The S&P 500 finished Friday at a new all-time high of 1759.77. The index pushed higher in four of five sessions this past week finishing 0.88% higher. The index finished higher in 11 of the past 13 sessions and has risen in 124 of 207 trading days this year.
Monday’s volume was again the lowest of the week with the rebound Tuesday showing the strongest volume. The 13 DMA increased 4.55% over that of the previous week’s finish and has increased 8.75% in the past nine days. The rebound in volume is also increasing this year’s average daily volume. It seems possible that some of the cash is being moved off the sidelines, although it appears not all of the sideline cash is moving into equities, as gold and US Treasuries also showed some bullishness in the past week. The fact that cash is moving back into investments is probably a good sign for stocks, even if it some of it is moving into investments other than equities. It shows an increased appetite for risk.
Major Stock Market Indexes
The major indexes, the DJIA, S&P 500, NASDAQ, NYSE and Russell 2000, saw the rally slow a bit in the past week but the indexes continued in very bullish rebounds.
All except the Dow Jones reached new 52 week highs during the week with the NASDAQ and S&P 500 finishing the week at the highest close. Although the Dow again failed to reach a new high, it finished the week about 107 points off the all-time highest close. Several of the Dow components that are in downtrends are showing early signs they may be near a trend reversal and if this continues to develop, it could help the Dow catch up on some lost ground.
The index charts continue to show bullish signs. Pullbacks have held to one day with the next day pushing higher than the drop in most cases. The indexes have begun to maintain overbought levels. All continue to see the gap between the 13 EMA and 50 EMA widen. All the index charts show some evidence of profit taking that caused the ascent to slow somewhat in the past week, but all reached higher highs than the previous week.
Most stocks and the indexes remained fully overbought during the past week and it seems possible that they could continue to hold in or near these overbought levels. It doesn’t seem unlikely profit taking could continue, but if it does not intensify, the indexes could continue to push higher.
US Treasury Charts
The price on the 20 year US Treasury Note pushed considerably higher in the past week and this chart has established an uptrend with two higher lows and two higher highs. The 13 EMA crossed bullishly above the 50 EMA. The stall pattern broke higher and the rebound also broke failure trends that were seen earlier. This chart now looks very bullish. It seems possible treasuries could continue to rebound for the time being although they could take a pullback first as they are fully oversold and the top is rounding lower after nearing resistance. Even though this chart looks bullish and it seems possible it could continue to up trend for the time being, upside potential doesn’t appear big, while the downside risks still do as the potential of significant down pressures may have been delayed, but still exist.
The 10 year US Treasury Note interest rate continued lower in the past week with the drop breaking the stall pattern lower. The chart continues to give a bearish appearance. The 13 EMA crossed bearishly under the 50 EMA. Although not yet in an established downtrend; it has seen two lower lows and a lower high. The 10 year looks to be rounding higher off likely support and is deeply oversold. Since the rate moves opposite of the price, this is indicating the 10 year note is fully overbought, so it seems possible the price could drop and the rate could rebound in the week ahead.
US Treasury price charts confirmed bullish moves and it seems possible they could continue higher for the time being, although they have reached resistance that might turn them lower at least temporarily. The bullish posture is generally somewhat bearish for stocks, but due to increases in investments across the board, may be due to diversification of investments.
Gold continued to taper off from the previous Thursday’s run through Monday but then pushed strongly higher Tuesday, reaching the highest levels seen this month before falling off Wednesday. It rebounded back to these highs Thursday then tapped back to near the earlier low before pushing above Thursday’s high again near the New York close Friday. The rebound in gold from near the 1280 support could continue in the short term, but it seems fairly likely the next retest of this support level could send gold to the lowest price levels seen in the retreat yet. Friday’s New York close of 1352.90 was higher than the previous week’s close of 1317.40 and very near the week’s high.
S&P 500 Constituent Charts
Most of the constituents continued very bullish rebounds since turning higher. As a result most have reached fully overbought levels. Several turned lower though and many of these stocks look to be at levels they could rebound from or have already begun to rebound. If a selloff occurs due to the high levels in overbought conditions, those that fell earlier could soften this drop. It also seems possible that many of the constituents that are in overbought levels could continue to hold in or near these levels.
The constituents continue to break through resistance levels and resistance breaks often continue higher. Several have broken very strongly above these resistance levels. These initial runs often result in a pullback, but most often rebound higher later. As these breaks are made others move into resistance levels renewing the potential for continued resistance breaks. This pattern is generally bullish.
Overall earnings reports during the past week were very good again. Most beat projected earnings and many beat by fairly wide margins, many of those that did not beat reported inline while most misses continued to be small. It continues to look very likely that the S&P 500 constituents will report third quarter’s earnings much higher than expected and also at a new quarterly and trailing twelve month record levels.
Most stocks reacted appropriately to these great earnings as their stock prices moved higher, although some rebounds might have been held somewhat in check due to already overbought levels. These stocks will likely do well in a rebound after a brief selloff. Again some beat estimates but saw large selloffs, but these selloffs could be an opportunity to add. Some rebounded from these large selloffs very quickly, for instance Gannet (GCI) nearly recovered from over a 13% drop during the trading day and finished higher than it fell from the next day.
Most of the constituents are in fully overbought levels, so a round of profit taking might be near. It seems possible many could begin or continue to hold in or near these overbought levels. Even if a pullback develops, it appears sidelined cash is moving back into investments with this move giving the potential for continued large gains in stocks.
The 90 E, +2% L, -2% L, +/(-) 90 D, +10 E, the first MRL and second MRL indicators are currently active. The +9 Day, +10 D and 100 L expired in the past week. A 10 E became active on Wednesday. Friday closed near enough to the second MRL level to enter its influence. See a more detailed description of the indicators developed through research here.
Three indicators became inactive, one appears dormant and two became active in the past week. Others will expire or likely fall dormant in the weeks ahead. This will likely result in a reduction of active indicators and this shows a reducing likelihood of volatility. Most other indicators suggest that volatility could remain calm.
The +9 day indicator that became active on June 18, 2013 expired at this past Thursday’s close. It finished the 90 trading day period as follows in the format: highest close / lowest close / final close.
+6.23% / -4.77% / +6.07%
When the indicator became active it appeared to have bullish tendencies and was given a plus (+) rating. This indicator fell somewhat short of the average increase seen on 9 day indicators with plus (+) ratings of 8% or greater, so in this instance this indicator’s rating appears incorrect. At the same time, had this indicator become active one day later, it would have finished 8.03% higher, with the following three days likely to finish higher still.
There was also a fairly large drop during this indicators presence, but it had no minus (-) rating. The index had seen a fairly large drop during three of first four days the indicator was active, losing 4.77% during that period. The drop had already reached 3.59% when this indicator was rated and it appeared it might be near a rebound point so no minus (–) rating was added. It reached a low that following Monday as it turned off the June 24 lowest close of 1573.09 and began to push higher.
There were two additional significant pullbacks during the indicators tenor that were not anticipated, although neither approached the June 24 low. Although the overall increase seen during the 90 trading days fell somewhat short of that expected for a 9 day with a plus rating, it finished 11.38% higher than the low seen four days after it became active. For these reasons it appears the interpretation of this indicator was mostly correct in this instance.
The 90E will expire in 12 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 more 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 dropped to a low (L) likelihood at Thursday’s close and will remain in a low state for 19 trading days. If there are no volatile moves during that period, this indicator will become dormant. It seems fairly likely this indicator could expire without providing a correct indication.
The 100 L indicator became dormant with Monday’s close.
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.
+4.99% / -1.23% / +4.99%
The +10 D expired at Wednesday’s close and was correct in showing a 5% or greater increase in this instance.
A 10E became active with the +10 D expiration. The 10E shows there is a high likelihood that the rebound seen during the +10 D will probably continue for another ten trading days.
The charts show a defined slowing as it reached the first MRL resistance level, but the S&P 500 has since pushed above both likely upper boundaries. The index also finished the week very near the lower boundary (1760) of the second MRL resistance. At this point the first MRL is still active as there has not been three consecutive closes above this resistance, although it appears to have weakened enough to release and is probably dormant.
It would appear the first midrange resistance level probably did not continue to 1750. The S&P 500 finished two consecutive sessions very near the 1745 resistance the first on Friday Oct 18 with a close of 1744.50 and then on Monday with a close of 1744.67. It broke above this level on Tuesday before retreating Wednesday to finish near this resistance again at 1746.36. Thursday’s low rebounded at 1745.50 and the Oct 18 high was 1745.31. The number of turning points (daily highs or lows) or closes helps define a boundary when it is not clear. Although there were turning points and closes near 1750, none were less than 2 points from this level. The fairly large number quite close to the 1745 level make it seem likely that 1745 was probably the upper boundary of this resistance. This resistance at 1745 also appears to be offering support, which is often the case once a resistance level is broken.
The S&P 500 finished Friday very near the lower resistance (1760) of the second MRL, with the intraday high just $0.18 from the lower resistance and therefore is within this resistance’s influence. If a pullback were to be seen here, it would be credited to the second MRL due to the closeness to this level reached on Friday. There remains a chance that the second MRL, likely to be seen between 1760 and 1770, could cause a significant pullback. Data available as we moved closer to the second MRL resistance suggests that if this pullback develops it might not reach a significant level (that of 3% or greater). In addition although most stocks and the indexes are currently overbought, making a pullback seem fairly likely, it also seems fairly likely they could hold in or near these levels, limiting the depth of the pullback.
Recent volume increases also suggest this rally could have legs and we might be seeing an increase of sideline cash flowing into equities, although rebounds in gold and US Treasuries are also likely taking a share of this cash. Generally the rebounds Treasuries and gold at this point could be seen as somewhat bearish on stocks, but rebounds in all three could be showing an increasing appetite for risk and a willingness to invest this cash. The rebounds also seen in Treasuries and gold could just be diversification of these investments.
Please note there is no established resistance at the MRL levels; the index has not reached these levels before. They are 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, as stated before these resistances could react sooner or later than expected, it is also possible the resistance will not be seen at all.
The index appears to have broken through the first midrange resistance level and is very nearly into the second MRL. Friday’s S&P 500 close was very near the lower boundary. However it was close enough to be within the influence of this resistance and therefore activated this resistance level. The second MRL has the potential to cause a significant pullback, but if a pullback is seen at this level, it might not reach a significant level.
Once the index clears the second MRL level, a new 100L is very close, starting at 1775 and lasting to 1825. 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.
Volume continued to rebound with stock prices, causing increases in the 13 DMA, 50 DMA and the daily averages seen on the index this year. The recent rebounds in stocks, Treasuries and gold prices could indicate sidelined cash is moving back into investments. The increases in all three are likely diversification, but shows investors are again exhibiting an increased appetite for risk. If these volume levels continue to hold up, it could increase the flow of these 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.
Recently there was a decrease in active indicators with several others to expire or that will likely become dormant 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.
I find it interesting that those that were supposed to see earnings fall due to recent events, beat the current estimates soundly, many over by over 10% and also saw year over year increases. As has been evident during the rebound from crash lows, US companies continue to overcome the adversities set in their path to increase earnings. The European downfall, the Japan earthquake, the Thailand floods, the Sequester, the debt crisis, interest rate increases, etc. have been hurdled without missing a step. US companies are doing better than any in the world at adapting to changes to push the top and bottom lines higher. I continue to be very bullish on America.
Happy Birthday Cindy!
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Disclosure: I have investments in GCI. I am currently about 84% invested long in stocks in my trading accounts. The decrease in my investment level was due to the purchase of three issues with the cost of these purchases more than totally offset by the sale of nine issues and dividend payments. I consider myself 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 13 issues in the coming week and 3 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 in preparation to reposition some of my investments due to fee increases discussed in last week’s article. My trading level will likely 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.