The S&P 500 began Monday pushing strongly higher, but fell into news of possible US intervention in Syria during the final hour to finish the session lower. These worries continued to weigh on the index during the remainder of the week as it shed 1.84%. The index has slipped lower in 13 of 20 sessions since the highest close August 2, yet the index has risen in 99 of 168 sessions this year.
Major Stock Market Indexes
The indexes broke higher in early trading Monday, with NASDAQ nearing a new 52 week high, before all broke sharply lower in the final hour after Secretary of State John Kerry’s allegations that the Assad regime had used chemical weapons against the rebels in the civil war in Syria. The strong tone of his speech raised investor tensions that the US could become involved in yet another war. The fall was more profound on Tuesday as all indexes gapped lower at the open as the rumor mill had the US making a retaliatory strike on Syria as early as Thursday. The NASDAQ took the largest dip in this retreat finishing over 2% lower. Good economic news buoyed the indexes on Wednesday & Thursday, but gains were pared back in late trading on both days. Friday took back these gains, but in a reversal of the trend seen during most of the week, the indexes pared losses and rebounded off lows into the close.
As a result of fears of US involvement in the Syrian War, the indexes all fell short of a higher high in rebounds; although it seemed fairly likely most of the indexes were probably headed to these higher highs as economic news later in the week probably would have pushed them to these higher levels. The indexes also all retreated to lower lows in subsequent drops. The lower high, lower low combination is a bearish indication.
The steep pullback turned what looked like a bullish rebound of the 13 EMA as it neared the 50 EMA on the S&P 500 and New York Stock Exchange charts, into a bearish cross as the 13 EMA instead dipped below the 50 EMA. The Dow Jones had seen this bearish cross in the prior week, but the NASDAQ and Russell 2000 charts continue to hold bullish postures in this respect.
The drop saw the S&P 500, Russell 2000 and NYSE break below the 50 EMA after rebounding back above it. The Russell rebounded and closed above it in the mid-week rally before slipping and closing below it again on Friday, while the S&P 500 and NYSE have closed below it for five consecutive days. The Dow Jones has held below this level for 12 straight trading days, while the NASDAQ has fallen to but rebounded higher off the 50 EMA.
The Dow Jones has also broken below the lower trend line in the major trend higher, but all other indexes have maintained within the overall uptrend.
Volume continues to be extremely low. Although the volume was the highest of the week into Tuesday’s fall on the S&P 500, it was well below the average volume for the year and the average volume seen during pullbacks this year.
All of the indexes are deeply oversold as are many stocks. Although the news could continue to affect stocks prices, it doesn’t seem unlikely stocks could rebound in the week ahead.
US Treasury Charts
The price on the 20 year US Treasury Note moved above the 13 EMA during the week but has held within a fairly short distance of it. Treasuries are becoming overbought, so it doesn’t seem unlikely they could push lower again. Retests of previous support continue to look prone to failure. Although the rebound above the 13 EMA makes this chart look somewhat less bearish, it continues to hold within the overall downtrend.
The 10 year US Treasury Note interest rate chart fell to very close to the 13 EMA during the week, finishing slightly above or below this average most of the week. It doesn’t seem unlikely a rebound could be seen on this chart fairly soon. This chart continues to look bullish.
The treasury charts maintained within patterns that are generally bullish for stocks.
Gold pushed higher above resistance Monday, edged still higher Tuesday but then slipped back to near where it started the week since. Upside looks limited in gold as many of the billionaires that took large positions in gold are selling large portions of these positions. Checks of Edgar filings also show many large sales of shares in gold funds by private investors or companies. I have found many filings of sales exceeding $100 million and one in excess of $500 million since March of this year. These large sales were very rare before September of last year, but they are becoming more and more common as time goes on. Of course these disclosures are limited to very large investor transactions; there are likely many sales below $100 million that do not have to be reported. It therefore seems fairly likely very large investors have dumped several hundred billion dollars of gold investments since early this year.
Many with large holdings employ clearing houses to sell these large stakes. These clearing houses generally sell to buyers that are not likely to weather drops in prices well. Currently large portions of these sales are being fed into fad sales to average or even below average income “gold investors” in Asia. Fads generally have short lifespans. As prices deteriorate many of those that are buying now are likely to sell at a loss at some point during the fall. Chances are these sales will find their way to another that does not handle a drop in price well that will sell at a loss, and so on.
The increase in the large stake sales along with a large increase in the numbers of buyers with low tolerances for losses will likely continue to put downward pressure on gold prices. This cycle is likely to take many years to completely unfold.
S&P 500 Constituent Charts
Many of the S&P 500 constituent charts continue to maintain bullish postures.
Although many fell steeply with Tuesday’s selloff, most of them rebounded to recover this drop very quickly. Some of these drops spiked through support or lower trend lines before recovering.
Despite the pullback seen on the index, there has been an increase in the numbers of stocks that are breaking above the upper trend line in downtrends. Many of these stocks are not yet moving higher, but instead appear to be establishing bases. Even if these stocks do not begin to move higher right away, if they maintain trading within these bases, it will limit overall downside on the index.
Several have fallen out of short term trends higher since the pullback from the August 2 high, but have maintained longer term trends higher. Many of the stocks that broke downtrends or basing patterns higher after the August 2 high, have continued to move higher in established uptrends.
Most of the constituent stocks are deeply oversold and many are also deeply oversold on longer duration charts such as five or ten year timeframes. Provided the news doesn’t carry stocks lower, it seems quite likely a rebound is near.
It seems fairly likely without the worries of US intervention into Syria; stocks would probably have rebounded fairly strongly during the past week. Although US military interventions have brought stocks lower many times in the past, most often this drop lasts only a few days before stocks rebound again.
Volume continues to be extremely light. The 13 DMA for volume has fallen 11.09% since the August 2 highest close. In the past significant pullbacks under low volume conditions have rebounded very well.
The -2% L, 100 L, +9 Day and +10 D indicators are currently active. The 90E indicator expired after last Tuesday’s close. The +10 D will expire after this Wednesday’s close. See a more detailed description of the indicators developed through research here.
Four indicators have recently expired, another will be expiring in the coming week and it seems possible others could toggle off soon. 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 possibly the index could 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 Tuesday and was 4.63% lower than the August 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% / -1.14%
The 90 E indicator expired after Tuesday’s close. This indicator activated on July 3, 13 days prior to the expiration of the -/+90 day indicator that became active on March 14, 2013. The indicator expired 13 days after the expiration date for this indicator on Aug 8, but due to an overlap in expiration periods with the -/+9 day indicator that became active on April 2, 2013, this indicator remained active until Aug 27.
This indicator has pointed to many market events in past appearances, and although this appearance was uneventful compared to some of the other past appearances, there was at least one significant direction change during the time this indicator was present, that being the 4.63% fall from the Aug 2 high to the current lowest close on Aug 27. Since the current lowest close fell on the expiration date, if the index rebounds 3% or greater from this low, this indicator will have pointed to two significant direction changes. Significant direction changes during the active period of this indicator are a trait that this indicator has exhibited in the past.
When this indicator became active, it seemed possible it would be bullish in this appearance. From the July 3 beginning until the August 2 high, the index pushed 5.84% higher during these 22 trading days, but the index fell significantly from that high in final 17 trading days to finish at an unimpressive 0.93% higher than it began. Indicators do not allows finish at their highs, so even though the indicator finished unimpressively, the bullish run it began with makes this projection mostly correct in this instance.
A +10 D indicator toggled on into the pullback on August 21 activating after the close on that trading day. This indicator shows a high likelihood of the index rebounding by 3% or greater during the following ten trading days. This indicator will expire after the market close on Wednesday. It has performed as follows to this point in the format: highest close / lowest close / last close.
+1.26% / -0.75% / -0.60%
It seems fairly likely this indicator would already have been correct in this instance if it were not for the Syrian crisis. Monday was in a very bullish climb prior to the news of possible intervention and this run was carrying many of the charts into very bullish patterns. Tuesday’s fall was a continued reaction to this news and double digit gains seen early in the trading day Wednesday and Thursday evaporated into continued concerns over this crisis before the close. It is still possible this indicator will finish with the gains expected, however if it should fail it will be noted as a possible news related failure.
The S&P 500 has dropped to a significant level. The recent news of possible interventions in Syria thwarted many bullish patterns that charts were developing and turned them bearish in many instances. The news also sent the S&P 500 to a lower low in this pullback that it would not have likely seen if this news was not present. Most times in the past news of military intervention has sent stocks lower, but most times this drawback rebounded higher.
The fall to this significant level was very docile, without any drops reaching the 2% level that historically points to bearish tendencies (the 2% drop seen on the NASDAQ Tuesday is not considered, as research is specific to the S&P 500). Two drops have reached double digit declines one fell 1.43% and the other 1.59%. The larger of the two drops was the result of a news related selloff due to the Syrian crisis.
Volume levels seen in this pullback do not appear to support the lower price direction. The 13 DMA has fallen by 11.09% from the August 2 highest close to the close on Friday. Most significant pullbacks see an increase in volume, not a decrease. Those pullbacks that happen on low volumes tend to rebound more strongly than those with larger selloffs.
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 research into Edgar filings makes it seem quite likely several hundred billion dollars of gold has been sold since the beginning of the year. There have also been hundreds of billions of US Treasuries already sold. 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 these selloffs continue, it could easily amount to over a trillion dollars in new money.
It seems fairly likely a break above 1680 on the S&P 500 could bring volume levels back to more normal levels. It also seems possible the increase in price and volume could also start this influx.
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.
Midrange resistance levels are the most likely areas that resistance will be met, but since there is no established resistance at these levels, there is no certainty that these levels will hold resistance. It is also possible resistances could be met in areas that appeared to have a low likelihood of producing resistance.
Several indicators have recently expired and others will be expiring during the coming weeks. Although we have seen an indicator become active recently, it is a short term indicator that is generally bullish in nature. Being short term it will also expire in the coming weeks. A decrease in active indicators is generally bullish.
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 a large gap lower before meaningful support would be found again. It seems fairly likely the minor support levels that hold in drops could fail in a retest. Treasuries prices currently appear to rounding lower after hitting resistance.
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 it seems quite likely the Assad regime carried out a chemical attack, there is no smoking gun. All news reports I have read seem to prove only one thing, there was a release of chemical weapons. Whom or what caused this release is purely speculation; there is no rock solid evidence it was the Assad regime.
There is strong circumstantial evidence that the Assad regime fired rockets containing chemical weapons on the rebel forces in Damascus, but in the US guilt must be proven beyond a reasonable doubt and circumstantial evidence in itself leaves reason to doubt. The release of chemical weapons could have easily been a rocket that hit a rebel cache of chemical weapons. It could have also been an intentional act by the rebels to lure UN forces into the battle in their defense.
We also have to consider the major source of evidence. US intelligence has given plenty of reason to doubt they are a creditable source. They have been dead wrong many times in the past. We don’t have to look back far either. In the Iraq War US intelligence claimed they had “irrefutable evidence” that Saddam Hussein held weapons of mass destruction, yet none were ever found. In the War in Afghanistan it US intelligence that said Bin Laden was in a “mountain retreat” in Afghanistan, when in fact he was in Pakistan the entire time we had forces fighting and dying looking for him in Afghanistan.
So when US intelligence says that Assad regime forces had chemical weapons teams in the area, it seems quite possible there were as many chemical weapons teams in the area as there were weapons of mass destruction in Iraq. Of course if we look at it in terms of Bin Laden’s whereabouts, these chemical weapons teams that were in the area were probably actually in Iran.
Many of these sources of information were used in this article.
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Disclosure: I am currently about 85% invested long in stocks in my trading accounts. The increase in my investment level over the past week was due to the purchase of one issue with the cost of this purchase more than fully offset by the proceeds from the sale of one issue 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 14 issues in the coming week and 22 in the following week. If I make no further investment changes during this timeframe these dividend payments will not change my investment level.
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.