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Stock market preview for the week of May 5, 2014

The New York Stock Exchange closed at record highs in the last three sessions. The Dow Jones closed at a record high Wednesday, its first record high close this year.
The New York Stock Exchange closed at record highs in the last three sessions. The Dow Jones closed at a record high Wednesday, its first record high close this year.
Photo by Spencer Platt/Getty Images

The S&P 500 pushed higher in three trading sessions finishing with a gain of 0.95% for the week. The index has closed with increases in 10 of the past 14 sessions.

Average daily volume levels increased 22.60% compared to the average daily volumes of the previous week. Monday finished with the largest gain of the week and also had the week’s highest volume. Friday’s small setback held the week’s largest loss and also finished with the week’s lowest volume. The week’s highest volumes were seen during the three days that had increases with lower volumes seen on the two days the index retreated. The five day volume variance increased 6.02% over that seen in the previous week to 27.70%.

The S&P 500 continued lower early Monday reaching a low of 1850.61 before rebounding higher at the lower resistance of the 1850 to 1865 Midrange Resistance Level (MRL). Although Thursday and Friday finished with small losses, the index has seen progressively higher intraday highs and intraday lows since Monday. It appears the resistance at 1883 is faltering, but the index has yet to fully break loose of this resistance.

Major Stock Market Indexes

The index charts of the Dow Jones Industrial Average, S&P 500, NASDAQ, New York Stock Exchange and Russell 2000 showed continued bullishness after all turned higher from intraday lows on Monday.

The NASDAQ and Russell 2000 lag in the recent turn higher, but continue to show signs a move higher has begun. Although both finished Monday with losses, both turned bullishly higher from an intraday low Monday that was higher than seen in the previous cycle. Both moved higher in three of the following four sessions. The latest bullish signal followed a break above the upper trend lines of their downtrend seen in the prior week and a sharp rebound from the previous low that turned the 13 EMA higher the week before. The rebound off Monday’s low has not yet reached a high higher than the previous cycle, but if this higher high is reached it would break their downtrends. Many would likely see this as a confirmation that a move higher is in progress. Since these indexes have taken deeper drops, if this confirmation is seen it could lead to a catch up rally on these indexes.

The S&P 500 and Dow Jones charts continued to saw bullishness. Both rebounded bullishly off of support levels at intraday lows Monday to finish that session with the week’s highest gains and to a quick close back above their 13 EMA after finishing the previous Friday below it. They continued higher in the following two sessions before slipping slightly in the next two.

Neither index has managed to push above earlier intraday highs, but the Dow Jones finished April at a record high close on Wednesday, being the first time this year it has edged above the previous record set on Dec 31, 2013. The Dow was the last index to reach a close higher than that seen in 2013.

The S&P 500 finished with progressively higher intraday highs and higher intraday lows following Monday’s rebound and the lows continued to widen the gap above the 13 EMA. It also appears to be breaking through resistance it has seen around 1883. Upward tension appears to be building in the constituents, so a break free of this resistance could spring board the index higher.

Although the other charts looked bullish, the New York Stock Exchange outshined them in the previous week, as it pushed higher in all five sessions. It too slipped lower early Monday and rebounded bullishly off support to finish the session with a gain and a quick close back above its 13 EMA. Like the Dow Jones it pushed to a record high close on Wednesday, but increased on this record in the following two sessions. Like the S&P, it also has seen progressively higher intraday highs and lows and is seeing the lows widen the gap above the 13 EMA. Friday’s intraday high was also a record, making it the first index to break to a higher intraday high in this rebound. The New York Stock Exchange has moved higher in 11 of the past 14 sessions.

The index charts continue to develop bullish traits in their charts. Most economic news is encouraging and most earnings reports have been good. It seems possible the indexes could continue higher in the week ahead.

US Treasury Charts

The 20 year US Treasury Bond slipped in Monday and Tuesday’s sessions, falling below and closing below the 13 EMA Tuesday. Treasuries bullishly rebounded Wednesday back above the 13 EMA and continued higher for the remainder of the week. Long term treasuries finished Friday at their lowest rates of the year and the 20 Year Bond closed at the highest price since June 18, 2013. This chart continues to be very bullish. Long term Treasuries are fully overbought at the current time.

The yield curve shows 10, 20 and 30 year Treasuries finished Friday at their lowest rates of the year. This is a somewhat bearish indication for stocks. Shorter term Treasuries are trading quite differently. Five and seven year Treasuries Notes are near the year’s medium interest rate, the two and three year Treasuries Notes are near the year’s highest rates, while the one month, three month, six month and one year Treasury Bills are near the year’s lows.

The interest rate on the 10 year US Treasury Note pushed higher Monday and Tuesday, but fell fairly steeply for the rest of the week. Friday’s intraday low was the lowest of the year, breaking below the Feb 3 bottom. The low provided the second lower cycle low in series and also followed a lower high in the previous cycle. A lower high in the next cycle would establish a downtrend in this chart.

Gold

Sunday night gold slipped to about 1303 and traded between there and 1305 before rebounding to about 1307 shortly after the Hong Kong open. It slipped off that high to finish the night at about 1304.

Monday gold trended lower to about 1298 just before the New York open. It pushed higher in early NY trading to 1304 but then fell sharply to 1293. It rebounded to almost 1300 and trended slowly lower off the high for the rest of the night finishing at about 1295.

Tuesday morning gold held tightly near 1295 in early Hong Kong trading before resuming the downtrend, falling to about 1287 in early London trading. It rebounded off this low back to 1290 and held relatively steady until pushing quickly higher to 1300 after the New York open, trending lower off this high for the rest of the night to finish at about 1293.

The downtrend continued Wednesday until reaching a low of 1286 early in New York. It rebound sharply off this low to 1295, falling nearly as sharply back to 1287 and then held within a few points higher of this low for a couple hours. It again pushed sharply higher to near 1295, trading within a few points lower of this high for several hours, until it again pushed sharply higher to 1298, falling nearly as sharply off that high to 1290. It finished the New York session with a bouncing trend lower that continued for the remainder of the night, ending the night at about 1289.

Thursday gold limped back to 1290 in the early Hong Kong session before descending to 1283 and flattening at the London open. It eventually bounced back to 1286 before slipping again to 1279 by the New York open. It bounced quickly to 1285 but dropped back to 1278 nearly as fast in early New York trading. Gold trended slowly back to 1286 before the New York close, but trended lower to about 1281 after the Hong Kong open, finishing the night in a slow weak rebound back to 1283.

Friday saw gold slip slowly back to about 1281 in Hong Kong before trending slowly higher into the New York open. It reached about 1287 before flattening near this level for the first hour of the NY session, after which it dropped sharply to 1278, bounced back to 1285 and trended slowly lower to 1281. It rebounded steeply in two stages about an hour apart to 1304. Gold then took a long bouncy trend lower to about 1296 before inching slowly higher into the New York Spot close of 1300.30 which was lower than the 1302.80 New York Spot close of the previous week.

Gold spent most of the week in downtrends. Nearly all upward movement seen during the week was in short bursts higher with many of these burst falling nearly as quickly lower or in long shallow moves higher. Gold prices have been lack luster for several weeks.

Based on the London PM fix, the April 30 PM Fix of 1288.50 was 0.25% below the March 31 PM Fix of 1291.75, giving gold the second monthly loss on the year. Based on the New York Spot close the April 30 close of 1291.40 was 0.50% higher than the March 31 close of 1285.00, giving gold the third monthly increase on the year.

Gold charts make it appear gold is in a continued downtrend. The daily charts show gold has reached lower lows and turned lower at lower highs since breaking lower in March. The long term charts also show gold breaking lower from a lower high in March than that seen in August 2003, with the recent downtrend off this high making it appear gold could be continuing lower in the longer term trend off this high. This makes it seem possible gold could continue lower to retest the lows seem in 2003.

The lack luster performance of gold during a time that should have provided reason for investment, the Ukraine crisis, adds reason to be cautious.

S&P 500 Constituent Charts

Overall most constituents maintained bullish postures in their charts and some that were in bearish postures appear to be turning bullish again.

The past week saw several constituents that are in downtrends turn higher from a low that was higher than the previous cycle. Some pushed to a higher high in this rebound, breaking their downtrends and many are near a higher high.

Others have pushed off a low lower than the previous cycle to a high that was higher than the previous cycle, breaking above the upper trend lines of their downtrends.

Several stocks reestablished uptrends after recent drops in the past week. Several others are near to establishing uptrends.

Not all the constituents in downtrends have broken higher, but many that have continued lower are nearing likely support levels they have trended higher off in the past.

Several stocks that broke strongly above resistance recently have continued in moves higher. Others have broken above resistance in less profound moves, but have also continued higher. Many others are near resistance levels and many appear to be edging higher through these resistances. The increasing numbers of resistance breaks is a bullish indication.

Most of the constituents in bullish moves continue to hold bullish trends; even those that saw pullbacks in the past week held or rebounded off support within trend. Some that dropped below trend after news related drops rebounded strongly back into trend, some recapturing all or most of the drop in a session.

There were 26 constituents that finished the week trading less than 1% from 52 week highs, unchanged from the previous week. Both of these time periods included two constituents that are in the midst of being acquired and are trading near the proposed acquisition price with the recent trading range being less than 1% of their 52 week highs: LSI Corp (LSI) and Allergan, Inc. (AGN) and this week’s data includes Pepco Holdings, Inc. (POM) that was offered a buyout by Exelon Corp (EXC) during the trading week, but does not include Beam Inc. (BEAM) that was dropped from the index Wednesday due to Suntory Holdings completing its buyout of Beam. Although these changes did not affect the data presented above this week’s data includes Beam’s replacement Under Armour, Inc. (UA) and also includes SLM Corp (SLM) spinoff Navient Corp. (NAVI), which replaced SLM in the index on Wednesday and omits SLM. As stated early, only one class of stock will be used in data for the index, as a result only Google Class B shares (GOOGL) are used and not the non-voting Class C (GOOG) shares dumped on shareholders in its recent split. The index continues to use both.

Many constituents are breaking above resistances while many others are testing resistance levels. Several have broken downtrends and established uptrends, others appear to be breaking downtrends or establishing uptrends from recent breaks. This is adding upward tension to the index. Continued breaks of resistance and trend changes higher could provide a quick burst higher on the index.

Interesting Points

Friday’s close saw 341 (68.20%) of the constituents finish the week with gains, five (1.00%) finished unchanged and 154 (30.80%) saw losses.

The weekly price change shows that stocks with a share price over $100 continue to perform below their lower priced peers. Based on the 86 constituents that finished with share prices over $100 a week ago, the average gain was 1.27% and two finished the week below the $100 threshold. Although 63 (73.26%) finished with gains, they only accounted for 52.81% of the total even weighted dollar gains on the index during the past week when they accounted for 84.12% of the total even weighted dollar loss on the index during the previous week. Based on the even weighted dollar losses recorded in the previous week and gains seen in the current week, the stocks over $100 recovered losses seen in the previous week and added a 9.87% gain on these losses.

In comparison, the 414 constituents that had share prices under $100 a week ago had an average gain of 0.84% in the past week. There were 278 (67.15%) that finished the week higher and one finished the week above the $100 threshold. Although a smaller percentage of the under $100 stocks increased during the week and the increase was smaller, a lower percentage recorded losses in the previous week and the total losses were smaller. They accounted for 47.20% of the total even weighted dollar gains on the index during the past week when they only accounted for 15.88% of the total even weighted dollar loss on the index during the previous week. Based on the even weighted dollar losses recorded in the previous week and gains seen in the current week, the stocks under $100 recovered losses seen in the previous week and added a 420.30% gain on these losses.

The largest dollar loss by a stock trading above $100 for the week was seen in Waters Corp (WAT) that finished $8.80 lower shedding 8.10%. The largest loss by a stock trading under $100 was seen in Coach, Inc. (COH) which shed $5.94 or 11.92%. Stocks over $100 accounted for the two largest, three of the top four and eight of the top 18 largest dollar losses on the index over the past week.

The largest weekly percentage drop by a constituent was also accredited to Coach, Inc. (COH) which shed $5.94 or 11.92%. Only two of the top 14 percentage decliners were trading over $100 when the week began, with the largest loss seen in Waters Corp (WAT) that finished $8.80 lower shedding 8.10%.

Two of the stocks that were trading above $100 finished in the top ten percentage performers for the week. Wynn Resorts, Limited (WYNN) had the third largest percentage increase seeing a weekly increase of $20.19 or 10.02%. Ameriprise Financial, Inc. (AMP) had the seventh largest percentage increase with a weekly change of $8.81 or 8.51%.

The data provided over the past few weeks continues to show what long term studies of stocks trading over $100 appears to show, that being that stocks trading at high share prices tend to eventually begin to underperform their lower priced peers. Many of the stocks trading above $100 appear to have reached this stage, yet some have not. Those that have not are adding some buoyancy to those that have.

This data will continue to be collected and some refinements will be made to better show this disparity, but due to the time required to process it, other issues that need to be investigated and a self-imposed deadline for publishing this article, it will not be possible to continue weekly updates. Instead as time permits periodic updates will be made.

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 +2% H, -2% L, +/(-) 90 D and 100 L indicators are currently active. See a more detailed description of most of the indicators developed through research and featured in these articles here.

The +2% H 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. This indicator fell into a low state at the close on Friday.

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.

+2.98 / -1.12% / 2.44%.

The S&P 500 is pushing higher into resistance at the 1883 level, but has not yet broken free of this resistance. Wednesday finished at 1883.95 and Thursday at 1883.68 showing this resistance is beginning to offer support. Friday’s finish at 1881.14 is somewhat below the actual resistance level, but the close still found support within the bandwidth around this resistance. Even though the last two sessions finished lower, each session hit a higher intraday high above this resistance with Wednesday reaching 1885.20, Thursday 1888.59 and Friday 1891.33. These higher pushes show weakening in this resistance.

The index pushed above this resistance earlier, and appeared to break it in that move with three consecutive closes above it occurring April 1 thru April 3. Normally broken resistances fall more easily in retests from rebounds than has been the case in this occurrence.

Many of the constituents are breaking above resistances and several appear to be transitioning into up trends. It seems possible the upward pressure created in these moves higher could continue to push the index past this resistance level in the week ahead.

Current Cautions

The index saw a volatile daily decrease of 2% or greater and the resistance within the 100 L provided a significant pullback on the index, with the pullback reaching 3.98%. Resistance near the 1883 level has yet to be broken, but the index continued to see higher intraday highs above this resistance during the past week.

Monday’s retreat rebounded off support at the lower resistance of the MRL at 1850. The previously broken resistance offering support is a bullish indication. Although resistance at the 1883 level does not appear to have given way, it too began to offer support in the past week.

The 90 E indicator expired during a price direction change higher, so it seems fairly likely this move could continue higher.

Average daily volume levels increased 22.60% compared to the average daily volumes of the previous week, being somewhat inconsistent with bullish conditions; however the week’s largest volumes were seen in moves higher, and lower volumes were seen during setbacks. This would appear to indicate buyers are entering and few are selling into these setbacks. The five day volume variance increased 6.02% over that seen in the previous week to 27.70%. The variance levels were widest at the two extremes of price direction change, with highest volumes occurring into the largest price run up and lowest volumes into the largest price retreat; therefore the widening of the variance appeared to be bullish. Even though the variance was elevated, it remained near those often seen during bullish conditions.

The next likely area resistance could be found once the index passes the 100 L at 1900 is in the Midrange Resistance Level (MRL) between 1940 and 1955. The MRL appears to have the potential to cause a significant pullback, but probably not a large pullback if one were to be seen there. It also seems possible the index could move past this level without incidence.

There is a slight chance that resistance could also be seen at 1970, but this resistance does not appear to have the potential to cause a significant pullback. If the resistance at 1970 is seen at all, it will probably do little more than slow the index’s ascent.

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 seven to 16 months if it reaches this level near the upper trend line and within 34 to 40 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. More details of this potential resistance can be seen in past articles.

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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Have a great day trading,
ronz

Access link to all of Ron’s past articles.

Disclosure: Ron has investments in POM and EXC. Ron has no investments in LSI, AGN, BEAM, UA, SLM, NAVI, GOOGL, GOOG, WAT, COH, WYNN or AMP.

Ron is currently about 85% invested long in stocks in his trading accounts. His investment level increased over the past week due to the purchase of three issues and dividend reinvestments in four issues with the cost of these purchases partially offset by the sale of three issues, a tender redemption and dividend payments. Ron feels comfortable with his investment level at the current time and plans to try to stay near this investment 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 two issues in the coming week and 11 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.