again rebounded to close higher. It again dropped below it Wednesday, but rebounded to finish that session with a gain. The run increased gains early Thursday before reversing into a steep drop and finish the session below the 13 EMA, falling slightly deeper below it into Friday’s close.
The S&P 500 slipped in four of the past five, dipping 1.97% below the record high close seen the previous Friday. It broke below the 13 EMA on Wednesday, but rebounded bullishly to finish the session with a gain. After the early rally Thursday turned into a steep slide, it finished the session below the 13 EMA falling a little deeper below it with Friday’s loss.
The Russell 2000 has fallen in six of eight losing 2.25% over the timespan, but has finished higher in two of the past three. It fell through the 13 EMA Tuesday, but rebounded to finish slightly above it. It fell deeper below it Wednesday, but rebounded bullishly to finish that session with a gain and back above the 13 EMA, but like the others early gains Thursday turned into a steep pullback and it finished the session below the 13 EMA. After starting Friday with a gap lower, it rebounded back to the 13 EMA twice before finishing the session slightly below it. The Russell’s chart is showing early signs of a possible turn higher.
The indexes have all fallen from overbought conditions. Although none are fully oversold yet and some additional downside is possible, the durations of these drops makes a rebound seem likely.
US Treasury Charts
The 20 year US Treasury Note pushed higher in all five sessions during the past week. It edged back above the 50 EMA on Tuesday, finished slightly above the 13 EMA on Wednesday and increased the gap above it through the remainder of the week. Friday’s highs fell short of the previous cycle’s highs. The 20 year note is nearing overbought conditions, but it might continue higher. If it breaks above the previous high it would also break the developing downtrend. Even so, it seems fairly likely the 20 year Treasury note is transitioning into a downtrend.
Long term US Treasury charts were bullish into the recent pullback in stocks. This is somewhat bearish for stocks.
The interest rate on the 10 year US Treasury Note fell in all five sessions during the past week. It broke below the 50 EMA and 13 EMA on Wednesday and finished below the 50 EMA and slightly below the 13 EMA. Thursday bumped back above both, but slipped to finish below both and Friday continued lower. Friday’s low and finish are higher than that seen in the previous cycle. The ten year is not yet fully oversold, but a rebound seems near. This chart continues to hold bullish trends.
Gold trended lower at the open Sunday night, reaching about 1332 before trending back to about 1334 to finish the night.
It slipped back to 1329 during Hong Kong trading Monday morning, before beginning to trend higher just before the London open. That rebounded carried through to a high of about 1345 in New York. Gold slipped off the high and back to about 1339 trading within a point of that until slipping to 1337 in earlier Hong Kong trading and then reversing to trend higher to 1343. It finished the night at about 1342.
With the exception of a quick 5 point move higher in London, it trended slowly higher Tuesday reaching a high of 1352 just after the New York open, then trended lower to 1340, and back to 1350 by the Sydney open. It then moved slowly lower to 1346 just after the Hong Kong open, but then shot sharply higher to 1360. Gold trended lower off this high to finish the night at 1358.
Wednesday morning gold held between 1357 and 1361 until after the Hong Kong close, but then cupped higher ultimately reaching 1371 in New York before trending lower to 1363 just before the Hong Kong open. It again moved sharply higher to 1373, then trended slowly lower to finish the night at about 1371.
Friday began in the same flat pattern before a rebound began at about 1370 in London that turned steeply higher after the New York open carried gold to about 1388, it fell and leveled out at about 1385 before falling just as steeply to 1375 and then trended more slowly back to the New York Spot close of 1383.20 finishing the week higher than the previous week’s close of 1340.40.
Global tensions stemming from Russia sent gold higher during the past week, breaking above resistance in this move higher. Gold appears to be seeing widespread support of higher prices at the current time.
S&P 500 Constituent Charts
Although there were some bearish indications in the constituent charts this past week, overall the constituents continued to hold within bullish trends.
A fairly large number of constituents broke below the 13 EMA and or the 50 EMA during pullbacks during the past week.
Although this is a somewhat bearish indication, some that fell below these moving averages were in initial moves higher off recent lows, where first or second breaks of these averages often see retreats back below them before rebounding higher again. Some were in established downtrends and pulled back after reaching the upper trend line of these downtrends. Some of these stocks reached the lower trend line where at least a temporary rebound seems likely. Some that broke below these averages rebounded quickly back above them and others have fallen only slightly below them. Most that have broken below these averages have maintained well within bullish trends higher and many have reached or are near likely rebound points.
Many also held above these moving averages in drawbacks, while some have widened the gap between the current price and these moving averages in pushes higher.
These pullbacks below moving averages also thwarted a nearing bullish cross of the 13 EMA back above the 50 EMA or turned recent bullish crosses back in many of these stocks.
Although this is a somewhat bearish indication, many of these were seen in stocks that have similar patterns in these crosses and it seems likely they could turn higher again later. Others were seen in stocks in initial rebounds, and the turn back of crosses or near crosses are not uncommon when an early break of moving averages sends stocks lower before the rebound higher.
Recent pullbacks have left many of the constituents showing topping patterns in their charts.
Nearly all have maintained within bullish trends, so this looks like normal profit taking. Rounds of profit taking often leave stocks in possible topping patterns. Even so it isn’t unlikely some could begin short term downtrends from these topping patterns, but it also seems likely the numbers that do trend lower could be offset by those that are currently establishing uptrends off recent lows.
Even though the index slipped, many of the constituents continue to push to new highs. Many of the indicator stocks across several sectors that had slipped from highs earlier rebounded strongly in the past week. Many have reached highs higher that what they fell from.
Considering the depth of the pullback, volumes on most constituents did not reflect a selloff atmosphere. Most stocks that fell in price, even those that fell fairly deeply, did not see volumes increase much or even saw volumes decrease. At the same time, some that had price run ups saw volume levels increase. This tends to indicate the selloff does not have investor support. This does not mean volumes could not increase into a continued selloff; however the lack of volume into the selloff so far could mean stocks are already near a rebound point.
The numbers of constituents in or near overbought conditions dwindled in the previous week, while many more have fallen into or near fully oversold and some have begun to rebound from lows pushing out of oversold conditions. Overall the constituents are not deeply oversold, so downside potential exists; however, the pullback has renewed considerable upside potential.
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, +/(-) 90 D, 100 L indicators are currently active. A 90E indicator will become active on Wednesday and with it the -2% L will also become active. 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% / +2.14%
The (-)/+ 90 D indicator will expire in 16 trading days and therefore a 90 E will become active on Wednesday.
The +2% L indicator did not provide a correct indication during the past week.
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% / +0.27%.
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 Monday at 1877.17 above the lower boundary of the 100 L and had rebounded bullishly from an intraday low of 1867.04 near the upper resistance of the 1850 to 1865 Midrange Resistance Level (MRL). As the week progressed the index dropped below support at previous resistance levels in the MRL, with progressively deeper intraday lows until reaching an intraday low of 1839.57 on Friday.
This resistance within the 100 L holds significant drop potential, but most indicators continue to suggest this drop probably does not reach significant levels (that of 3% or greater). The failure to find support within the 1850 to 1865 MRL opens the possibility that the index could continue lower to the next likely support found around 1825, but probably does not continue deeper from there.
A 90 E will become active on Wednesday. As seen in past articles, 90 E indicators are often present during bearish market conditions, but as also seen in past articles, they sometimes act bullishly too. The recent downturn at a potential significant resistance level into this indicator becoming active might seem daunting, but the pullback looks like a round of profit taking that could be reloading stocks for a push higher. It is also reaching a duration that stocks could turn higher at. Some charts are showing signs that a turn higher could be near. Most indicators continue to suggest volatility could remain absent, and the absence of volatility is generally bullish. Several indicators have suggested the market could move higher. Many stocks are oversold, and the indexes are not far from oversold. Although some charts are showing some bearish characteristics, most are holding bullish trends. Several stocks from varying market sectors considered indicator stocks have rebounded from recent downturns to or near new highs. Although not all economic news is good, much of it is very encouraging and overall stocks earnings continue to be very good. It therefore continues to seem possible the 90 E could be bullish in this appearance.
The activation of the 90 E will bring the -2% L indicator out of dormancy. It seems possible this indicator could expire without a correct indication in this appearance.
The index has pulled back from resistance within the 100 L seen from 1875 to 1925. Since the 100 L has the potential to provide a significant pullback, there is reason to be cautious as the index works its way through this resistance. The 90 E, a potentially bearish indicator, will also activate on Wednesday. Since a pullback within the 100 L has been seen, it adds reason to remain cautious.
However 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 also seems likely the index could remain within this resistance level’s influence at the time the 90 E activates on Wednesday.
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, possibly indicating a lack of investor support for the recent selloff. The five day volume variance increased somewhat into the selloff, but remained within normal levels.
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 88% invested long in stocks in his trading accounts. The increase in his investment level over the past week was due to the purchase of three issues with the cost of these purchases partially offset by the sale of two issues and 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 13 issues in the coming week and 6 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.