Here is the preview of the coming week on the S&P 500 from Traverse City, Michigan.
The S&P 500 pushed higher in three sessions this past week and managed to overcome a large drop Monday to post a 0.87% gain for the week. Monday’s drop finished the trading day 4.86% below the May 21 highest close.
The S&P 500 finished lower for the month, and the lower June finish broke a seven month run higher. The index has risen in 76 of the past 125 sessions.
Major Stock Market Indexes
The major indexes, the DJIA, S&P 500, NASDAQ, NYSE and Russell 2000 all appear to be developing downtrends.
All five of the indexes pushed to a deeper low Monday before rebounding to finish the week higher. All rebounded back above the 13 EMA at least briefly during the rally and all but the New York Stock Exchange managed to push back above their 50 EMA during the past week.
The rebound prevented a bearish cross of the 13 EMA below the 50 EMA on the S&P 500 and Dow Jones Industrial Average. This bearish cross was seen on the New York Stock Exchange in the previous week, but the 13 EMA began to make the turn back towards the 50 EMA during the past week. Both the NASDAQ and Russell 2000 saw the 13 EMA move higher above the 50 EMA during the week.
Monday’s drop rebounded at about the lower trend line of the major trend on the NASDAQ and Russell 2000, but fell through the lower trend on the Dow Jones before rebounding. The S&P 500 and NYSE had already broken below the lower trend line in earlier falls.
The 20 year US Treasury Notes rebounded off minor support during the past week but failed to reach the 13 EMA in this rebound. It is likely to find resistance at or before the13 EMA in this rebound and if it does, it does not seem likely the minor support found earlier will hold in a retest. This chart continues to look very bearish.
The 10 year US Treasury Note saw the interest rate slip during the week, but it held well above the 13 EMA in this drop. The 10 year will probably find staunch support at or above the 2% level if it were to slip that far, however it seems possible it could rebound well above this level. Although it finished slightly lower Friday, the short term charts make it look like it could be beginning to round higher. It also appears possible the resistance level it broke above last week is already beginning to offer support. It seems possible that the 10 year could continue to trend higher in the trend it established in the rebound in early May, although a possibility remains that this trend could be much steeper. If this rebound continues to develop, it will probably continue higher until it reaches major resistance in the 3.3% to 3.6% area. This chart continues to look very bullish.
The treasury charts maintained within patterns that are generally bullish for stocks.
S&P 500 Constituent Charts
There was little change in the constituent charts over the past week, although a few did break lower trend lines in short term trends higher, most held within trend and some pushed above upper trend lines too.
A few stocks broke substantially lower during the week, some from trends higher, but at the same time a few broke substantially higher too. It appears that some of the stocks that took earlier dives are beginning to run higher. Rebounds from large drops that fully recovered the drop and most often pushed higher were very common before the recent drawdown. It seems possible this trend could be reigniting.
Most of the constituents in downtrends continued to hold within earlier trend. Investors aren’t jumping ship on these stocks, causing them to fall through the lower trend line. Although many of these downtrends are continuing, they are maintaining earlier trends and dropping in an orderly manner. This shows investor confidence that these stocks, and the overall market, will likely rebound at some point.
Overall the constituents are still oversold. A continued fall in stocks prices is not impossible, but it seems fairy likely stocks could move higher in the week ahead.
The -2% L, +2%H, 100 L, -/+90 D, -/+9 Day, +9 Day and a +10 D indicator are currently active. See a more detailed description of the indicators developed through research here.
The recent increase in indicators shows an increasing chance of volatile moves (those of 2% or greater in a session) on the index. Generally the increased chances of volatility are considered bearish, but maybe not so in this case as all three indicators that became active are bullish in nature.
The -2% L indicator did not provide a correct indication in the past week.
The +2% H indicator did not provide a correct indication in the past week.
Although it did not seem likely earlier, the 100L provided a significant pullback. Currently the lowest close is 4.86% below the May 21 highest close.
The -/+90 day indicator that became active on March 14, 2013 has performed as follows to this point in the format: highest close / lowest close / last close.
+6.78% / -1.38% / +2.75%
This indicator will expire in 16 trading days. The expiration period of this indicator will begin on Thursday, 13 trading days before the expiration date and will last for 13 days after the expiration. The expiration periods of two 90 day indicators will overlap combining for a 39 trading day period that the market will be under the influence of the expiration of 90 day indicators. These expiration periods have exhibited many unusual market conditions in the past, with most occurrences of this expiration covered in past articles being bearish. However; not all expiration periods are bearish, some have been very bullish. In this instance it seems possible the expiration period could be bullish.
The -/+9 day indicator that became active on April 2, 2013 has performed as follows to this point in the format: highest close / lowest close / last close. This indicator will expire in 28 trading days.
+6.3% / -1.82% / +2.29%
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.
0% / -4.77% / -2.76%
Highest close only considers closes higher than the beginning date; if there are none higher it is reported as 0%.
The ten day indicator that became active on June 20 has performed as follows to this point in the format: highest close / lowest close / last close.
+1.57% / -0.95% / +1.14%
The S&P 500 has seen a significant pullback within the 100 L resistance level. The index saw the first volatile pullback since a 2.30% drop on April 15, 2013 when it dipped 2.50% on June 20. The major indexes appear to be establishing downtrends.
Several indicators became active recently. This increase in indicators would suggest an increased chance of volatility and increases in volatile conditions are often bearish, although the new indicators would generally be considered to be bullish.
Timing patterns suggested earlier that a pullback larger than we had seen since the rebound from November lows could be forth coming and that this drop might reach the 7% level. Projections made from this data were not completely accurate as it appeared the index would move above the 100 L resistance before this fall took place. Many of the timing patterns appeared to shift forward in the weeks that followed, and even fall dormant prior to the bulk of the drop. It is not impossible that the index could fall further and reach the 7% level, but it seems possible the timing patterns misfired and a drop to this level might not be seen.
New timing patterns suggest stocks could begin to rebound due to a large selloff in treasuries. This rebound in stock prices could be very large if the drop in treasury prices continues. Treasuries fell through support indicating this drop could continue. Although they have rebounded near minor support levels since, they are nearing resistance that could turn them lower again. It seems fairly likely the minor support levels could fail in a retest. There is a large gap before treasuries find meaningful support again; suggesting the drop in treasury prices could be large.
Gold fell through support at about $1270 in the past week. The London PM Fix was recorded at $1192 on June 28 and gold has fallen to the lowest levels it has seen since 2010. The proceeds from the selloff that caused this pullback will likely begin to filter into stocks too. It does not seem unlikely gold will continue in a long decent that could last many years.
Just as the US Indices appear to be establishing downtrends, many of the World Stock Market Indexes broke above the upper trend line in recent downtrends, some like the NIKKIE, have already established uptrends. Several broke significantly higher after good US economic data releases during the past week, although the US markets move was much more subtle, there appears to be increasing optimism across World Markets.
Many foreign investors see the strength in the US economy and increasing interest rates as reason to invest in US Markets. The US dollar has risen against a basket of foreign currencies in nine of the past ten trading days. Although there are many reasons for this strengthening, part of this strengthening is likely the result of foreign currency being exchanged for US dollars to make these investments. Although not all these investments are flowing directly into equities, these investments will likely increase the earnings power of equities in the months to come.
There is reason to believe there will be continued strengthening in the US dollar. Although some will argue that this is bad for the US economy, historically it has proven otherwise. For instance look how well the Euro Zone did during the long increase in the Euro. There was a very high level of foreign investment made into the rise of this currency. It takes money to make money and these high levels of investment helped push the Euro Zone to the World’s largest GDP. There was also talk of replacing the US dollar with the Euro as the basis of trade during this time.
The Euro fell on tough times since, and as a result much of these investments were lost. Instead of fixing the problems to reduce these risks, recently passed legislation there greatly increases the risks in the future, and it will probably reduce the amounts of investments coming into their banks. The fix is bad for the Euro, but good for the US dollar. It does not seem likely that the Euro Zone will be increasing interest rates in the near future either, and the higher rates seen in the US will likely continue to attract investments.
Japan also appears to be content with devaluing its currency, making investments there unappealing as any gains would be offset by the loss in currency exchange. Although China will continue to draw investors, there are reasons to show some caution there that could steer some of these investments into the US.
A close at or above 1669.16 on the S&P 500 would bring a recovery from the significant drop. Although not a certainty, normal patterns seen after recoveries from significant drops would suggest it would most likely start a run that carries the index past the 100 L resistance level, and probably past the first of two midrange resistance levels. The first midrange resistance level will likely be found between 1735 and 1745 (possibly to 1750) and the second likely to be seen between 1760 and 1770. The depth of the current drop makes it seem unlikely the first resistance level will hold significant resistance. It seems possible the second resistance level could hold significant resistance. These resistance levels have not been fully investigated as not all data needed is available at this time, any projections made before this data is complete could change over time.
There continues to be many reasons to be bullish at the current time. Any pullbacks seen along the way are probably an opportunity to add.
Many of these sources of information were used in this article.
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Have a great day trading,
All of my past articles can be accessed here.
Disclosure: I am currently about 87% invested long in stocks in my trading accounts. The increase in the investment level over the past week was due to the purchase of two issues with the cost partially offset by the sale of two issues and 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 mainly through day and short term buy orders. I will receive dividend payments from 19 issues in the coming week and 8 in the following week, if I make no further investment changes during this timeframe my investment level will be reduced 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.