The S&P 500 had pushed higher in seven straight sessions before Thursday’s dip but it rebounded Friday to gain in four of five sessions during the week and finished 1.98% higher. The index has risen in 107 of 177 sessions this year.
All but Friday finished with volumes greater than the 13 DMA, with the lower volume finish breaking an eight day stretch of index closes with volumes above the 13 DMA and the longest stretch of higher closes since a ten day stretch to Sept 14, 2013. Although volumes are not yet back to yearly averages the 13 DMA has increased 8.09% so far in September.
Major Stock Market Indexes
The major indexes, the DJIA, S&P 500, NASDAQ, NYSE and Russell 2000 are beginning to look bullish again.
The NASDAQ led the charge higher as it broke above all three of its previous cycle peaks and on to a new 52 week high Tuesday. It has traded very flatly since, slipping slightly Wednesday and Thursday, with Wednesday’s pullback mainly due to the setback seen in highly weighted Apple (AAPL). Friday’s close was less than a half dollar move higher on Apple away from a new 52 week high.
All of the other indexes pushed above the previous cycles highs giving a bullish higher high. But none of the others have yet made it to new 52 week highs, although the New York Stock Exchange and Russell 2000 are quite close.
All of the indexes have begun to run higher above the 13 EMA. The NASDAQ and Russell have seen a bullish rebound higher of their 13 EMA as it neared the 50 EMA, while the NYSE and S&P 500 have seen a bullish13 EMA cross above the 50 EMA. The Dow Jones 13 EMA is just slightly below crossing over the 50 EMA.
The turnaround story of the week was seen in the Dow Jones. It easily had the most bearish chart in the down turn. During the fall it was the only index to break its uptrend and the only not to finish last week above either the 13 EMA or 50 EMA. In fact it had not finished a session above the 13 EMA since Aug 5, but it broke that 23 trading day span Monday.
It was a fitting start to the second largest one week point run higher seen on the Dow this year, as it finished 453.56 higher. The title holder is the 497.10 increase seen the week that finished Jan 4, 2013, although that week began with a very large run higher on Dec 31, 2012. The Dow’s run fell short of the largest five trading day point run higher seen this year, but it was topped only by the July 5 – 11 run of 472.55. The five day increase of 3.02% on the Dow was also second to the July 5 – 11 increase of 3.12%.
The indexes are all becoming overbought so it doesn’t seem unlikely there could be some profit taking in the week ahead. Although the indexes are reaching overbought, it does not seem unlikely they could begin to hold in or near overbought levels again. Drops to or near the 13 EMA are probably buying opportunities.
US Treasury Charts
The price on the 20 year US Treasury Note continued higher Monday, but fell to very near the minor support Tuesday before rebounding again Wednesday. It continued higher Thursday but stopped just short of Monday’s high, and then tapered lower Friday. It appears a slight stall developed as it rebounded slightly above support, but it also appears a resistance level is forming at about Monday’s high. One of the two will likely be broken in the week ahead. If resistance gives way, the stall will probably extend, but if the minor support level breaks down it seems possible the 20 year could be nearing meaningful support levels in six to ten weeks. This chart continues to look bearish.
The 10 year US Treasury Note interest rate chart shows the rate fell in all sessions but Tuesday, with this rebound falling short of a new 52 week high. The four dips all rebounded high off or near the 13 EMA. It doesn’t seem too unlikely the 10 year rate could rebound in the week ahead. This chart continues to look very bullish.
The treasury charts maintained within patterns that are generally bullish for stocks.
Gold rebounded somewhat higher Monday, but fell sharply though the support at 1380 Tuesday. It rebounded slightly again Wednesday but trended lower from there for the remainder of the week reaching a low of about 1306 Friday before rebounding to close at 1327.90. It doesn’t seem unlikely gold could retest support at about 1280 in the week ahead.
S&P 500 Constituent Charts
Many of the S&P 500 constituent charts are showing very bullish signs again.
Many of the constituents that had not yet already done so, saw bullish crosses of the 13 EMA back above the 50 EMA during the past week with several more very near this bullish cross. There are increasing numbers of the constituents in runs higher with stock prices that have maintained above the 13 EMA.
The past week saw some constituent stocks that had fallen deeply recently make large gains to recoup all or large portions of the fall. There was also a couple that fell rather deeply.
Several of the constituents stocks forming wedges against resistance levels broke resistance and moved higher during the week, while others began to establish wedges against resistance levels. Some of the constituents pushed through resistance without first forming wedges while still others finished the week pushing against or nearing resistance levels. It seems fairly likely more of the constituents will be breaking resistance higher in the week ahead.
Many of the constituents’ charts that show sharp V rebounds beginning within the past few weeks have already recovered all or most of the fall with some pushing considerably higher. Many others have continued higher in these rebounds and it seems fairly likely most will probably eclipse the tops they fell from.
Many of the stocks that were in downtrends that have not yet rebounded traded sideways through the upper trend line to break downtrends. Several have shown the initial signs that they will likely begin to move higher soon including the formation of wedges on resistances, breaking above the 13 EMA, higher lows in drawbacks causing a rounding up of lower trend lines, etc. It seems fairly likely many of these stocks could begin to move higher.
The current rebound seems to have the staggering pattern built in. The rebound did not carry all stocks higher at once as it often does; some stocks rebounded quickly, reached overbought and as a result pulled back at some point. Some of these stocks have begun their second push higher. Others continued to fall longer before moving higher and are just now reaching overbought while others have not yet reached overbought in their rebounds. There are a few constituents that ran higher against the grain into the fall, that appear to have lost steam and have begun to pullback against the grain of this run. These stocks are taking a well-deserved breather and will likely rebound later. Some have traded more or less sideways into the run so far, although many look to be showing signs of beginning runs higher. The proportions of stocks in varying stages of their runs look quite bullish. Some have maintained downtrends, although many of these stocks are not that far from 52 week highs.
Many of the stocks that saw rebounds above the 13 EMA in possible trend reversals from falls they were in last week, have moved higher and maintained above the 13 EMA this week. A few bumped back below the 13 EMA; however they have maintained patterns that makes it seem likely they could rebound. We have seen several others in downtrends of varying lengths make this break above the 13 EMA in the past week.
Overall most of the constituents are overbought, but many are showing signs that they could maintain in or near overbought conditions for an extended time, including rebounding early in their most recent drop from overbought. Many of the other stocks that are reaching these conditions have maintained overbought for extended periods in the past, so it seems likely many could hold these conditions again. We have had a fairly long run higher, so it doesn’t seem unlikely some profit taking may occur in the week ahead, but the degree that stocks are staggered in their runs could carry the index higher even into this profit taking. A drop to the 13 EMA on most stocks look like potential buy signals.
The -2% L, 100 L, +9 Day and +10 E indicators are currently active. The +10 E will expire after Thursday’s close. See a more detailed description of the indicators developed through research here.
Several indicators have recently expired, and generally a decrease in active indicators shows a decreasing chance of volatility. Periods of low volatility are generally bullish. Although we have seen a significant pullback during the expiration period of these indicators, the pullback was not volatile and occurred under very low volume conditions. It seems reasonably possible the index could continue to rebound very bullishly from this drawback.
The -2% L indicator did not provide a correct indication in the past week. The -2% L indicator will toggle off with the 100 L, provided there are no volatile moves (that of 2% or greater during a session) prior to the 100 L deactivating.
The 100L had a second significant pullback. The deepest close in the current pullback was seen on Aug 27 and was 4.63% lower than the Aug 2 highest close of 1709.64.
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.
+3.50% / -4.77% / +2.19%
The +9 day indicator will expire in 29 trading days.
The +10 E indicator that is active suggests that a continuation move higher is possible after the expiration of the +10 D. This indicator will expire after Thursday’s close.
A follow up on the 90 E indicator that expired on Aug 27 and had became active due to the March 14, 2013 -/+90 day indicator expiration period and extended by the overlap with the April 2, 2013 -/+9 day indicator expiration period. The Aug 27 close this indicator expired on was the lowest close in the significant pullback. Wednesday’s close of 3.28% higher than the Aug 27 close brought this rebound to a significant level (that of 3% or greater) and therefore this indicator pointed to two significant market direction changes, the other being the 4.63% pullback from the Aug 2 high.
The S&P 500 appears to be in a rebound from the significant drop. A solution to the Syrian Crisis without the need for military interventions appears possible. Although it is yet unclear if Syria plans to abide, it has reduced market tensions surrounding these events.
The fall to this significant level was very docile, without any drops reaching the 2% level that historically points to bearish tendencies. Volume levels were also very low with the13 DMA falling over 11% from the August 2 highest close to the lowest close on August 27.
The first nine trading days of September had eight higher closes and has seen over an 8% increase in the 13 DMA. Although volumes are still slightly below the yearly average, they appear to be moving towards this average.
Several indicators have recently expired and others will be expiring during the coming weeks. A decrease in active indicators is generally bullish.
A large bank of cash is waiting on the sidelines as much of the profits taken in Treasury and Gold sales have not yet been reinvested. Recent news stories also point to fund managers that are building cash reserves by diverting fund inflows into cash investments. It doesn’t seem unlikely that when stocks begin to break higher from this pullback we could see a large influx of new money begin pouring into equities. If the selloffs in gold and treasuries continue, it could easily amount to over a trillion dollars in new money. The higher prices and volumes on the indexes could be partially due to this influx beginning.
Timing patterns continue to suggest stocks could rebound due to large selloffs in US Treasuries. This rebound in stock prices could be very large if the drop in treasury prices continues. Treasuries fell through the last meaningful support earlier leaving only minor support levels and remain about 10% higher than where the next meaningful support might be found. It seems fairly likely the minor support levels that hold in drops could fail in a retest. Treasuries finished the past week caught within a narrow band between resistance and the minor support.
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 and another large selloff in US Treasuries that could fuel a rally past this resistance.
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.
Although I did not agree with earlier handling of the Syrian Crisis by Secretary of State John Kerry, I have to applaud his efforts to come to a peaceful solution to the threat of Syrian chemical weapons. Although some believe that a show of force was the right move and that diplomatic solutions are perceived as weakness by our enemies, diplomacy should always be the first step in any altercation and military interventions as a last resort. If Syria refuses to comply with the diplomatic solutions, leaving the US no other means but military interventions to neutralize this threat, I am sure there will be room for these bigmouths on the front line.
I had recently read an article where it claimed that the drop in gold prices from all-time highs was caused by the estimated sale of about $300 Million in gold. I know better, but let’s look at some numbers.
The highest London PM Fix recorded was on Sept 5 and 6, 2011 at $1895. There was about 5.34 billion troy ounces of gold on the market at the end of 2010 giving gold a market cap of about $10.119 Trillion. Of course the supply increased into this high, so this market cap was actually higher.
There were about 5.55 billion troy ounces of gold on the market at the end of 2012. Using the 5.55 billion troy ounces of gold at the June 28 low of $1192 gave gold a market cap of $6.612 Trillion. Again the supply increased into this low, so the market cap was actually higher.
Between the high and low gold shed about $3.507 Trillion in market cap based on the supply at the beginning of each year. The drop in market cap was actually larger due to a longer period from year end into the high, and the higher price of gold into that high. If the sale of $300 million in gold stripped $3.563 trillion in value from gold’s market cap, the gold bugs have a real problem on there hands. It just isn’t likely; a larger amount of gold is added to the supply chain through production in a year than this sale would have added.
It isn’t likely that $3.507 Trillion in gold was sold either. It was very likely much less than that; gold sales were probably nearer to the $900 Billion to $1.2 Trillion range. So from high to low, gold probably lost over $3 in market cap value for every $1 in gold that was sold. It could get worse before it gets better; many of those that recently bought the earlier selloff probably aren’t going to hold it into a sustained fall, and that makes the ratio of the potential drop in market cap to gold sold much higher.
Many of these sources of information were used in this article.
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Disclosure: I have no investments in AAPL. I am currently about 86% invested long in stocks in my trading accounts. The decrease in my investment level over the past week was due to reinvestment of dividends in two issues, the purchase of one issue with the cost of this purchase more than fully offset by the proceeds from the sale of two issues and dividend payments. I consider myself somewhat 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 nine issues in the coming week and seven in the following week. If I make no further investment changes during this timeframe these dividend payments will not change my investment level. I began a dividend reinvestment program through my broker in one of my accounts. I currently plan to reinvest the dividends accrued in this account into one or more issues on a monthly basis.
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.