Here is the preview of the coming week on the S&P 500 from Traverse City, Michigan.
The S&P 500 closed higher in three sessions during the past week, and managed to recoup the fairly large drop that it started the week with to post a 0.17% gain. The index has closed higher in 26 of the past 42 sessions, eight of the past nine weeks and for four consecutive months.
Major Stock Market Indexes
The DJIA, S&P 500, NASDAQ, NYSE and Russell 2000, all slipped fairly steeply on Monday. Each of the indexes reached a lower low in the fall and so far three of the five have rebounded to close higher than they closed the previous week.
The DJIA took a fairly steep tumble Monday as did all of the indexes, but it rebounded quickly to close at new 52 week highs on both Wednesday and Friday. The Dow Jones has finished the past three sessions above 14000, and it appears that it may have broken the resistance that had kept it trading sideways for over four weeks at this level. For the first time ever it finished above the 14000 level for the second consecutive week. The Dow Jones fell from a higher high, to a lower low and rebounded back to a higher high. This is often considered a confirmation move, an indication that the index is likely to continue higher.
The S&P 500 also slipped fairly deeply on Monday reaching a lower low and slipped slightly lower early in the session Tuesday to reach the 50 EMA, where it rebounded higher. The drop also brought the index quite close to the lower trend line of the major trend in the rebound from the November lows. The index closed on Wednesday slightly higher than the previous Friday, with the continuation of this run on Thursday coming within a half dollar of the intraday high seen on Monday before it slipped into the close. Friday’s close finished higher than Wednesday. The S&P 500 has finished each of the past three sessions above the 13 EMA.
The NASDAQ dropped back to the 50 EMA on Monday, and fell through it on Tuesday before rebounding. Wednesday finished above the previous Friday and Thursday’s run also fell just shy of the intraday high seen on Monday before slipping to finish the session lower. Friday rebounded from Thursday’s small downturn to close higher than Wednesday. The NASDAQ has finished each of the past three sessions at or above the 13 EMA.
The Russell 2000 also slipped to a lower low on Monday, and although it finished higher the rest of the week, it failed to reach a higher closing price than it finished the previous week at. Even so, it has closed at or above the 13 EMA in each of the past three sessions.
The NYSE also slipped to a lower low on Monday, finishing the session at about the 50 EMA and dropping slightly lower in early trading Tuesday before rebounding into the close. Wednesday’s high fell short of the previous Friday’s close, and after a small pullback on Thursday it closed higher on Friday but fell short of Wednesday’s closing price. The NYSE appears to still be struggling with resistance that has held the index nearly flat for the past month. It has also closed at or above the 13 EMA in each of the past three sessions.
The index charts finished the week somewhat mixed. The DJIA chart looks quite bullish and it looks possible it is ready to break free of the resistance that has held it in check. Even though they are not yet pushing to new 52 week highs, the S&P500 and NASDAQ charts are also showing bullish traits in their rebounds from the lower low. The Russell 2000 and NYSE charts do not look bearish, but they have so far fallen short of higher closes than the prior week.
Although Congress failed to come to an agreement to avert the automatic spending cuts the sequester holds, the markets did not seem to respond as negatively as many might have expected. Although the news of a failed vote sent the markets lower into the close on Thursday, Friday rebounded. It seemed likely this pullback would be a buying opportunity if it happened, and it might have been just that.
Although the indexes appear to have rebounded before reaching fully oversold conditions, many stocks are deeply oversold, both on short and long term bases. The indexes and many stocks have rebounded off likely support. The pullback has reached a duration that seemed likely earlier, and although it is not a certainty, it looks fairly likely stocks could begin to rebound again. If they do 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. For the most part pullbacks have maintained within short or long term uptrends and many have rebounded off or are resting near likely support levels.
Not all the charts look bullish; the pullback has set several stocks back towards their 52 week lows. Although none finished Friday at a 52 week low, four of the constituents were less than 1% from a low and four were less than 2% from a low. Even though we had seen a fairly steep retrace earlier, there were only 19 within 5% of 52 week lows after Friday’s close.
On the flipside, there were three constituents that closed Friday at 52 week highs and four others finish a cent off their 52 week highs. There were 78 within 1% of 52 week highs and 136 within 2% of 52 week highs. Over half of the constituents, 264, are within 5% of 52 week highs. There has been a pullback, but the charts continue to look very bullish.
Some will point to the large number near 52 week highs as a reason for a deeper pullback. Consider this before looking for another of the big pullbacks the index has seen earlier and many appear to have grown accustom to. Earnings have been pushing to record highs for nearly two years, and the index has yet to reach an all-time high.
Based on the un-weighted operating earnings of the current constituents, the trailing twelve month earnings are 25.71% higher than the then record earnings that sent the index to those all-time high prices in 2007. Stocks are very much undervalued and they have been held undervalue for a very long time. The index could move 25% higher and still be reasonably priced.
Overall there does not appear to be a bearish divergence present in the charts. Many of the constituents have fallen to deeply oversold levels in this pullback, both on a short term and long term basis. It does not seem unlikely stocks could rebound.
The -2% H (precautionary) is currently active. See a more detailed description of the indicators I have developed through my research here.
The relative absence of indicators is generally bullish as it shows a declining chance of volatility.
The -2% H indicator did not provide a correct indication in the past week. The index is within the influence of the untested drop resistance at 1549.38 and being so the chances are greater for a move of this proportion. However, it continues to look unlikely that we will see a downward move of 2% or greater in a session.
The 1549.38 drop resistance is responsible for the pullback the index has taken over the past couple weeks. So far the pullback has remained below significant levels, falling 2.81% to a lowest close of 1487.85 on Monday from a highest close of 1530.94 on Feb 19. It continues to seem unlikely this drop will reach significant levels.
There are many reasons to be bullish at the current time, and it seems fairly likely the trend will continue to be bullish for the foreseeable future, but the index is within the influence of the final drop resistance of 1549.38 so there is reason to have some caution.
Even though it seems unlikely, there is a chance this drop resistance could cause a significant pullback (one of 3% or greater), however historically pullbacks at drop resistances this near new all-time highs tend to remain fairly shallow. If a significant pullback is seen at this level, it will probably remain less than 5%.
Due to other obligations I have not yet been able to finish Part 2 and Part 3 of February’s earnings updates, but hope to soon. Although it looks like the fourth quarter will fall short of a quarterly earnings record, it will likely finish with the second highest earnings of all time and will still set a new trailing twelve month earnings record.
Many of these sources of information were used in this article.
Have a great day trading,
Disclosure: I am currently about 89% invested long in stocks in my trading accounts. The increase in my investment level was due to the purchase of four issues with the cost of these purchases partially offset by dividend payments. I still consider myself slightly oversold, but I have decided not to reopen most of the recently expired buy orders, and will instead look for opportunities using mostly day orders. I will continue to sell stocks that reach long or short term price targets. I will receive dividend payments from 9 issues in the coming week and 16 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.