Here is the preview of the coming week on the S&P 500 from Traverse City, Michigan.
The S&P 500 had closed higher in seven consecutive sessions before slipping slightly lower on Tuesday. It finished higher in three sessions during the past week and higher for the third consecutive week, posting a gain of 0.61%. The index has finished higher in 34 of the past 52 sessions. The S&P500 closed Thursday just $1.92 short of the record high close.
The Dow Jones Industrial Average continued its push into record highs during the week, stretching its streak of closes at new record highs to ten straight days before the string snapped with a lower close on Friday.
Major Stock Market Indexes
All the major indexes, the DJIA, S&P 500, NASDAQ, NYSE and Russell 2000, continued to show bullish tendencies during the past week.
Most of the indexes continued to push higher trading very tightly to the old upper trend line set during the rebound from November’s lows. The NYSE was the lone variant, it continued higher too, but the long sideway pattern it was in earlier appears to have caused a shift in its uptrend and also reduced its trend slope somewhat. The new trend is riding tightly higher at about the old minor trend’s baseline.
All of the indexes pushed to new 52 week highs during the week, with the DJIA and Russell 2000 also continuing to post new all-time highs through most of the week.
The interest rate on Ten Year Treasuries slipped during the week even into a continued rally in stocks. The disconnection might mean stock traders are not ready to take profits in this run.
It doesn’t seem unlikely the indexes could begin to trade in or near overbought conditions again, with falls to or near the 13 EMA being buy signals.
S&P 500 Constituent Charts
Most of the S&P 500 constituents’ charts continue to look bullish.
Some of the constituent stocks that were in strong moves higher have stalled as they pushed against resistance in the past week or so. While others that had stalled earlier broke resistance in the past week and pushed higher. Several had multiple top breakouts in the past week, and these breakouts often push higher. These resistance breaks often indicate others will follow.
Several stocks that had been in downtrends or were near yearly lows that had begun to round higher in the past week or so now look to be establishing or have established uptrends. Even if some of the stocks that are having trouble breaking resistance were to trend lower for a time, it looks like there are replacements beginning to move higher. This is generally a bullish indication.
Several of the constituents that are still quite far below 52 week highs are currently in very strong moves higher.
Several moved strongly higher in runs that were already at 52 week highs too.
Many of the index stocks are pushing into overbought levels, but it doesn’t seem unlikely that many could continue to trade in overbought conditions again in a run higher. Some of the constituent stocks are currently pushing against resistance and trading more or less sideways. These sideways moves will allow many of these stocks to fall from fully overbought.
Some stocks have pulled back to likely support levels and fallen from fully overbought, and these stocks could begin to rebound while others take short pullbacks.
Overall the constituent charts continue to look very bullish with any sign of weakness being offset with strength elsewhere. Many of the index stocks are reaching overbought levels. It doesn’t seem unlikely that at some point some profit taking will be made. At the same time it seems likely stocks could hold in or near these overbought conditions for the time being.
The -2% L is currently active, the new and newly named 100’s level resistance and all-time high resistance indicators are currently active, and a -/+90 D indicator became active with Thursday’s close. See a more detailed description of the indicators I have developed through my research here. I have not yet updated this page for any of the new indicators.
The recent increase in indicators is not necessarily bearish; however it shows an increasing chance of volatility.
The -2% L indicator did not provide a correct indication in the past week. Even though we have seen a recent increase in indicators, it still appears unlikely that we will see daily moves reaching volatile levels (those of 2% or greater).
Thursday closed within $1.64 of 1564.87, the closing price needed to fully cover the 1549.38 drop resistance. It continues to look likely this resistance will be covered.
A new 90 day indicator became active with Thursday’s close. The stringer reached ten days before breaking making this a full 90 D indicator. This indicator nearly always points to extremes, the highest, lowest or as in the case of its last appearance, the flattest periods during the 90 trading day timeframe. It has also been present during other extreme conditions.
Although the changes compared to the indicator date might not hold the actual high or low during this period, it is very often held within +/-12 days surrounding the date the indicator became active. Also many of the extremes seen on the index that finished or started outside this indicator’s presence, had the market event that led to this extreme occur during the active period of this indicator.
For instance the Sept 30, 1986 ninety day indicator finished 21.06% higher, but the 90 trading day period about a month earlier on Aug 29 finished just 1.29% higher. Prior to this indicator becoming active only one day finished with a 90 trading day period over 10% higher that was not within the +/- 12 trading day window during its tenure (this basically covers 180 trading days, the 90 days in the indicators tenure and the 90 days prior on the first day of comparison). That day was only one day outside the -12 day window. There were many that finished over 20% higher after this indicator expired, but many of those were riding higher mostly on the run that happened late in this indicator’s active period.
The last appearance of the 90 D indicator that became active on Aug 20, 2012 finished just 0.57% higher and not one 90 trading day period during its tenure finished closer to no gain or loss. Aug 16 finished only 0.11% higher on the -12 day side.
The Aug 6, 2008 indicator finished 31.76% lower and reached a low of 41.63% while it was active. There has only been 32 ninety trading day periods that finished holding a loss of 40% or greater on the S&P 500 since 1957. The +/- 12 trading day window along with the date of this indicator held 25 of the 32. The remaining seven all fell within 10 trading days outside this window, with three on days 13, 14 and 15 on the +12 day side of the window and two on days 13 and 14 on the -12 day side of the window.
The indicator also occasionally holds both highs and lows at or near the extremes in the 90 day period. For instance the Oct 15, 1962 indicator dropped 6.60% before rebounding 16.15%. It did not hold the highest 90 trading day price move, yet all but one move higher came within the +12 day side of the window with the one outside the window falling on day 13. There were no moves lower during the indicator’s active period, although two were lower within the -12 day side of the window. The rebound produced many moves in excess of 20% after the expiration of the indicator, but the bulk of these moves occurred during the indicators presence.
Since both the 100’s level resistance and all-time high resistance indicators are active as discussed in last week’s Preview, it seems possible this indicator could begin with a move lower. I do not believe this move will be large if it occurs, however if the drop exceeds 5.2% (based on Thursday’s close) it will be the largest drop seen within the past 90 trading days.
Most of the data and charts appear to be quite bullish at this time and it seems possible this bullish trend could extend further. Most of the indicators I use to try to determine this indicators direction are also bullish. A break above the triple top on the S&P 500 could also start a run that sends the index much higher.
In this instance the data appears to show the indicator has the potential to be a dual direction indicator. Although it seems fairly likely the market will push somewhat higher first, it seems possible we could see a drop that reaches levels lower than those seen in the previous 90 trading days due to the 100 level and all-time high resistances. It also seems possible that the market could rebound from this drop and exceed the percentage increases seen in the past 90 trading days. For these reasons I have given the indicator a -/+90 D rating.
It is also possible these resistance levels could cause a sideway move on the index; however the data I have uncovered due to the last flat finish of this indicator leads me to believe the index will probably not stall for very long at this level.
A few things I find interesting about the 90 D indicator based on occurrences since 1957:
During rebounds from crashes the S&P 500 finished the 90 trading day period higher 89.8% of the time and of those that did not, the lowest finish was 7.48%. Although two fell deeper during their active period, both rebounded significantly before the active period expired. Since the S&P 500 had not yet reached a new high when the indicator became active this time, it is considered a crash rebound occurrence.
When it becomes active after reaching new highs, the indicator finishes higher 77.5% of the time, but holds more total occurrences of 20% moves higher under its presence than during rebounds.
Of those that happened during rebounds or after reaching new highs, 15.6% finished without seeing a market close lower than the day the indicator became active.
The indicator starting date is nearly twice as likely to finish 20% or greater higher than a normal trading day based on percentage of occurrences.
It is slightly greater than ten times more likely to see a move of 20% or greater higher from a trading day that falls within the 90 trading day period of this indicator, based on percentages of occurrences. There are increases seen in other higher levels, but I have not yet completed the data collection process.
When this indicator finishes at an extreme flat, as it did in its last appearance, the market nearly always runs substantially higher after the indicator expires, as it also did in the last instance.
While this indicator was active, all but one that finished 10% or greater lower happened in already established downturns during market crashes. In total only three moves reached or exceeded 10% that were not during market crashes.
During established market crashes the indicator finished higher only 29% of the time. In all but one occurrence the S&P 500 moved lower during the indicators presence, and all but four reached significant levels (3% or greater lower), although eight rebounded to finish higher and one of those finished 11.45% higher. The only occurrence that did not push lower finished 12.03% higher.
During market crashes, the indicator saw moves in excess of 10% lower 54.8% of the time. Of those 41.2% rebounded to finish in excess of 10% higher than the low including one that finished in excess of 20% higher than its low. During three occurrences the indicator expired at 90 trading day lows. The other 28 rebounded on average 6.3% from the lows before expiring. The S&P 500 dropped in excess of 20% eight times when this indicator was present, but only three finished 20% or greater lower than they began.
This indicator was active when every drop of 30% or greater was registered, although some 90 day periods began before or finished after this indicator’s active timeframe, the drops that brought them to the 30% level occurred during a presence of this indicator.
Current Cautions
There are many reasons to be bullish at the current time, and even if a pullback is seen, it seems fairly likely the trend will continue to be bullish for the foreseeable future.
There has been an increase in active indicators over the past two weeks, and although these indications are not necessarily bearish, the increase in indicators shows an increased potential for volatility.
The S&P500 closed Thursday just $1.92 short of the record high close and the $1.64 short of the 1564.87 closing price required to fully cover the 1549.38 drop resistance. Chances are very good that the index will close above these levels, but not a certainty.
It is possible that the index could see a significant pullback as it breaches or nears the 1600 level; however the current push higher has seen many bullish indicators that would suggest this run could continue past this level. Index and constituent charts do not appear to support this pullback at the current time.
It seems fairly likely this drop will be less than 5% if it occurs. It has the potential to drop further due to a pullback from an apparent triple top chart formation on the S&P 500 if the pullback increases selling due to this chart formation, however it does not seem likely the drop will exceed 7%. If a pullback is seen, it will probably be a good time to add.
Comments
I was asked in a meeting this week if I thought stocks were way undervalue based on P/E’s, when asked I immediately thought of the five stocks in the S&P 500 that traded with TTM P/E’s under one in March 2009. All five of these stocks have substantially increased earnings since, all are trading near or over 20 times higher and all have P/E’s above ten now.
Based on this and other comparisons that came to mind I answered, “No, stocks are not way under value right now, but stocks normally run way overvalue before crashing.”
I think I may have left the wrong impression with this response. In comparison to where stocks were in 2009, 2010, 2011 or even 2012, they are not way under value anymore, but I feel most stocks are still quite far under value based on the past year’s earnings and that it seems fairly likely most will continue to increase these earnings substantially going forward.
I was asked to supply a link to the historical charts I published earlier in my articles. Yearly and ten year historical charts of the S&P 500 are available at the following links.
One year charts
Many of these sources of information were used in this article.
Have a great day trading,
ronz
Disclosure: I am currently about 87% invested long in stocks in my trading accounts. The change in my investment level over the past week was due to the purchase of one issue with the cost of this purchase more than offset by the sale of three issues and dividend payments. I still consider myself slightly oversold; however I have and will continue to sell stocks that reach long or short term targets. I will receive dividend payments from 8 issues in the coming week and 17 in the following week, if I make no further investment changes during this timeframe, these dividend payments will reduce my investment level due to rounding.
Disclaimer: What I provide in the Stock Market Preview is my perception of the current conditions and what I think is the most probable outcome based on the current conditions, the data I have collected and the extensive research I have done into this data along with other variables. It is intended to provoke thought of the possible market direction in my readers, not foretell the future. I do not claim to know what the stock market will do. If the stock market performs as I expect, it only means I am applying the stock market history to the current conditions correctly. My 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.
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