The S&P 500 fell in three of five sessions this past week. The markets were riled by the government shutdown and as a result the index finished the week 0.07% lower. The index has slipped lower in 9 of the past 12 sessions, losing 2.72% from the Sept 18 all-time high close to the lowest close since seen on Thursday. The index has risen in 113 of 192 sessions this year.
Volume continued to slip into the current selloff as all five sessions again traded with volumes lower than the 13 DMA. Although the 13 DMA edged higher during the week, if volumes remain at their current levels, the 13 DMA will fall off sharply next week. The average volume over the past ten days is 7.86% below the current 13 DMA.
Major Stock Market Indexes
The major indexes, the DJIA, S&P 500, NASDAQ, NYSE and Russell 2000 continued to show some mixed signals in the past week’s trading.
The Dow Jones, New York Stock Exchange and S&P 500 have all seen prices slip in nine of the past 12 sessions. All three of these charts show some bearish traits.
The Dow Jones continues to show the most bearish chart of the indexes. The Dow has closed below the 13 EMA in nine straight sessions and below the 50 EMA in the last six. It has also seen a bearish cross below the 50 EMA by the 13 EMA. Although the Dow Jones chart is showing some bearishness it has maintained above the lower trend line in the uptrend it established with the previous three major lows beginning with the April 19 low. The Dow has also become deeply oversold in this pullback.
The S&P 500 and New York Stock Exchange charts look very similar in this week's movement, as they have during most of the year. Both had fallen and rebounded near the 50 EMA during the week. Both rebounded to finish the same three sessions above the 13 EMA with one of the rebounds to finish the week slightly above this level. Both have seen their 13 EMA flatten and turn slightly downward in the past two weeks while their 50 EMA has rounded somewhat. Both also traded pretty much sideways during the week and in doing so broke the short term downtrend they had established in the drop from the recent highs and both have become fully oversold.
The NASDAQ and Russell 200 charts continue to look very bullish. The NASDAQ and Russell 2000 both pushed to new 52 week highs during the past week. On Tuesday the NASDAQ finished with the highest close seen since Sept 14, 2000, while the Russell closed at a new all-time high. Both remained in runs above their 13 EMA and both maintained within bullish one to three day pullback durations. They also both continue to maintain in or near overbought conditions.
Investors could continue to remain cautious into the deadline for raising the debt ceiling. However the majority of stocks have become fully oversold and a rebound looks possible in the week ahead.
US Treasury Charts
The price on the 20 year US Treasury Note price dipped a little as it broke slightly lower during the week. This chart continues to show some bullishness, however it is also beginning to show the same signs of failure seen in previous rebounds during the downtrend from the July 2012 highs. The price turned lower as it reached strong resistance and although this drop has been small so far, the 20 year traded flatly below or against resistance before failing in the previous rebounds too. The 20 year has fallen from fully overbought, but is far from oversold. A full retest of previous support is prone to failure and it still seems likely the drop in price could continue considerably lower. This chart is beginning to look somewhat bullish, but this bullish appearance continues to appear it could be short lived.
The 10 year US Treasury Note interest rate chart continues to show some bearish signals. The 10 year rate has fallen in 16 of the past 21 sessions. It has finished the last 12 sessions below the 13 EMA and the past eight below the 50 EMA. The 13 EMA has made a bearish cross below the 50 EMA and both the 13 EMA and 50 EMA are trending lower, but it is also showing signs that it could rebound.
The 10 year interest rate traded very flatly along support during the first four sessions before rebounding to close Friday higher and to finish the week with a small gain. This flat period followed by the rebound higher makes this chart look like it is rounding out of a bottom. This week’s lowest close was on Monday that finished slightly higher than the Sept 25 lowest close and none of the following down days finished lower, Tuesday’s high was slightly higher than Sept 26 high and Friday closed higher than Tuesday. The week long run along support also broke above the upper trend line in the established downtrend from Sept 5 close. Although this chart has taken a somewhat bearish appearance, it continues to hold within bullish trends. It seems possible the 10 year rate could continue to move higher in the week ahead.
The apparent bullishness in the US Treasury price charts is generally somewhat bearish for stocks; however it continues to seem fairly likely this bullishness in Treasury prices could be temporary.
Gold gradually slipped lower throughout the day Monday, but fell steeply into the New York open Tuesday breaking to and rebounding off support at about 1280 during the day as it hit a low of about 1278. Gold pushed steeply higher at the New York open Wednesday, but the rebound fell short of the previous fall. It then traded within a bandwidth from about 1304 to about 1324 for the remainder of the week. The New York close Friday of 1311.20 was lower than the previous week’s close of 1336.20. A break of support at about 1280 could send gold down more steeply as many of the recent “investors” are likely to lose faith in the drop. Although it may bounce here and there on the way down, it probably reaches 1000 before it finds solid support. Gold broke a two month string of monthly increases as September finished lower than it began based on the London PM Fix. It was the sixth monthly drop this year.
S&P 500 Constituent Charts
Many of the constituents that had fallen to or near long term support levels rebounded off these support levels Friday with many of these rebounds being very strong. Many others began rebounds off support during the past week and most of the constituents that had begun rebounds earlier have continued to push higher.
Of course not all the constituents have begun to rebound, but most that did not are deeply oversold and not far above a likely support level. Even stocks in downtrends look like they could rebound off short term support levels.
Most of the constituents that are not fully oversold have either already begun to rebound from a recent low or have been maintaining in or near overbought conditions for several weeks or longer. The past week saw several more stocks begin rebounds well before reaching fully oversold and it seems fairly likely these stocks could begin to trade in or near overbought.
There are a fairly large number of constituents that have pushed above long term resistance. Specifically resistance levels that have held up as resistance many times for ten or more years and are clearly visible in the charts. There are quite a few more that are nearing these types of resistance levels. Many of these constituents have seen long runs higher in past breaks of these resistances.
Several constituents in wedging patterns against resistance will see the current wedge trend lines cross in the week ahead so these wedges will break in the week ahead. It also looks likely many other constituents that are wedging into resistance will see this wedge break one way or the other in the week ahead.
Stocks look primed for a rebound, with a little good news on the debt ceiling negotiations the rebound could easily push to new highs during the week.
It still seems likely many of the constituents could maintain in or near overbought conditions and these numbers could increase later. Drops to the 13 EMA look like a potential buy signal on most stocks.
Indicators
The +9 Day and 100 L indicators are currently active. A 90 E indicator will become active on Monday and with it a -2% L and +2% L. A new 90 D indicator will become active soon. See a more detailed description of the indicators developed through research here.
Several indicators will become active soon, and generally an increase in active indicators shows an increasing chance of volatility. Current events could increase chances of volatility, however most other indicators suggest that volatility could remain calm.
The +9 day indicator that became active on June 18, 2013 has performed as follows to this point in the format: highest close / lowest close / last close.
+4.46% / -4.77% / +2.34%
The +9 day indicator will expire in 14 trading days (the timeframe update was overlooked in the previous article). As a result a 90 E indicator will become active on Monday. A 90 E indicator is active for 27 trading days, beginning 13 days before the expiration date and lasting 13 trading days after the expiration date (also noted as +/-13). The expiration periods covered in many of the past articles were bearish, but this indicator is not always bearish, it has also been very bullish in the past.
Most of the current indicators suggest volatility could remain calm, which is generally bullish. It also seems possible a significant move higher could be forthcoming as stocks look primed for a rebound. This rebound could be thwarted if the negotiations to reach a resolution in the debt ceiling fail to prevent a default, or primed by an agreement that averts a debt default. Although Congress continues to act inept, deep down they know there is too much at stake for our nation for them not to come to an agreement. The default could be very problematic for the Political Parties most would blame for the default in coming elections. There are also legal ramifications to allowing a default that could be very unpleasant for the members of Congress.
Due to these past bullish and bearish instances, both the +2% L and -2% L indicators will also become active. Despite current events, overall the indicators suggest that the expiration period could contain low volatility and therefore the indicators are in a low (L) likelihood state.
The 100 L indicator remains active as the index has fallen back within this resistance level. Although the resistance seen within this level has been much stiffer than the data suggested it might be, the upper resistance barrier has been broken once, which should soften it in a retest.
Normal record keeping practices would accredit the current pullback to the first midrange resistance between 1735 and 1745 (possibly to 1750); however due to the closeness of the pullback to the 100 L it appeared this could be in error. Research shows there are cases of resistance level pullbacks within the 100 L that are similar to the current pullback. This research is not yet complete, but will likely lead to modifications of the normal record keeping practices. These refinements will not likely be made until the outcome is clear in these resistance levels.
A new 90 D indicator will become active soon as a volume stringer that controls this indicator has reached ten days. This stringer has not yet broken, so this indicator is not currently active although it seems fairly likely it could become active during the next week.
Current Cautions
Although recent research makes it seem likely that a rebound will carry the index back above the 100 L resistance level, the data made crediting this pullback to the first midrange resistance look like an error. Therefore the 100 L was reactivated as a precautionary measure.
The 100 L resistance has proven to be much tougher than the data suggested it might be. Much of this added resistance appears to have been news related, including the current pullback, the unpredictability of this resistance level is reason to exercise some caution.
Volume levels continued to slacken into the recent pullback, with all five trading days in the past week finishing below the 13 EMA. The average volume in the past ten days is 7.86% below the 13 DMA. The pullback into weakening volume again appears to show a lack of buyers and not so much an increase in selling pressure. The lack of buyers was probably influenced by the government shutdown and the maladroitness of Congress’s attempts to pass a bill to avert a debt default.
At some point the cash on the sidelines will move someplace, but at the moment it does not appear to be into stocks. This could change with a resolution to the debt ceiling.
Three indicators will become active Monday and another that will likely become active during the coming week. An increase in active indicators generally shows an increasing chance of volatility with times of increased volatility generally bearish. Most indicators suggest that volatility could remain low. It is also possible these new indicators maybe bullish.
The first of two likely midrange resistance levels will likely be found between 1735 and 1745 (possibly to 1750). The data suggests that the resistance at this level might slow the ascent of the index, but this resistance could have been reduced with the second significant pullback within the 100 L. Although the recent rebound in treasury prices looks temporary, it is currently somewhat bearish on this resistance level.
The second midrange resistance level will likely be seen between 1760 and 1770. It continues to seem possible the second resistance level could hold significant resistance. Not all data needed is available to fully investigate this resistance level at this time; any projections made prior to this data being complete are preliminary and could change over time.
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.
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,
ronz
All of my past articles can be accessed here.
Disclosure: I am currently about 88% invested long in stocks in my trading accounts. The increase in my investment level during the past week was due to the purchase of two issues and monthly dividend reinvestments in one of my accounts with the cost of these purchases partial offset by 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 five issues in the coming week and 12 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.
