The S&P 500 pushed higher for the fifth straight week finishing with a gain of 1.61%. It posted four higher record high closes during the week and one small loss. The index has pushed higher in 11 of the past 13 sessions along with 20 of the past 27 sessions since rebounding from the Oct 15 lowest close. The index finished Friday 11.64% higher for the year, while gaining 10.79% since the rebound from the Oct 15 lowest close.
The S&P 500 started the week with a break above potentially dangerous resistance as Monday pushed and closed above the 2040 resistance. The index later found support just above the 2040 resistance in a retreat on Wednesday and again on Thursday before pushing above the upper boundary of the 2030 to 2055 Mid range Resistance Level (MRL) on Friday. Friday started with a gap higher above the 2030 to 2055 MRL to 2057.46 and ripped higher continuing through the 2065 to 2070 MRL to a high of 2071.46 before falling back below the lower boundary of that MRL to finish at 2063.50.
Average daily volume levels increased 5.14% above the volumes of the previous week. The week’s lowest volume was seen on Thursday and the highest during Friday’s session. The difference in five day volume variance increased 8.40% above the week ago levels and the five day variance finished the week at 25.19%.
The Major Stock Market Indexes
The index charts of the Dow Jones Industrial Average, S&P 500, NASDAQ, New York Stock Exchange and Russell 2000 began the week in continued rounding patterns or falls off recent highs, but pushed bullishly higher on Friday. Several shed the majority of Friday’s early gains before the close and finished the session within the same areas that this rounding was taking place. Some of the indexes broke and held above resistance levels and showed some bullish signs during the week. Most of the indexes have maintained in or near fully oversold conditions for an extended time.
The S&P 500 broke above a potentially dangerous resistance during the past week and then found support at this resistance in two retreats later in the week. It also breached the upper boundary in the next higher resistance Friday before settling lower and falling below the lower boundary of that resistance before the close. The S&P 500 had four higher closes, all at record highs.
The Dow Jones rebounded bullishly in a drop near the 13 EMA on Thursday and then continued higher through resistance on Friday. The Dow also finished four sessions higher, but only three were record closes.
The NASDAQ finished three sessions higher, two at 52 week highs. The NASDAQ fell to the 13 EMA on Wednesday, and rebounded bullishly off this level on Thursday. The rally continued into Friday as it appeared to break above resistance it was seeing during its rounding pattern, but it fell back into this resistance before the close.
The NYSE also rebounded bullishly off a drop to the 13 EMA on Thursday and continued higher on Friday. Friday’s run took the index above the 11,000 level for the first time since Sept 19. The NYSE finished four sessions higher, but has not recovered from the drop that began Sept 3.
The Russell 2000 began the week in a drop to the 13 EMA that was retested Tuesday. The third fall to this support failed as it slipped below it on Wednesday. Thursday rebounded bullishly back above this barrier and Friday continued higher. The Russell 2000 saw three higher finishes for the week, but has slipped lower from the highs seen in the previous week. Although Friday’s rebound was encouraging, the Russell looks to have slipped to lower lows and held below previous highs. It seems possible it could be turning lower.
Several of the charts finished the week in possible bad finger patterns. A bad finger pattern occurs when a break pushes high above a rounding pattern, then falls back into this rounding pattern in a fall off those highs. If the chart continues to round out of this high this pattern leaves the impression of a middle finger sticking up in the center of this top.
Individual stock charts give the impression that relatively few stocks are carrying the indexes higher. Many stocks pushed higher off lows but most appear to be just regaining some of the losses they accrued during the drop, then turning lower again. Many of those that pushed the indexes higher in bullish runs appear to be over extended as they have pushed well above established trends in these runs. These higher pushes were not the measured bullish run type moves that tend to sustain for a long period, but instead very fast jagged spikes higher, giving a choppy appearance to these runs. Many charts have been showing these choppy up and down moves for some time.
In five weeks the indexes gained nearly as much as they did for the year. This was a very fast bullish rebound, but many of the individual stock charts do not leave the impression of a bullish run. Although the indexes looked bullish in the past week they have remained in or near fully overbought conditions for an extended time. Many of the indexes have pushed higher for durations that make a lower finish in the week ahead seem possible.
The US Treasury Charts
For the fifth consecutive week the 20 year US Treasury Bond price fell in only two sessions, but it finished the week with a gain for only the second time during these five weeks. The 20 year appeared to break the wedge pattern that was holding it range bound late in the week and now appears to be moving higher in a wide bowl pattern. The 20 year has moved out of oversold conditions but is still quite far from overbought. Now that it has broken from the wedge pattern, it seems possible the 20 year could move higher in the week ahead.
It seems possible long term Treasury prices could begin to move higher. If this move higher develops it is somewhat bearish for stock prices.
The interest rate on the 10 year US Treasury Note saw three losses for the week, but again lost little ground in these drops as the 10 year chart remains very flat. It has begun trending near the 13 EMA and seeing highs pushed back near the 50 EMA. The ten year finished two sessions below the 13 EMA and two above it as Thursday finished resting on this level. The 13 EMA has begun to round slightly lower during this time and the 10 year saw lower highs during the week. The 10 year rate still seems low, but this chart continues to appear to be rounding lower. The flatness with a slight downtrend has allowed the 10 year to fall from overbought conditions. It seems possible the 10 year rate could continue lower.
Sunday gold began with a move lower that bottomed at about 1182 just after the Hong Kong open. It rebounded quickly to about 1192 after that open and then trended slowly lower before flattening to finish the night at almost 1187.
Monday traded very flatly near the 1190 resistance. It pushed above the resistance twice, once in Hong Kong with the second time moving the highest above the resistance in London, reaching about 1193. It fell the lowest below this resistance in a slow trend lower off that high reaching about 1182 in New York and retested this low later in the session. The trend tightened from there as gold stayed between that low and about 1188 finishing the night a bit below 1186.
Tuesday saw gold begin to rally late in the Hong Kong session pushing steeply higher in a staircase pattern that leveled at about 1194 and again at about 1198 before pushing strongly higher above 1205 shortly after the Hong Kong close. Gold turned abruptly lower in London first falling lower in a staircase pattern leveling at about 1203, again at about 1200 and briefly at about 1198 before turning higher to about 1200 after the New York open and then sliding back to 1192. Gold trended higher in bounces off that low back to about 1198, but slipped off that high to 1194. Still holding the lower trend line in the rebound, it managed a slow rise back to about 1197 after the Sydney open, but broke lower early in Sydney with the downtrend lasting into the day’s finish of just under 1193.
Wednesday saw gold trade flatly below 1195 in the Hong Kong, but break higher after the London open carrying it to about 1203. It slipped slightly off the high and then retested it before starting a bouncy trend lower that fell steeply in a twenty minute drop during the New York session from 1195 to 1176. It bounced of this low to about 1182 then trended within a couples points higher or lower of 1180 for nearly three hours until about a fifteen minute burst carried it back to 1197. Gold then traded within a couple points of 1195 until it began to slip lower late in the New York session, falling steeply at first then gradually until dropping steeping again after the Hong Kong open to about 1177. It rebounded back to 1182 then retested 1177 before edging a little higher to finish the night above 1178.
Thursday saw gold begin a trend higher in the early morning that lasted until the late morning session in London, hitting a high of about 1197 in that run. It turned lower off that high falling back to about 1187 shortly after the New York open. Gold rebounded off that fall back to 1195 and then trended mostly between that high and 1190 for the remainder of the night, finishing the day a hair under 1193.
Friday saw gold bounce back to about 1197 by the London open, but slip sharply back to 1189 shortly after that open. It leveled near the low before starting a staircase pattern rebound leveling at about 1196, then pushing to a high of almost 1207 at the New York open before again leveling near 1205. Gold held near this high until it began a swift retreat before noon that found support at about 1193. It trended slowly higher off this low to finish with a New York Spot close of 1201.03 and a fair amount higher than the previous week’s New York Spot close of 1188.50.
Gold saw a third straight week of gains as it pushed above resistance at 1190 it appears to be beginning to find support near this resistance, although it breached this support several times during the week. Gold appears to have rebounded above this resistance without the aid of a pullback in stocks. Instead news that Russia increased its gold buying while divesting in the dollar, with the intention of devaluing the dollar and stabilizing oil prices. It seems possible Putin’s ploy to buy gold could work short term, but normal trends would tend to make these efforts seem like a losing battle in the long run. Russia has been adding about 50 metric tons a quarter on average through the first three quarters of this year. According to Kitco Gold, gold is down about 3.24% over the past year, so even though these amounts seem large, they were not large enough to hold gold prices higher. Unless Russia greatly increases the amounts they have been purchasing and were to continue to purchase these amounts for many years to come, these purchases probably will have little more than short term effects on both gold and the dollar.
The S&P 500 Constituent Charts
The constituent charts continued to look unimpressive, but the index is still moving higher. Slow measured runs higher within trend to new highs are few. There are several stocks in bullish runs that are reaching new 52 week highs, but many in these runs have pushed well above the trend they were previously in. These large moves higher above trend could be a warning sign as pullbacks from these types of runs are not uncommon.
Many of the constituents have maintained within downtrends and many of these stocks have turned lower in these trends. Several will likely be in month long moves lower off resistance or trend lines in the week ahead, and some of these are falling after reaching new highs. If the index was to begin a trend lower, it could start with near to over 50% of the constituents in moves lower that have lasted 3 months or more. If this downturn lasted very long, by the middle of December the numbers in moves lower for over three months could swell to near 60%. Even if the index was to continue higher, it seems possible the numbers maintaining trend lower for over three months could potentially increase through mid-December, as many fell steeply late into the last downturn and do not seem likely to recover these falls.
Some are still trending lower even after the index rebounded from lows on Oct 15. There are 23 constituents that finished Friday lower than they finished on Oct 15. Six constituents reached 52 week lows into the bullish run the index saw during the past week. There are 30 constituents lower than the Oct 17 close, just two days into the run and with the index just barely moving higher. There are a fairly large number of constituents that are not participating in the move higher at all.
Returning the 35 most bullish runs on the index to prices these constituents had at the close of the previous cycle high on Sept 18, would put the index lower than that high. The charts don’t appear to show a broad based rally, they appear to show many stocks moving higher from extreme lows and maintaining with established long or short term downtrends. While some have pushed strongly higher in this rebound, many of these runs appear to be over extended.
Even though the index pushed past a potentially bearish resistance level and is nearing a timeframe that end of year rallies normally progress, most of the charts just don’t give the impression that a bullish run is in progress, but more so just a rebound from lows. Chart formations appear to remain consistent with a tip over pattern rebound that could turn drastically lower, and this pattern often includes the sharp runs higher seen in some stocks.
The S&P 500 has moved higher for five straight weeks and posted some very big gains in this run. It seems possible the index run has reached a duration that a pullback could be seen in.
The indicators featured below are not always correct, but they have been many times. Being so they are worth reading about and taking note of.
The +2% H, -2% H, –/(+) 90 D, -/(+)9 Day, 2065 to 2070 MRL and -/+ 9 Day indicators are currently active. The index moved past the 2040 level of concern in the past week without incidence, it also moved above the 2030 to 2055 MRL and into the influence of the next higher resistance at the 2065 to 2070 MRL. A new 9 Day indicator activated during the past week and a projection for this indicator is provided below. See a more detailed description of most of the indicators developed through research and featured in these articles here.
The +2% H indicator did not provide a correct indication in the past week. Volatility conditions continued to calm in the past week although volume levels increased somewhat in the past week and continued to be elevated.
The –2% H indicator did not provide a correct indication in the past week. The index broke above the potentially bearish resistance at 2040 without incidence and into the next higher resistance, but chart formations appear consistent with those seen in rebounds during tip over patterns during runs above the upper trend line. It still seems possible a larger fall could be seen.
The -/(+)90 D indicator that became active on Aug 29, 2014 has performed as follows to this point in the format: highest close / lowest close / last close.
+3.00% / -7.03% / +3.00%
Due to an error in placement of data in the spreadsheet tracking this indicator, the performance for this indicator was actually 0.05% lower in all fields than that reported earlier. Also the expiration date and any expiration period dates that were reported earlier were incorrect. This indicator will actually expire on Jan 8, 2015, not Jan 12, 2015 as reported earlier. The expiration period of this indicator will begin on Dec 18, 2014 and not Dec 22, 2014 as reported earlier. The expiration period for this indicator will also end on Jan 28, 2015 and not Jan 30, 2015. This expiration period will begin in 18 trading days.
The -/(+)9 Day indicator that became active on Oct 30, 2014 has performed as follows to this point in the format: highest close / lowest close / last close.
+3.45% / 0.00% / +3.45%
The S&P 500 started the week slightly lower with Monday’s open at 2038.29. The session slipped to a low of 2034.46 and reached a high of 2043.07 before notching the first finish above the 2040 resistance at 2041.32. Tuesday started slightly higher at the session low of 2041.48 and continued higher to break above the upper boundary of the 2030 to 2055 MRL and to a session high of 2056.08, but slipped to finish at 2051.80. Wednesday opened slightly lower at 2051.16 and moved to a high of 2052.14 before slipping to a low of 2040.37 with the rebound slightly above the 2040 resistance and regained most of the session’s losses with a finish of 2048.72. Thursday opened lower at 2045.87 and fell to a low of 2040.49 before again rebounding off support above the 2040 resistance and moving to a session high of 2053.84 before settling slightly lower to a close of 2052.75. Friday gapped higher at the open to 2057.46, falling only slightly off the open to 2056.75 and leaving this gap open as it ran bullishly to a high of 2071.46 before slipping fairly steeply off this high to finish at 2063.50.
The index appears to have shown many bullish indicators during the past week. It broke and closed above the 2040 resistance and found support at this resistance in the first two retests of this level then broke and finished above the 2030 to 2055 MRL. It also nudged above the upper boundary of the 2065 to 2070 MRL although it failed to maintain a close above this level and slipped below the lower boundary into the session’s finish. The index completed a fifth straight week of gains. Longer runs have been seen, but become very rare after six straight weeks of higher finishes. The past week gave reason to be cautiously bullish, but it also seems possible taking profits into this run could prove to be prudent.
The index moved above the 2030 to 2055 MRL in the past week and into the influence of the 2065 to 2070 MRL. In doing so the 2030 to 2055 MRL became dormant and the 2065 to 2070 MRL became active.
Although research made it seem likely the 2040 resistance could provide a large pullback, the index moved past this resistance without incidence of a pullback after stalling very near it for about a week. The index also moved past the 2030 to 2055 MRL that this resistance was within. Even though it seemed possible that the index could slip past this MRL resistance due to the time of year and market conditions at the time, the projections made for this level were incorrect.
Many chart formations still make a larger drop seem likely, so the 2065 to 2070 MRL inherited the potential for this fall, although drop projections were adjusted for market conditions. The resistance at this MRL was likely to be weak if the index hit it in a rebound from a drop to or below the lower trend line or lower support line, but has the potential of being formidable due to the absence of this drop. The potential for this weakness may have been seen in Friday’s run above this resistance, but the fall back below this resistance from this run before the close shows it might not be a pushover.
Current chart formations tend to make a fall in excess of 10% seem possible within the 2065 to 2070 MRL. The outcome within the lower support levels seems consistent with the possibility this MRL could produce a drop that reaches the lower trend or lower support line and probably stays within the 10% to 20% range. Chart formations make it seem possible the latest rebound is consistent with runs seen during rebounds from initial drops during tip over patterns. These rebounds often lead to drops that fall more deeply than those seen in the initial drop. Although not all tip over patterns lead to crashes, it seems possible a drop that reaches crash proportions could be seen. If a drop to crash potential is seen, it probably does not exceed 24% by much, but could possibly reach 28% if many of the constituents fall to lower support levels. Research suggested if a crash were to occur from within this resistance level, it probably finds bullish support somewhere near the two previous tops in 2000 and 2007. The index is currently a little over 24% above the 2007 high.
Research also suggests that if a crash were to occur at this resistance, it is within an area consistent with a secular bull market and probably reacts as a bull market crash. Bull market crashes rebound from drops to or below the lower support line and return within earlier index trend lines to continue higher. It therefore seems likely if this large pullback or crash were to develop, it could be a very good time to buy stocks.
A pullback at this level appears inconsistent with normal seasonal trends. Although it is uncommon to see pullbacks into the end of the year not all years finished in bullish runs and a pullback could happen. If the index were to surpass this resistance level without seeing a drop to either the lower trend or lower support lines, the 100 L at 2100 would inherit projects made for this MRL although potential drop levels could be adjusted.
A new 9 Day indicator became active when a stringer controlling this indicator broke on Friday after nine days activating this indicator. All 90 Day indicators start dates are calculated from the last day the stringer controlling this indicator remained intact, therefore this indicator became active on Thursday and will be known as the 9 Day indicator that became active on Nov 20, 2014.
This is the second 9 day indicator to become active within a month. An increase in active indicators is a potentially bearish signal. There are currently three active 90 day indicators.
Many of the projections made for the -/(+)9 Day indicator that became active on Oct 30, 2014 appear to remain intact. Although the index has moved past the 2030 to 2055 MRL, the first resistance level mentioned as a possible turning point lower, it seemed possible this could be the case due to the time of year and other market factors. The full projection for this indicator can be seen in the Nov 3 Preview.
Gold has since regained a foothold above the 1090 resistance, although it fell further first and took longer to rebound than expected. It seems possible that Russia’s attempts to devalue the dollar by divesting dollars and buying gold could add buoyancy to gold short term. If stocks should fall lower it could also see renewed safe haven buying. It seemed possible the earlier retreat in gold and very large volumes in stocks during the rebound could have been asset reallocations. If gold rebounds into a sell off in stocks these large volumes could reverse direction, being very bearish for stocks.
US Treasuries made a long slow turn that now appears to be moving higher. A turn higher in Treasury prices is also generally a bearish indication for stocks.
The push above the 2065 to 2070 MRL on Friday showed this resistance to be potentially soft, but the sharp fall off resistance above the upper level that sent the index back below the lower boundary of the resistance before the close makes it seem possible this resistance could still be a challenge. The fall from this resistance left the index in a possible bad finger pattern. Some of the other indexes also failed after breaking above resistances and fell into bad finger patterns too. Although not always the case, these patterns often continue to turn lower.
Earlier studies left little doubt that the index would eventually fall back to either the lower trend or lower support line from the break above the upper trend line. The question was not if, but when. Further studies appear to have given a time frame this drop could be expected in. It seems very likely the index could see this drop within the next 13 months, but probably much sooner.
The S&P 500 initially broke above the upper trend line on Dec 26, 2013. The S&P 500 has always returned to the lower trend line or lower support line within two years of the initial break above the upper trend line, but most times sooner. The index has broken back above the upper trend line again later in runs higher, but returned to one of these lines within two years again. The only exception is if there is a trend change higher, but this trend change always comes from a rebound off one of these two lines.
Studies of the Dow Jones show this appears to be the case in all data collected for this index too. Although this data does not include the Dow’s very early history, charts available would indicate this has been the case throughout its history too. Even during the 1929 crash, the Dow broke below the lower trend line and to the lower support line in the initial fall off highs about 14 months after breaking above the upper trend line, before rebounding strongly and then falling more deeply in a subsequent retreat.
It is also common for the index to complete a tip over pattern prior to these large drops. The index often rebounds bullishly from the initial drop in these patterns before falling more deeply from this rebound.
The index has pushed higher in five consecutive weeks since rebounding from a significant drop that resulted in the tip over pattern completing. It amassed gains nearly equal to those seen during the full year in this very short time period. The run higher appears to have been the result of very bullish runs in relatively few of the constituents along with normal cycle rebounds from lows in a large number of the remaining constituents.
Many of the constituents that had large bullish spikes higher went well above previously established trends. The large move higher makes it look likely many of these stocks have overextended in these runs. This type of run leaves stocks vulnerable to large retreats. Although stocks occasionally maintain runs above the upper trend line longer than the index, like the index, runs above the upper trend line in stocks fall to or below the lower trend or lower support lines eventually. These large runs pushed the index higher, but also increased the potential downside on the index if a downturn develops from this run higher.
The fast large rebound on the index is consistent with those seen during initial rebounds during tip over patterns in the past. It is also not uncommon for some constituent stocks to take large bullish runs that moved well above the trends they were in previously. These initial rebounds usually turn lower in dramatic falls and these drops are normally much deeper than the initial fall.
Consecutive week runs higher on the index of the current length make a downturn seem possible. When the index turns lower in the next significant pullback it seems very likely the index could fall deeply in this retreat. Since these large runs added downside potential, it seems more likely this downturn could reach crash potentials.
These patterns and time frames make it seem possible the index could be very close to this fall. As seen during past expiration periods, it is not uncommon for price change directions to happen within expiration periods of 90 day indicators. The -/(+)90 D indicator that became active on Aug 29, 2014 will begin its expiration period on Dec 18, or in 18 trading days. Current chart formations make it seem possible this retreat could happen sooner.
The projections for the -/(+)90 D indicator that became active on Aug 29, 2014 appeared to complete earlier than expected. The index turned higher prior to reaching the depths expected. It also seemed likely this drop could extend longer than it did with the index rebounding bullishly, but probably not reaching the 10% rebound required for a full plus rating before this indicator expired. The index has rebounded in excess of 10% before this expiration making it appear the timing for this indicator continues to be about a month earlier than expected. It seems possible that the index is running forward of patterns this timing was taken from. It also seems possible this timing could continue forward of these patterns, making it seem possible the downturn could happen sooner than expected.
If a market downturn is seen, it seems possible normal market conditions seen early in the year could add to investor jitters. Increasing drop potentials and delaying a rebound until these fears can be calmed. It seems possible this downturn could last into late February or March when these conditions normally start to right themselves. Although if the downturn begins early, it seems possible it could finish early.
It seems possible the index could rebound bullishly from this pullback and regain ground very quickly in the initial move higher before taking a more measured push higher later in the rebound. The index will probably return to the trend higher off the crash lows the index was in earlier, but it does not seem very likely it will push back above the upper trend line again for some time.
Based on these and other evaluations, the following is the projection for the 9 D indicator that became active on Nov 20, 2014.
The S&P 500 has run very steeply higher since rebounding from Oct 15 lows, producing gains near those seen for the entire year. The index has reached a consecutive week increase duration that makes a pullback seem likely. If this pullback occurs, it could delay the index until the upcoming expiration period of a 90 D indicator, or possibly turn the index lower in a larger drop. The index finished the week in a possible bad finger chart pattern, although not always the case, these patterns are not uncommon prior to continued rounding out of tops. The index is fully overbought. It seems possible a downturn could start with near 50% of the constituents with prices lower than those they had three or more months earlier. Although not all of these stocks are in established downtrends many are and it does not seem unlikely they could break to lower lows in a retreat. Many stocks broke below support levels before rebounding in the previous downturn that have weakened these support levels. It seems possible these support levels could fail in a future retest. The -/(+)90 D indicator that became active on Aug 29, 2014 will enter its expiration period on Dec 18, or in 18 trading days. It seems possible the index could be within either the 2065 to 2070 MRL or 100 L at 2100 resistance levels when this indicator becomes active. Even though the index is within a time period that is generally bullish, current conditions make it seem possible that this downturn could begin before the expiration period begins. The strong rebound from Oct 15 lows appears to be consistent with rebounds from initial falls in tip over patterns. Bullish runs in several of the constituents have pushed well beyond the upper trend lines in these stocks. It seems likely these stocks added downside potential to the index due to these higher runs. This coupled with the index moving further above potential rebound points along with other considerations caused the drop potential to be increased for the 2065 to 2075 MRL. It seems possible the MRL could produce a drop that reaches the lower trend or lower support line and probably stays within the 10% to 20% range. If a drop to crash potential is seen, it probably does not exceed 24% by much, but could possibly reach 28%. Since this fall appears likely very early in this indicators presence and it seems likely the drop could reach or exceed 10%, this indicator is given a full minus (-) rating. It also seems possible the index could rebound bullishly late in this indicators active period. It seems possible this rebound could regain 10% or more of this fall during the indicators active period. Although this indicator could finish with a last close that is still negative, it seems possible the rebound could be to levels necessary for a full plus (+) rating. Therefore this indicator’s full rating is -/+ 9 Day.
Average daily volume levels increased 5.14% week over week and the difference in the five day volume variance increased 8.40% to 25.19%. The five day variance remained near bullish levels. Although volume levels increased they remained lower than earlier extremes.
The S&P 500 pushed above the 2035 to 2055 MRL without incidence of a significant pullback. Friday’s run higher also pushed above the upper boundary of the 2065 to 2070 MRL, but fell below the lower boundary of this resistance level before the close.
The index has pushed very strongly higher and has seen five consecutive weeks of gains. Although longer streaks have been seen, it is in a duration that makes a pullback seem likely. Several of the indexes finished the week in possible bad finger patterns. Although not always the case, rounding patterns often continue during these chart formations in rounding tops.
The index rebounded very quickly with many of the constituents rebounding in unison; it now appears many constituents are burning out in these runs in unison. Several constituents appear to be turning lower in these runs. If the numbers begin to increase and constituents begin to trend lower in unison this alone could a fairly large drop. It seems likely these conditions could increase the potential for volatile conditions and this drop could set a larger selloff in motion.
The index rebounded just as a tip over pattern was completing. A tip over pattern is a collection of index and constituent charts that indicate a large drop on the index is likely. This type of pattern is evident prior to past crashes and many large downturns on the index. These patterns also often coincide closely with runs above the upper trend line on the index. Rebounds from the initial drop in tip over patterns are common. Some were quick spikes higher and others have lasted up to a few months. It seems fairly likely the index could follow this pattern and if so the fall off this rebound is generally much deeper than the initial downturn.
Chart formations appear consistent with those seen in initial rebounds during tip over patterns. It seems possible many of the stocks that carried the index higher have overextended in these runs. These over extensions left the potential for a larger drop in these stocks. Although many of the constituents broke from short term downtrends in this rebound, few in longer term trends look likely to break from these trends. It also seems likely the numbers in these longer term downturns could increase markedly into a future drop. Although not all are in established downtrends yet, it seems possible near to over 50% of the constituents could remain in moves lower lasting three months or longer when they turn lower again. The increases in longer term downtrends are likely to increase downward pressures into a subsequent significant drop. Overextensions in runs and increases in downtrends are common features in the initial rebounds from tip over patterns. They add fuel for the larger drop.
The index returned to its trend above the upper trend line that was established early in the rebound off crash lows. Past breaks above the upper trend line on the S&P 500 have all produced large retreats that reach the lower trend line or lower support line at some point. It is not uncommon for the index to see one or more significant drops before seeing a retreat to one of the two trend lines. The index has rebounded from four significant retreats since initially breaking above the upper trend line on Dec 26, 2013.
If the index continues in past patterns, runs above the upper trend line have always fallen back to or below the lower trend line or lower support line within two years. The only exceptions were during trend changes, but these trend changes occurred during a rebound from drop to one of these two lines. It therefore seems likely a break to the lower trend line or lower support line could happen within the next 13 months. Chart formations make it seem fairly likely it could occur sooner rather than later.
The upper trend line of S&P 500 will intersect with the 2000 level on Dec 22. The lower support line intersected with a line drawn at 1565 (1565 is approximately the highest close in 2007) on Sept 17. The highest close before the last significant pullback was seen on Sept 18.
Gold rebounded above the 1090 resistance and appears to be finding support at this resistance in most retreats. This rebound above resistance appeared to coincide with Russia selling dollars and purchasing gold in an attempt to devalue the dollar to stabilized oil prices. It seems possible a rebound in gold during a drawdown in stocks could reverse the apparent earlier asset reallocations between these investments.
It seems likely the breaks lower seen in commodity prices could continue for some time to come. Attempts to force market directions opposite of normal patterns usually turn out badly for those making these attempts. Earlier investments of about 50 metric tons per quarter by Russia did not appear to stem the drop in gold, so unless these investments are very large and continue for a very long duration, the effects on both the dollar and gold appear temporary. Putin’s gold additions could be well timed if he sells a rebound and reinvests the proceeds back into dollars, otherwise normal trends make it seems possible he could be on the losing side of all three of these bets.
Stock volume levels increased somewhat during the week and remain high for bullish runs. Volumes remain nearer to those seen during bearish time frames and volatile conditions. These higher volumes could be asset reallocations and bullish, however if these reallocations should reverse into a pullback in stocks, the index could see a very large bearish increase in selling volumes during this downturn. The high volumes seen through this rebound have added potential downside in a retreat.
Volatility continues to be calm. The lack of volatile conditions is a bullish indication, but the index has run higher very fast and many of the stocks in these bullish runs could have overextended in the run to these gains. The index moved above the level that was most likely to cause a large drop on the index without incidence, but has chart formations that make this larger drop still seem likely. It has also moved into another resistance that has a high likelihood of producing volatile conditions.
Generally an increase in active indicators is a bearish indication. A new -/+9 Day indicator became active in the past week. It is the second 9 Day indicator to become active in less than a month. It seems possible it and a recently activated -/(+)9 Day indicator could be pointing to a break lower from the tip over pattern. It seems possible the index could turn deeply lower during these indicators’ presences but rebound before they expire.
Another indicator will become active in less than a month. The -/(+)90 D indicator will expire on Jan 08, 2015. The indicator will enter its 27 trading day expiration period on Dec 18 and exit it on Jan 28, 2015. This expiration period will activate a 90 E indicator. The expiration periods of 90 day indicators have exhibited many bearish traits during past appearances.
The -/(+)90 D indicator became active during a potentially unstable time on the S&P 500. Market conditions along with several other variables made it seem possible this indicator could react bearishly during the first half of its presence and rebound bullishly during the second half of its active period. It seems possible this projection completed earlier than expected, and that timing patterns it was based on could be running forward by about a month.
The S&P 500 is nearing a potentially bullish time period. Beginning dates vary widely, but the end of year rally often begins before or on the Monday after the Thanksgiving weekend. Although the majority of years participate in this rally, not all do. It appears that this year’s rally has already begun. These rallies do not always last into the end of the year.
Ultimately the direction that the stock market takes from here could be influenced by news events. It seems possible some of these news events could involve normal market conditions due to the time of year.
When the S&P 500 broke above 2000 it entered a level research suggests could contain a large pullback. Data evaluations make it appear resistances met between 2000 and about 2140 could have the potential to cause a large drop, possibly reaching crash proportions.
Although research suggested that resistance within the 100 L was probably the least likely area this downturn could be seen at and resistance at 2040 the most likely, the index saw a large downturn at the 100 L and passed the 2040 resistance without incidence of a significant pullback. Although both of these projections turned out to be incorrect, both of these resistance levels appeared to react to seasonal influences that may have changed the expected outcomes at these levels.
The downturn at the 100 L did not reach the levels that could have relieved the index of a possible deeper drop. It instead completed a tip over pattern that makes a deeper drop in the next significant pullback seem very likely.
The index also moved past the 2035 to 2055 MRL without incidence. As a result the 2065 to 2070 MRL inherited the projections of the lower MRL, although these projections were adjusted to reflect increased drop potentials and a slightly higher starting point. Current chart formations tend to make a fall in excess of 10% seem possible within the 2065 to 2070 MRL. The outcome within the lower support levels seems consistent with the possibility this MRL could produce a drop that reaches the lower trend or lower support line and probably stays within the 10% to 20% range. Chart formations make it seem possible the latest rebound is consistent with runs seen during rebounds from initial drops during tip over patterns. These rebounds often lead to drops that fall more deeply than those seen in the initial drop. Although not all tip over patterns lead to crashes, it seems possible a drop that reaches crash proportions could be seen. If a drop to crash potential is seen, it probably does not exceed 24% by much, but could possibly reach 28% if many of the constituents fall to lower support levels. Research suggested if a crash were to occur from within this resistance level, it probably finds bullish support somewhere near the two previous tops in 2000 and 2007. The index is currently a little over 24% above the 2007 high.
The next likely resistance level above the 2065 to 2070 MRL could be seen at the 100L at 2100. This resistance has the potential to cause a significant pullback, although the potential for these drops could change drastically depending upon the outcome at the lower resistance and being so no drop projections have been made for this resistance at this time. It appears likely this resistance could cause a significant pullback in the lower half of this resistance, with resistance likely to be seen from 2085 to 2100. The upper half of this resistance level is less likely to cause a significant pullback if one is seen in the lower half. The resistance in the upper half is likely to be seen between 2012 and 2025.
There continues to be many reasons to be bullish at the current time; however the index continues to show patterns that are common prior to large retreats. If a large pullback is seen on the index, it could be prudent to increase stock equities holdings into this drop.
If gold should rebound into a large selloff in stocks, it could provide the best remaining opportunity to take profits in gold holdings. If stocks rebound strongly from this downturn as it seems fairly likely they could, it seems possible gold could shatter support at about 1190 in this retreat and might not find solid support again until near 700. A drop directly to this level seems unlikely and gold probably finds temporary support in the 900 to 1000 range before slipping lower. Ultimately, even the support at 700 is likely to fail with gold probably returning to the 200 to 300 level at some point in the future.
These data evaluations do not mean a crash is certain within the 2000 to 2140 range. The data evaluations only identified this level as one with a high potential to cause a large drop, possible reaching the 25% to 35% range; although a fall seen low in this range might not reach these levels. This range also holds most of the specifications identified in the first crashes of a market entering into a secular bull.
Please note there is no established resistance in the MRL levels before the index has reached these levels. Several instances have proven to hold resistance once reached; however MRL levels that the index has not yet reached are only the most likely levels that resistance will be seen based on research. Back tests of the data used to project these resistance levels work well, but they are not always exact, and these resistances could react sooner or later than expected, it is also possible the resistance will not be seen at all.
If the market should fall to crash levels, the blue chips, stocks with very low or no debt, and stocks with histories of stable dividends tend to fair best in pullbacks on a percentage basis. Caution should be used in stocks that have seen dividend increases well beyond those normal seen. Moderately priced stocks tend to lose less on a dollar per share basis.
Early in the rebound, many of the heavily weighted stocks did poorly, but the index still moved higher as many of the lower weighted stocks did well. Sheer numbers carried the index higher in the early rebound. During this time it was noted that the index price was increasing slower than the un-weighted price increases seen in the constituent stocks, indicating a large number of lower weighted constituents were moving higher with the index. For instance; from Dec 31, 2012 to Dec 31, 2013 the un-weighted index price increased 32.21%, while the index only increased 29.60%. This indicated the run higher was widely supported, and not being carried higher by a few heavily weighted stocks. This was the pretty much the case during the entire rebound, until the downturn into March of this year.
This trend appears to be changing and if it continues the lower weighted stocks are just as likely to begin to drag the index down with them, as they drug it higher with them earlier. Returning just 35 constituents to the prices they had in the previous high on Sept 18 would turn the index lower than that high both on a weighted and un-weighted basis; although some of the 35 constituents differ in each comparison. With dwindling numbers of stocks carrying the weight of the entire index higher, it seems possible that stumbles in relatively few of these runs could turn the index lower. Many of these stocks have spiked considerably higher in these short bursts higher, pushing well outside normal trends. This is often a danger sign, but especially troublesome during tip over patterns.
For the year the index has gained 11.64%, but the un-weighted constituent price has only increased 6.69%. Based on constituent price data collected on the previous cycle high of Sept 18, the un-weighted price increase in the constituent stocks to Friday’s close was 1.49% while the index price increased 2.59% during the same period. The past week’s increase of 1.61% on the index only saw an un-weighted increase of 0.56%, showing support waning further in the past week.
Based on constituent price data collected on Oct 17 against that on Friday, the un-weighted price increase in the constituents stocks was 8.00% while the index price increased 10.79% during the same period. This data reflects a large rebound in many stocks from the deep lows the index fell into, but heavily weighted stocks carried a larger share of the run higher. Many of the lower weighted stocks appear to be turning lower as the past week’s large disparity in these two matrixes seems to show.
The index has pushed higher for five straight weeks and in the process amassed gains nearly equal to those for the entire year. It seems possible this run could have been too far, too fast. The run higher was supported strongly by about 20% of the index, with most of the others just trending higher off lows and many of those stocks look likely to continue in normal trends that will likely take them lower from the recent run higher. Many of these that took strong runs higher now look over extended as these stocks have pushed well above upper trend lines. The runs higher were not slow bullish runs within trend. They were jagged chops higher, which went well outside of trend.
Some of the highly weighted stocks have a history of these stumbles early in the year. With few supporting a move higher, a few less could start a turn lower. This turn lower could come after the index has added potential downside into the most recent run.
There were 30 constituents that finished Friday lower than they were on Oct 17. During the past week, six constituents broke to new 52 week lows. On Friday there were 8 constituents that were 20% or more gains higher than they were on the Sept 18 close, but there were 13 constituents that had losses greater than 20% from that high.
There were 162 constituents that finished Friday lower than they did at the previous index high on Sept 18, many of these stocks started downtrends from that fall that they have not broken from in this rebound. Even though some have moved higher than they were on Sept 18, they still not have recovered from drops that they had started prior to the index high on that date. Many have been trending lower for over a year.
It continues to look possible a turn lower in index prices could see near or over 50% of the constituents begin this trend lower than the stock prices they had seen three or more months before. Not all of these stocks are in established downtrends, but many are and many have been in downtrends that began in or before March and many more have joined the trend lower since. The numbers in established downtrends have been growing fairly steadily all year.
Although an end of year rally could be in progress, it appears it could be a poor time to add. But it seems possible it could be a good time to take profits. Downturns into the beginning of the year are not uncommon.
Data provided for the S&P 500 was derived from the historical daily data tables, similar data can be found at Google Finance. Stock and Treasury charts used for analysis and commentary were provided by StockCharts.com or from those that Ron created from his data. Gold charts used for analysis and commentary were provided by Kitco.
Have a great day trading,
Disclosure: Ron is currently about 68% invested long in stocks in his trading accounts reflecting a decrease in his rounded investment level over the past week. The change in his investment level was due to sale of two issues and dividend payments. Ron feels comfortable with his investment level at the current time. However he has and will continue to sell stocks that reach long or short term targets and also continue to add stocks he feels are at a great value through a variety of buy orders. Ron will receive dividend payments from 10 issues in the coming week and 15 in the following week. If no further investment changes are made during this timeframe, his rounded investment level would remain unchanged by these dividend payments.
During the previous week Ron reduced stock fund investments in his current employer’s 401 K by 10%. This account is currently about 37% invested in stocks at this time. He may continue to reduce stock fund investments in the week ahead.
Disclaimer: The information provided in the Stock Market Preview is Ron’s perception of the current conditions and what he thinks is the most probable outcome based on the current conditions, the data collected and extensive research he has done into this data along with other variables. It is intended to provoke thought of the possible market direction in his readers, not foretell the future. Ron does not claim to know what the stock market will do. If the stock market performs as expected, it only means he is applying the stock market history to the current conditions correctly. His 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.