The current daily pace of increases is one that could sustain longer, as aside from the initial burst higher this past Friday; the daily increases have remained meager. These small daily increases are very common in runs that extended for longer than normal periods. Although the current streak mimics those that have continued longer, runs exceeding six days are rare and become rarer with each additional day.
The major stock market indexes: the DJIA, S&P500 and NYSA continued to show bullish trends in the past week while the NASDAQ and Russell 2000 look to have renewed bullish stances that were present in these indexes earlier.
The S&P500 finished Friday’s session with a close higher than the May 1 close, with the next highest close on the S&P500 seen on April 3. The index is less than 14 points shy of the April 2 yearly high.
The DJIA finished Friday less than 72 points lower than the May 1 close, the yearly high on that index.
After finishing the session lower Thursday, the DJIA fell very near the 13 EMA during the trading day Friday before rebounding higher into the close. The DJIA is overbought, as are many of the components, however many of the DOW components have been maintaining very near overbought for some time, and several are just beginning to move higher off of earlier lows. The DJIA might be ready to make a run at its yearly highs.
The DJIA, S&P500 and NYSA pushed into or very near the upper limits of the current trend channel and look firmly entrenched in the current uptrend. The DJIA and S&P500 also pushed nearer to the upper trend channel seen earlier in the rebound. The NYSA has so far fallen well short of the of the upper trend channel it had early in the rebound, but like the DJIA and S&P500, has continued to push to highs higher than those in the previous cycle and also to the highest levels since its June 4 low.
The NASDAQ broke above the resistance it had wedged against last week and in the processes reconfirmed its uptrend. It too has pushed to the highest levels seen since the rebound from its June 1 low. Although it appears to have fallen just short of the previous upper trend channel in this rebound, this chart looks much more bullish than it did last week.
The Russell 2000 continued higher this week, breaking above the upper channel of the downtrend it had been forming, and also to a high higher than that in the previous cycle. This completed a higher low, higher high technical combination giving the index a much more bullish look. It appears the Russell 2000 might be beginning to form a new uptrend.
The past week saw all five of the indexes finish with more up days than down days, something we haven’t seen in a while. Although most of the indexes had pushed higher with fewer up days over the past four weeks, the number of up days seen on the indexes during the past week is more in line with normal bullish runs.
All of the indexes are pushing into resistance levels simultaneously. The S&P500 is currently pushing higher into resistance at the 1405 level. The NASDAQ has seen resistance around the 3000 in the past, but usually at levels lower than it currently is. The DJIA has seen resistance around the 13200 level. The NYSA has bumped into resistance as it broke above the 8000 level. The Russell 2000 has seen resistance at around the 800 level before also.
The indexes have slowed as they are working their way through these resistance levels. This slowing has allowed the 13 EMA to close the gap between it and the current price. If the indexes were to drop and rebound at or near the 13 EMA, it will likely provide a spring board effect allowing the indexes to bounce higher through the current resistances fairly easily. If all the indexes break these resistance levels at or near the same time, it will likely send stocks moving higher more quickly than we have seen lately.
The indexes have pushed into overbought conditions during the past week, and although it does not seem unlikely they may hold nearer to or in these overbought conditions for the time being, it does not seem unlikely we could see a round of profit taking in the coming week either.
Overall the index charts continue to look bullish. Drops to or near the 13 EMA continue to appear to be buy signals. It seems fairly likely the indexes will continue higher in the weeks ahead.
The S&P500 constituent charts continued to exhibit the bullish tendencies we have seen earlier during the past week.
The S&P500 struggled with the 1405 resistance level during the past week, running strongly into and above this level Tuesday, before slipping lower before the close. It has slowly chipped its way higher through this resistance during the rest of the week. This resistance level appears to be weakening and it seems fairly likely it will fall in the week ahead.
Several constituent stocks are also bumping against resistance levels, and some have been slowly pushing higher into these resistances, while some have already fractured these resistances. Many are wedging against these resistance levels, and it looks probable many of them will push higher through these resistances.
We are also seeing a lot of the constituents that have been in downtrends showing the tendencies seen during the transition stage from downtrend to uptrend. It is probable that many of these stocks will round out of these falls and either begin to base or begin to move higher.
Not all constituent stocks look bullish. Some have taken large quick drops due to poor earnings or earnings warnings, while others have reached levels they are likely to begin to drop from, and appear to be establishing downtrends. Again, this is part of the staggering pattern, and an important ingredient for the index to continue a long sustained run higher.
If all stocks are running higher together, they are more likely to all fall together too. A continued trade off of stocks rounding higher out downtrends and lower out of uptrends is very good sign that the run will still have legs later.
Another good sign is that many stocks are holding uptrends longer and pushing higher in the process. They are also turning higher out of downtrends before reaching the previous downtrend’s lows. This shows a higher high, higher low on a much longer term basis than we normally talk about, but just as bullish of a technical indicator. Of course not all of the constituents are showing this pattern, but a large number of them are.
The index has pushed higher for six consecutive days slowly continuing to push higher into the 1405 resistance without a lower close. The slow move higher is allowing some of the constituent stocks to slip lower and recharge as others push the index’s price higher. The push to this point has put many of the constituents in fully overbought conditions, while many are not overbought too.
Runs greater than six days are rare; however the current push higher is providing small increases which are allowing some stocks to recharge as the run continues. Many of the runs that have lasted longer show this characteristic. There are also a large number of the constituents that have been holding in or near overbought for some time prior to this run, giving a little added edge to a continued run. It looks like this run has a better than average chance to continue longer.
It seems fairly likely some profit taking will occur at some point in the week ahead. It doesn’t seem unlikely the index could continue to chug slowly higher through this resistance, possibly finishing with a larger run, before pulling back. At the same time it doesn’t seem unlikely we could see a selloff for a day or two early in the week, allowing stocks to recharge before the index rebounds to break through this resistance level.
Overall the constituent charts continue to look very bullish. It seems likely stocks will continue higher in the weeks ahead.
Indicators
The +2% L, -2% L and 90E indicators are currently active. The S&P500 entered into the lower ranges of the 1447.16 drop resistance before the pullback from the April 2, 2012 highs. See a more detailed description of the indicators I have developed through my research here.
The (-)/+ 90 day indicator that became active on April 2, 2012 expired with Thursday’s close. Overall it appears this indicator was correct in this instance. This was the first occurrence of a dual direction 90 day indicator since I have developed the 90 day indicator.
The index finished this 90 trading day period with one of the longest runs higher seen during its presence, yet the index failed to reach the April 2 high that the fall began from. Although it did not reach a positive highest close level as it appeared it might, it otherwise performed very closely to how it appeared it might when the indicator became active.
It dropped 9.94% during the negative portion of this indicator and rebounded 8.80% from the lowest close during the positive portion before the indicator expired. Both portions were fairly close to the 10% levels. The 10% level is the expected level for a single direction indicator.
The (-)/+ 90 day indicator performed as follows based on the percentage change of the closing price from the beginning date in the format: highest close / lowest close / last close.
+0.00% / -9.94% / -1.14%
Note: Highest close only considers closes that were higher than the beginning date, if there are none higher it is reported as 0.00%.
The -2% L indicator did not provide a correct indication in previous week. It appears this indicator has toggled off, however due to the presence of the 90E indicator it will remain in a low state during the time the 90E is active.
The +2% L indicator did not provide a correct indication in previous week. It appears this indicator has toggled off, however due to the presence of the 90E indicator it will remain in a low state during the time the 90E is active.
It continues to look likely the index will remain in a low volatility state.
The 10 day indicator that became active on July 24, 2012 expired on Tuesday and finished as follows based on the percentage change of the closing price from the beginning date in the format: highest close / lowest close / last close.
+4.71% / -0.03% / +4.71%
Current Cautions:
All of the indexes are bumping into resistance levels as are many stocks. Early indications are that these resistances are being to weaken or break. If these resistances fall together or nearly together, stock prices could move higher more quickly than they have recently. Stocks and the indexes could continue higher and break through these resistances, or they might require a selloff to reload first. It seems likely that drops to or near the 13 EMA could be buy signals, and the gap between the 13 EMA and index/stock prices is generally narrowing.
The indexes are nearing 52 week highs, and treasury prices are beginning to weaken. It will probably become increasingly difficult for investors to sit tight in extremely low yielding treasuries as the indexes are breaking to new multiyear highs, which new 52 week highs are, especially if the price of treasuries continues to erode.
It seems possible that a shift in asset allocation out of treasuries could be forthcoming. If this shift occurs, it will likely benefit stock prices greatly.
Disclosure: I am currently about 92% invested long in stocks in my trading accounts. The change in my investment level was due to the purchase of one issue, with the cost of this purchase more than offset by the sale of four issues and dividend payments. Although I sold more than I bought this past week due to the extended run, I continue to plan to offset any sales with purchases relatively quickly and hold any remaining balances to repurchase stocks I have previously sold as they reach my buy ranges. I continue to plan to reinvest dividends into stocks I hold, however as the stock prices of the issues I hold reach or exceed levels seen before the recent downturn, I am reducing the number of trades designed specifically for dividend reinvestment. I will receive dividend payments from 6 issues in the coming week and 6 in the following week. If I make no additional investment changes during this timeframe, these cash 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 market will do. If the market performs as I expect, it only means I am applying the market history to the current conditions correctly. My perception of the data is not always correct.
Note : 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.
For the latest updates on the stock market, PRESS CTR + D or visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
No comments:
Post a Comment