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Stock market preview for the week of March 24, 2014

The S&P 500 pushed higher into resistance and finished the week with a 1.38% gain.
The S&P 500 pushed higher into resistance and finished the week with a 1.38% gain.
Photo by Andrew Burton/Getty Images

The S&P 500 finished higher in three of five sessions and increased 1.38% for the week. The index has finished higher in 20 of the past 33 sessions.

The S&P 500 again found resistance within the 100 L at about 1883 on Friday as the record intraday high pulled back from 1883.97. Friday’s pullback began slightly higher than the 1883.57 intraday high seen March 7. Even though the increase was small, it shows a weakening of this resistance level.

Volume levels decreased over the past week, dropping 7.10% from those seen in the previous week. Monday saw the lowest volume with Friday having the week’s strongest volume. The five day variance between high and low volumes increased for the week to 84.26%.

The large spike in the five day variance is within levels that would indicate volatile conditions; however none were seen during the week. Friday’s large volume following generally decreasing volume levels through most of the week was responsible for the large increase in the five day variance. Friday’s volume increase was 84.26% higher than Monday, but only 41.88% higher than the previous Friday.

Although the index price decreased Friday, over half of the constituents finished in positive ground. There were 257 with gains and two remained unchanged. The price drop seen on the index was undoubtedly caused by a relatively few constituents that had very large price decreases. There were seven constituents that saw decreases in excess of 5% while there were only two with offsetting 5% moves higher.

A comparison of volumes the constituents had a week ago shows the large increase in volume Friday was widespread, only 54 constituents saw volumes decrease between the two periods. Of those that saw decreases, 22 had share prices that fell. Nine of those 22 constituents had decreases of 1% or greater and all but one had volume decreases greater than 28% with one that had volume fall in excess of 60%.

Many of the largest percentage increases in volume were seen in stocks with large price moves either higher or lower, which is normal. However many of the stocks that saw a large percentage increase in volume saw very little price fluctuation and a majority with volume increases greater than 50% saw stock prices increase. There were 170 stocks that saw volumes increase greater than 50% between the two Fridays and 88 had positive price moves and two were unchanged.

The large increase in volume seen Friday does not appear to have bearish overtures.

Major Stock Market Indexes

The index charts of the Dow Jones Industrial Average, S&P 500, NASDAQ, New York Stock Exchange and Russell 2000 all appeared to begin bullish rebounds in the past week.

The Dow Jones broke and finished above both the 13 EMA and 50 EMA Monday and continued higher on Tuesday. Janet Yellen’s comments briefly unsettled the markets late in the session Wednesday leading to a selloff that sent the Dow back below both, although it rebounded to finish the session above the 50 EMA. It also rebounded quickly back above the 13 EMA on Thursday and has finished each session above it since.

The New York Stock Exchange pushed back above the 13 EMA Monday, but slipped to finish the session slightly below it. It rebounded further on Tuesday, finishing that session above the 13 EMA. Wednesday’s late selloff brought it to a close below the 13 EMA, but it rebound quickly back above it on Thursday finishing above it in each session since.

The NASDAQ also popped back above the 13 EMA Monday, but also slipped to close below it. It rebounded above it quickly Tuesday and held above it into Wednesday’s selloff. It pushed to close higher above it yet in Thursday’s rebound, but slipped to finish below it in Friday’s late session selloff.

The S&P 500 rebounded above the 13 EMA Monday and although it broke below it briefly on Wednesday and Thursday, it finished every session above the barrier. Friday broke to a record intraday high before slipping late in the session to finish lower, but the intraday low held a gap above the 13 EMA in that pullback.

The Russell 2000 had the week’s most bullish looking chart. It gapped above the 13 EMA Monday and held the gap. It maintained a gap above the 13 EMA in Tuesday’s run higher and bounced bullishly higher off the 13 EMA in Wednesday’s pullback. Thursday fell just slightly through the 13 EMA before again rebounding bullishly higher and Friday’s pullback left the session low with the widest gap above the 13 EMA seen during the week. Although the highest closing price of the week was seen on Tuesday, Wednesday’s intraday high eclipsed that of Tuesday and Friday dropped from Russell’s intraday high for the week.

Although some of the indexes again retreated from resistances during the week, it appears they could be working their way higher through them. It seems possible the indexes could continue higher in the week ahead.

US Treasury Charts

The 20 year US Treasury Note price seemed to defy logic in the past week. Although the price slipped in three sessions, it finished the week only slightly lower after a fairly strong rally on Friday. This rebound was only days after confirmation by Federal Reserve Chairwoman Janet Yellen late Wednesday that bond purchases would end by fall and interest rates would be increasing within six months. Both of these will undoubtedly put downward pressures on US Treasury prices in the future. Although the markets shifted lower off of the highest levels seen during the week Friday, Treasuries had gapped higher at the open and spent the entire session with gains, so the rebound was not entirely in response to the selloff in stocks, although a week long sell off in gold may have helped to hold Treasuries higher. Friday’s rebound started from a higher low than the previous cycle, but the 20 year note shifted lower from a lower high on Monday, so this move was not trend breaking. Recent statements by the Federal Reserve make it seem even more likely the 20 year Treasury note could transition into the currently developing downtrend.

Long term US Treasury charts were bullish into the pullback in stocks Friday. This is somewhat bearish for stocks, although it continues to seem likely that treasuries could falter in the not so distant future.

The interest rate on the 10 year US Treasury Note rebounded pushing higher in three of five sessions. Monday’s rebound fell just short of the 13 EMA and Tuesday turned lower after bumping into it. Wednesday pushed solidly higher breaking above both the 13 and 50 EMA’s and it has finished each session since above these thresholds. Friday turned lower leaving Thursday’s high short of the previous cycle’s high. Even so it maintained within the short term trend higher established earlier in the week and it looks like additional upside is possible. The rebound also has not brought the ten year into overbought leaving room for a further move higher. This chart continues to hold bullish trends.

Gold

Gold pushed slightly above 1390 in early trading in Sydney Sunday night, but dropped quickly back to 1380 where it traded flatly to finish the night at about 1381.

It continued to trade flatly Monday morning between 1381 and 1383 until beginning to slip late in Hong Kong trading. It trended lower for the rest of the day to finish the night at about 1360.

Gold held close to 1360 Tuesday until beginning a dip just before the New York open that reached 1352. It rebounded off this low to 1362 about midway through New York trading then slipped back to about 1356 by the close. Gold traded between 1356 and 1360 for the remainder of the night to finish at about 1357.

Wednesday gold trended lower for most of the day, falling to about 1325, but began to rebound at the Sydney open Wednesday night, reaching 1333 to finish the night.

Thursday gold traded between 1330 and 1335 until late in the Hong Kong session where it broke lower and continued lower to reach 1320 just before the New York open. It trended back to about 1332 and rounded lower to 1327 and traded below 1330 until breaking back above it at the Sydney open. It trended slowly higher through the rest of the night to finish about where it began at 1333.

Friday gold again traded between 1330 and 1335 until late in the Hong Kong session, but this time took a quick steep push higher to 1340 shortly after the London open before retreating to about 1337 by the Hong Kong close. It rebounded to 1342 and held near this level until it began to trend lower after the New York open with this trend continuing into the New York Spot close of 1334.70, which was lower than the previous week’s close of 1383.20.

In stark contrast to the prior week, the charts appear to show widespread support for lower prices at the current time.

S&P 500 Constituent Charts

Most of the constituent charts returned to a more bullish stance in the past week, overall the constituents continued to hold within bullish trends.

Like the indexes, many of the constituents that dropped below the 13 EMA and or 50 EMA rebounded back above these levels. Several have started to edge higher using the 13 EMA as a spring board, rebounding at or near this level in moves higher. Not all have pushed back above these levels or held above them in pushes back above them, but many that have not look to be in positions to make moves above these barriers.

Likewise several of the constituents that saw bearish crosses of the 13 EMA below the 50 EMA turned these crosses bullish as the 13 EMA moved above the 50 EMA. Some of these moves were very strong and resulted in resistance breaks that will likely carry these stocks higher.

Some of the constituents that were showing topping patterns in their charts continued in these patterns, but many broke these patterns in the past week.

Many of the constituents are nearing 52 week highs. There are 259 constituents that are 6% or less from 52 week highs and two finished Friday at 52 week highs. Many are in moves that appear likely to continue higher.

Some of the indicator stocks broke briefly lower before rebounding later in the week, while others continued in moves higher.

There were quite a few of the Biotech’s that took large turns lower during Friday’s session due to unsettling news of possible Congressional intervention into pharmaceutical pricing. These pullbacks drug others in the Healthcare Sector down with them that probably would not be affected by these changes if they were to occur. Some would probably actually benefit by these changes. Sifting through the wreckage in this sector could possibly uncover some buying opportunities.

Most of the constituents are far from overbought, with many that are likely to remain in or near these levels. It seems possible the index could continue higher 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, +2% L, -2%L, +/(-) 90 D, 100 L and 90E indicators are currently active. A 90E indicator became active on Wednesday and with it the -2% L came out of dormancy. 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% / +3.55%

The (-)/+ 90 D indicator will expire in 11 trading days.

The +2% L indicator did not provide a correct indication during the past week.

The -2% L indicator did not provide a correct indication during the past week.

It continues to seem likely volatility could remain absent. It seems possible the 2% indicators could expire without correct indications 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% / +1.65%.

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 continued to push higher into resistance found within the 100L during the past week. The index pushed to a higher intraday high in every session but Thursday, with Thursday’s high falling only $0.65 short of the high seen Wednesday. All but Wednesday saw a higher low, with Wednesday’s pullback turning higher at 1850.35 and finding support at the lower level of the MRL from 1850 to 1865. Friday’s low of 1863.46 turned higher near the upper boundary of the MRL.

Both of those rebounds were near support levels of prior resistance and bullish in nature. This could signal further gains are ahead. Before turning lower Friday the S&P 500 pushed higher into resistance seen at around 1883, posting a record intraday high of 1883.97. Although this increase was small compared to the March 7 intraday high, it shows a weakening in this resistance level.

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 renewed support at previous resistance within the MRL from 1850 to 1865 and the upper resistance breach in the past week shows the index is working its way higher through the 100 L resistance. It seems possible the resistance at 1883 could fall in the week ahead.

A 90 E became active on Wednesday. It continues to seem possible the 90 E could be bullish in this appearance.

Current Cautions

The index 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 also activated on Wednesday. Since a pullback within the 100 L has been seen the presence of this potentially bearish indicator 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.

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 the 90 E indicator could be bullish in this appearance.

The index also appears to be working its way higher through this resistance level

Average daily volume again decreased during the past week. The five day volume variance saw a dramatic increase to levels generally seen during bearish conditions. Although Friday saw a large increase in share exchanges triggering the large variance, the majority of this volume increase appeared to be bullish.

Some of the indicators reactivated during the past week and increasing numbers of indicators generally happen during market periods with increasing chances of volatility. Most of the indicators used to interpret market behavior appear to be maintaining a bullish stance and most 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.

Comments:

The market reacted negatively to Janet Yellen’s comments that the Fed will discontinue bond buying by fall and begin interest rate hikes within six months. It’s not uncommon that the market initially drops on this news, but historically speaking, similar Fed action in the past has generally been very bullish. Despite what many believe, the data shows the stimulus and low rates has been a drag on the economy.

This might not be a popular opinion however; Crimea voted overwhelmingly to leave the Ukraine. Unless there is irrefutable evidence that the vote was rigged, not just hearsay of ballots being pre-marked, or unprovoked military action taken against the Ukraine by Russia, it seems any country that holds free elections should also be obligated to abide by the vote of their people.

Precedence set in this instance could allow Russia to invoke sanctions any time they don’t like the outcome of a vote in any of the countries that are imposing sanctions on them now.

Do you want Russia or any other country telling us how we can or cannot vote? It seems the use of sanctions in this instance is a bad choice, as what is used once in world diplomacy is often used again later.

Many of these sources of information were used in this article.

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Have a great day trading,
ronz

Access to all of Ron’s past articles.

Disclosure: Ron is currently about 87% invested long in stocks in his trading accounts. The decrease in his investment level over the past week was due to the purchase of one issue with the cost of this purchase more than fully offset by the sale of three 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 seven issues in the coming week and 27 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.