The S&P 500 pushed higher in three sessions edging 0.11% higher for the week. The index has finished higher in 14 of the past 18 sessions and risen in 127 of 212 trading days this year. Thursday the S&P 500 finished October 4.46% higher than what it closed September at.
For the third week in a row Monday’s volume was the lowest of the week, but considerably higher than the previous two with Thursday having the highest volume. The 13 DMA for volume has increased 4.29% over that of the previous week’s finish with all but Monday finishing above the then current 13 DMA. Volume’s 13 DMA has increased 13.42% over the low seen 14 days ago.
The rebound in volume continued to increase the average daily volume for this year. Nine of the past 13 sessions have finished above the current yearly average. It continues to seem possible that an increase in sidelined cash is moving into equities.
Major Stock Market Indexes
The major indexes, the DJIA, S&P 500, NASDAQ, NYSE and Russell 2000, continued to see a slowing in the rally during the past week but the indexes continued in mostly bullish trends.
All reached new 52 week highs during the week although all tapered slightly off these highs later in the week. The Dow finally broke to a new record high close on Tuesday and reached an all-time intraday high on Wednesday before slipping back to close lower. The S&P 500 and Russell 2000 also reached new intraday record highs and finished at record closes during the week.
Although there was a pullback on all the indexes starting late in the session on Wednesday after “disappointing” news from the Federal Reserve, all but the Russell 2000 rebounded on Friday keeping the drop to a bullish two days. All but the Russell also rebounded from this drop above, at or near the 13 EMA. The Russell broke through the 13 EMA and has closed below it during the past two sessions, but still remains fairly close to this level.
Most stocks and the indexes continue to hold near overbought conditions, although the pullback relieved most from the extreme levels they have held for some time. It is not impossible the pullback could continue, but the drop already seen might be enough to allow stocks to continue to push higher.
US Treasury Charts
The price on the 20 year US Treasury Note slipped lower early in the week before dropping considerably late in the week. This drop was likely due to the Fed hints that the draw down in bond buying might be closer than many thought. The pullback appears to be nearing possible support, found near the lows seen during the stall pattern and the lower trend line of the recently established uptrend. If this support fails it does not seem unlikely the 20 year could resume the downtrend it was in earlier. The 20 year is just breaking from fully overbought and it seems fairly likely the recent Fed news could bring it lower. This chart still appears mostly bullish, but the possibility that significant down pressures could be closer than many originally believed could cause a trend reversal.
The 10 year US Treasury Note interest rate began to rebound early in the week with this rebound accelerating late in the week. The 10 year has broken above the lows seen during the earlier stall and pushed back above the 13 EMA with Friday’s rebound touching the 50 EMA, but it is not yet above the upper trend line drawn from Sept 11 and Oct 16 highs. This chart has not broken recent bearish trends but the rebound so far has only nudged the 10 year rate out of deeply oversold conditions. Given the recent Fed news it does not seem impossible the rate could continue to rebound in the week ahead.
The bullish posture still present in US Treasury price charts is generally somewhat bearish for stocks, although the recent selloff was somewhat bullish for stocks.
Gold continued slightly higher into Monday before rounding off and falling through the rest of the week. The drop completely erased the previous week’s gains. Friday’s New York close of 1315.80 was lower than the previous week’s close of 1352.90 and below the close of 1317.40 the week before. The drop seen during the week also sent gold to the seventh monthly loss seen this year. Based on the New York close Thursday and Sept 30, gold finished October 0.38% lower than it finished September and 0.19% lower based on the London PM Fix. For the year it finished October 20.99% lower than the Dec 31, 2012 New York close and 20.12% lower than the last London PM Fix of 2012 on Dec 28.
S&P 500 Constituent Charts
Most of the constituents continued very bullish runs during the past week.
The recent pullback relieved the extreme overbought levels seen in most stocks. Although there are a fairly large number of stocks that appear likely to continue to hold in or near overbought levels, many of these edged lower during the past week renewing upside potential. Many that have continued to trend fully through the overbought to oversold cycle have fallen to fully oversold with some already rebounding out of these drops.
Constituents continue to break through resistance levels while others renew the potential of resistance breaks by moving into resistances. This pattern is generally bullish as resistance breaks often continue higher.
Overall earnings reports have been very good. Several constituents jumped considerably higher this past week after good earnings reports as has been the case since this quarter’s reports began. Of course some dropped on their reports during this earnings season, but many of these have rebounded with several fully recovering the drop and moving higher since issuing these reports.
Most of the indicator stocks appear to be maintaining bullish runs so it seems likely stocks could continue higher still.
A continued drop is possible, but it looks possible stocks could continue higher in the coming week.
The 90 E, +2% L, -2% L, +/(-) 90 D, +10 E, the second MRL and 100 L indicators are currently active. The first midrange resistance level indicator became dormant after Monday’s close. The 10 E will expire after Wednesday’s close. Wednesday’s high was just above the 100 L’s lower boundary activating this indicator. See a more detailed description of the indicators developed through research here.
One indicator became inactive and one became active in the past week. Several indicators will expire or likely fall dormant in the weeks ahead. This will likely result in a reduction of active indicators and this generally shows a reducing likelihood of volatility. Most other indicators suggest that volatility could remain calm.
The 90E will expire in 7 trading days. This indicator has pointed to a significant direction change higher during its active period.
During the past week the +2% L indicator did not provide a correct indication. Provided there are no volatile moves on the index, this indicator will toggle off with the 90E.
During the past week the -2% L indicator did not provide a correct indication. This indicator will expire in 14 trading days provided there are no volatile moves during this timeframe. It seems fairly likely this indicator could expire without providing a correct indication.
The +/(-) 90 D indicator that became activate on Oct 7, 2013 has performed as follows to this point in the format: highest close / lowest close / last close.
+5.72% / -1.23% / +5.10%
The 10E will expire with the close on Wednesday.
The first midrange resistance level became dormant with the third consecutive close above this resistance on Monday.
The S&P 500 finished Monday at 1762.11 and a little above the lower boundary at 1760 of the second midrange resistance level. Tuesday finished at 1771.95 and just above the upper boundary of this resistance at 1770 but still within the influence of this MRL. The index pulled back within its resistance range on Wednesday, finishing at 1763.31 and near the lower boundary. Thursday slipped blow this resistance to finish at 1756.54 before the lowest intraday drop on Friday rebounded at 1752.70 and finished above the lower resistance at 1761.64.
Friday’s rebound shows support at about 1750, so earlier accounts that the resistance of the first MRL appeared to finish at 1745, might not be accurate.
The 100 L became active when Wednesday’s high reached 1775.22 before slipping to close lower and the high breached the 100 L lower boundary. Even though Wednesday’s close was within the influence of the second MRL, the break into and fall from the 100 L credits this level with the pullback that occurred.
In most data only closing prices are used and daily highs and lows are ignored as they have proven to cause false readings in many indicators. There are a few exceptions with resistance and support levels being two of them. Daily highs and lows often change directions at or near resistance or support levels, while closing prices may or may not reflect this direction change occurred at a resistance or support level.
The resistance band seen at 100 levels is fairly wide, starting 25 points below and reaching 25 points above the 100 level. In this case the resistance range would be 1775 to 1825 also noted as 1800 +/-25. Resistances within 100 levels are not always seen within the entire resistance spread, but resistance is commonly seen within this spread around 100 levels. These resistances may or may not cause significant pullbacks.
There was the potential for a significant pullback within the second midrange resistance although it seemed likely that if this pullback occurred it might not reach a significant level. That potential for a significant drop follows the index higher into the 100 L. Some indicators are currently unclear, neither pointing higher nor lower, but so far indicator stocks continue to appear to be bullish, which would suggest the run could continue higher without a significant drop at least through the lower portion of the 100 L’s range.
The uncommitted stance in several indicators also suggests that if the push higher continues, it might not be at break neck speeds at least for the time being. This could mean that index could struggle somewhat pushing through the current resistances.
The continued increase in volumes, including steady increases in the lowest volume levels seen during the week continues to suggest an increase of sideline cash flowing into equities. Low volumes during recent significant pullbacks would also suggest more investors are becoming comfortable with standing pat through downturns. The combination has the potential to be very bullish going forward.
The index appears to be finding support near the upper resistance levels of the first midrange resistance. It broke briefly above the second MRL but pulled back after pushing into the lower resistance band of the 100 L. Although there is reason to be cautious as the index moves into these resistances, it appears the index is working its way through these resistances while maintaining an overall bullish posture. It doesn’t seem unlikely these resistances could continue to act to slow the ascent of the index for the time being, but many things look to be working to move stocks higher.
Not enough data is available to fully determine how the 100L might react at this time. Early indications make it seem possible the resistance at this level might not be felt until the upper level. The push out of the second MRL and into the lower boundary of the 100 L handed off the potential for a significant pullback to the 100 L, but it still seems possible if a drop develops it might not reach the 3% required to be considered a significant drop. The retreat seen during the past week might have been all the drop there was.
Volume levels continue to increase as the rebound progresses. Although the increases have not been huge, volume levels are stronger in this rebound than those seen in many rebounds this year. Most sessions in the current rebound are finishing with volume above the daily average seen this year. If these volume levels continue to hold up, it could increase the flow of sidelined cash reserves back into securities. If this happens it does not seem unlikely volumes could remain at these elevated levels into and through what has come to be known as the Santa Claus Rally.
The downturns in Treasuries and Gold this past week could send each towards retests of previous support, and both of these supports look prone to failure. Selloffs in each of these could increase the potential cash flow into equities.
Recently there was a decrease in active indicators with several others that will likely become dormant or expire in the weeks ahead. This reduction in active indicators generally shows a decreasing chance of volatility with times of decreased volatility generally bullish.
Although all three of the recent significant pullbacks occurred into similar reductions in active indicators this was not normal and each drop appears to have been aided by news related events. Yet all three of these significant drops did so under low volatility, with only a single volatile move lower seen during the period beginning with the May 20 high and ending with the Oct 8 low, that being a June 20 drop of 2.50%.
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.
Although news that the Federal Reserve may begin to taper easing sooner than expected was met with a selloff in stocks, this reaction is not uncommon. Most often stocks rebound from this initial drop as the reduction in stimulus shows the economy is improving. Most company’s earnings reports seem to echo these improving conditions, although many are still very cautious in their statements made of their earnings.
Although many believe that this stimulus is still needed, the data leads me to believe the extended period that the Fed continued this easing actually slowed the economic rebound. It kept interest rates extremely low and a great deal of money flowing into Treasury bonds and Gold instead of investments and savings that actually help the economy. The low rates diminished savings levels drastically and stifled the mortgage aftermarket.
The low rates also caused banks to impose much stiffer loan requirements in part due to these reduced resources, so even though they were intended to increase loans, loans lagged far behind past rebounds. Worse yet, for the most part those that qualified for these low rates weren’t the consumers that would have helped in an economic rebound; it was mainly those that would have still taken these loans regardless of a few percentage points, but the low rates prevented many would be buyers from participating that would have increased economic activity.
Recent easing in loan requirements as the rates rebounded would seem to support this thesis. It also seems possible as the rates return to nearer normal levels the recovery could accelerate.
Many of these sources of information were used in this article.
Subscribe to receive Email alerts for new articles as they are published near the top or bottom of this page.
Have a great day trading,
All of my past articles can be accessed here.
Disclosure: I am currently about 86% invested long in stocks in my trading accounts. The increase in my investment level was due to the purchase of two issues and monthly dividend reinvestments with the cost of these purchases partially offset by the sale of three issues and dividend payments. I consider myself slightly oversold at the current time; however I have and will continue to sell stocks that reach long or short term targets. I will also continue to add stocks I feel are at a great value through a variety of buy orders. I will receive dividend payments from three issues in the coming week and ten in the following week. If I make no further investment changes during this timeframe these dividend payments will not change my investment level.
Some of the trades made during the past week were due to the repositioning some of my investments as discussed in a previous article. My trading level may be elevated for a time until the realignment of these stock positions are complete.
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.