The S&P 500 saw three sessions close with losses and finished the week 1.37% lower. The index has fallen in two of the past three weeks and has finished 11 of the past 19 sessions lower. The index pushed lower despite some encouraging growth news, see related story here.
The S&P 500 broke below potential supports at the 1975 lower boundary of the 100 L and the 1970 MRL in Thursday’s retreat. Friday rebounded and finished above both, but the breach of these supports makes it likely a future retreat could fall more deeply below them.
Average daily volume levels decreased 6.47% below the average daily volumes of the previous week. The week’s lowest volume was seen in Friday’s rebound with Wednesday’s rebound recording the largest volume. The difference in five day volume variance fell 61.42% below that seen in the previous week to 14.35%.
The Major Stock Market Indexes appeared to make a bearish turn lower in the past week. The index charts of the Dow Jones Industrial Average, S&P 500, NASDAQ, New York Stock Exchange and Russell 2000 are now showing several bearish indications.
All of the major indexes fell below their 13 and 50 EMA during the week. The Dow Jones held up the longest, it saw session’s highs rebound above the 13 EMA until it fell through and closed below the 50 EMA Thursday. Friday rebounded slightly above the 13 EMA, before being pushed lower to finish slightly below it.
The S&P 500, NASDAQ and New York Stock Exchange began seeing rebounds pushed lower at or near the 13 EMA early in the week and turned more deeply lower late in the week. The NASDAQ and S&P managed to bump back above the 50 EMA during Friday’s rebound and finish slightly above it.
The New York Stock Exchange saw a bearish cross of the 13 EMA below the 50 EMA Thursday. It has followed the Russell and has fallen more deeply below the 50 EMA than the other indexes. Friday’s rebound left it well short of the 50 EMA and it has finish five consecutive sessions below it, It is also near to establishing a downtrend.
The Russell 2000 which had already established a downtrend and seen a bearish cross of the 13 EMA below the 50 EMA in the previous week, saw another bearish cross Tuesday when the 50 DMA broke below the 200 DMA. It also finished Thursday below the Aug 1 low, the lowest close in the previous downtrend. The Russell has finished nine of the past ten sessions below the 50 EMA and six straight.
Although the drop has been fairly steep already and taken the indexes into oversold conditions, many of the individual stocks charts appear to be just beginning to turn lower. This makes it seem possible additional downside could be seen. It therefore seems possible the indexes could continue lower in the week ahead.
The US Treasury Charts saw long term bond prices rebound during the week. The rebound in prices in Treasuries notes also forced interest rates lower on the ten year note.
The 20 year US Treasury Bond price continued higher in the rebound off support, breaking back above the 13 EMA and has begun riding above this indicator. The 13 EMA turned higher and made a bullish cross back above the 50 EMA on Thursday. It has moved out of deeply oversold conditions and is nearing overbought. This chart continues to look bearish, but is showing some bullish tendencies.
The long term Treasury charts are showing some bullish tendencies, although they still appear bearish. These charts leave an unclear picture for stocks at the current time.
The interest rate on the 10 year US Treasury Note slipped during the week, but only slightly lower. It fell back below the 13 EMA Tuesday, but rebounded to close above it Wednesday. It slipped fairly steeply to the 50 EMA Thursday, but rebounded after breaking slightly below it Friday. Friday continued higher breaking above the 13 EMA before slipping to finish below it yet recovered most of Thursday’s losses. This chart continues to show bullishness, although Friday’s failure at the 13 EMA is somewhat bearish.
Gold started out flatly Sunday night before slipping steeply after the Hong Kong open to about 1208. It rebounded to finish the night a bit above 1213.
Monday saw the yellow metal trade in a slow flattish uptrend through the session. It slipped back to about 1211 in Hong Kong before moving higher to reach about 1219 in New York. It slipped slowly back to about 1214 before beginning a rebound at the Hong Kong open that carried it higher to finish the night at almost 1218.
Tuesday gold traded within a couple points of 1218 before beginning a steep rebound at 1216 near the London open. It pushed to about 1225 before leveling out for several hours then continued steeply higher to about 1234. Gold fell nearly as steeply off that high into the New York open, dropping back to about 1226 before leveling out for a few hours and slipping back to 1220. It traded between 1220 and 1225 for the remainder of the day, finishing just short of 1223.
Wednesday continued in Thursday’s late flattish trend until it broke below 1220 near the New York open. After a couple bounces back to about 1223, it trended slowly lower to about 1213 in Hong Kong. It pushed a little higher to finish the day at about 1215.
Thursday saw gold slip to about 1206 in Hong Kong before beginning a slow bouncy rebound in London. The rebound steepened in New York, pushing gold back to 1224 before again turning into a slow bouncy trend higher. That trend reached about 1226 early in Hong Kong before slipping to finish a little above 1223.
Gold started Friday flatly but began to rebound fairly sharply before reaching about 1229 just before the London open. It turned lower after the London open and continued to trend lower falling briefly below 1213 before trending slowly higher into a New York Spot close of 1219.40 and a little higher than the previous week’s close of 1216.20.
Gold’s higher finish broke a three week slide in New York Spot closes. Before rebounding Thursday, it pushed the closest to the 1190 support seen so far in this retreat.
The S&P 500 Constituent Charts continued in many of topping formations discussed in the past weeks. Several more constituents broke support levels and more have seen large drops in retreats from all-time highs or long term resistances.
Some of those that broke above resistance in a recent move higher, made an abrupt turn lower that has broken previous support. Several stocks look unable to break back above the 13 EMA, and are moving lower beneath it.
It seems very likely over 50% of the constituents could be in downtrends lasting over a month by the beginning of next month. A week later there could be near 60%. If the current trend continues, by mid-month it could increase to over 65%.
Many of those in long term downtrends that were rebounding towards their upper trend lines have appeared to turn lower off these highs, so it seems possible they will continue back towards the lower trend line. Since many of these stocks are turning lower together and are in fairly large cycle patterns, it provides a fairly large drop potential.
It was noted in the past week’s article that the constituent changes made to the index had a minimal effect on the data that was analyzed in that article. Although these changes had little noticeable effect on the averages of the index in that data, after looking more closely at some of these changes it became apparent the changes have increased the potential downside on the index quite noticeably in a large downturn on an un-weighted price basis.
As noted, many of the constituent changes deleted an old constituent with a low market cap that was underperforming and near to 52 week lows, replacing it with a new constituent with a higher market cap that was trading at or much nearer to 52 week highs. The stocks near 52 week lows were much closer to support levels that are likely to hold up in major downturn. The percentage lost in many of these drops in the deletions would likely be less than the potential fall to the first strong minor support in the replacement. Since many of those added are riding a great deal higher than the major support levels that could be expected to hold in a very large downturn, the potential downfall in the additions could be in multiples of that seen on the replacements.
The replacement constituents had higher market caps and being so they are weighted more heavily than the deleted constituents. Most of the additions and deletions had small weights on the index, so when considering these changes on a weighted basis it is not a huge factor. Even so, if the market experiences a large downturn, these stocks could add noticeable price erosion to the weighted index value.
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, 100 L and –/(+) 90 D indicators are currently active. See a more detailed description of most of the indicators developed through research and featured in these articles here.
The +2% H and –2% H indicates did not provide a correct indication in the past week, although drops seen during the week were larger than most seen recently. Indicators continue to point to an evaluated potential of volatile daily moves on the index.
Thursday’s drop broke below the lower resistance of the 100 L and also below the 1970 MRL. The failure at these two potential supports makes a drop into the 1940 to 1955 MRL seem more likely. A drop very far into this potential support would take the index to significant levels. It seems likely the next drop to significant levels could continue to carry the index much lower. If this significant drop is seen within the 100 L, it would inherit projections made for the 2035 to 2055 MRL.
The constituent charts are beginning to make it appear the delays seen in the upper half of the 100 L lasted too long. Many constituent charts appear to be turning quite bearish. Increasing numbers of support breaks makes a larger drop seem possible.
It seemed possible the -/(+)90 D indicator that became active on Aug 29, 2014 could perform bearishly in the first half of its appearance. To this point it has performed as follows in the format: highest close / lowest close / last close.
+0.45% / -1.81% / -0.97%
Average daily volume levels decreased 6.47% week over week and the difference in the five day volume dropped 61.42% to 14.35%. Every session but Friday posted volumes above those seen on the same day in the previous week. Friday’s volume was well below the year’s second highest volume seen on the previous Friday. With the exception of the lower volume on Friday, volumes remained consistent with bearish downturns. Although we have not yet seen a volatile daily session, the index saw four sessions in the past week finish with higher percentage moves than any in the 23 sessions prior to the past week. Indicators and index conditions continue to indicate that the chance of volatility is elevated.
The -/(+)90 D indicator became active during a potentially unstable time on the S&P 500. Market conditions along with several other variables make it seem possible this indicator could react bearishly during the first half of its presence, but could rebound bullishly during the second half of its active period. It seemed possible the index could rebound to the 2035 to 2055 MRL before this downturn began, but current chart formations leave this very much in doubt.
The S&P 500 turned lower in the past week beginning to fall from likely resistance in the upper half of the 100 L. It appears many of the constituents have turned lower from upper trend lines and it seems unlikely many will turn higher again before completing a down cycle. Upward tensions appear to be burning out and downward tensions appear to be increasing at the current time. This is partly due to a large number of support breaks, an increase in the numbers breaking lower from all-time highs and many constituents beginning to turn lower off the upper trend line in long term downtrends along with increasing numbers of the constituents in downtrends.
It continues to seem fairly likely the next significant pullback could be large. As a result, if a drop from the upper half of the 100 L reaches significant levels, it would inherit projections originally made for the 2035 to 2055 MRL.
Topping pattern failures appear to be nearing critical levels. It seems fairly likely October could begin with over 50% of the constituents in downtrends that have lasted more than a month. A continued downturn could bring these numbers to near 70% by the end of the month.
The large increase in downtrends also coincides with an increase in large turns lower in stocks running at or after falling from long term or all-time highs. Large breaks lower from all-time highs have continued. Additional large retreats from all-time highs seem possible as investors take profits begin to take profits in other high fliers.
Chart formations suggests the index could be about to complete a tip over pattern. A tip over pattern is a collection of charting patterns that appear to result in a large drop on the index, sometimes reaching crash levels. In the latter stages of tip overs those in downtrends begin to overwhelm those still moving higher.
One sign that a drop is about to turn higher is when those in bullish runs reach or begin to rebound off likely support levels. Many of those that were in bullish runs have already broken below these support levels. This leaves fewer to make the turn higher, some still will, but the index is less likely to follow the few that are left in these runs and more likely to follow the many turning lower.
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 that 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, constituent chart formations make it seem possible this downturn could happen sooner than expected. Continued increases in bearish downturns from topping patterns make it seem less likely the index will move above the 100 L before turning lower in a significant drop.
The S&P 500 is within a potentially bearish time period. The index has started or continued lower from breaks above the upper trend line many times in September and or October. These two months have pronounced presences in downturns from the upper trend line. A couple of the most notable retreats include the largest crash ever seen on the S&P 500 that topped in Oct 2007 and the largest crash ever seen on the Dow Jones that topped in Oct 1929.
The period from September to October is almost three times more likely to see volatile market moves lower based on the monthly average of these downturns. Many of the largest daily, weekly and monthly drops seen on the index occurred during the two months, also occurring at levels far above the averages.
If the index continues past the 100 L, the next higher resistance is likely to be seen in the midrange resistance level (MRL) from 2035 to 2055. This level appears to have the potential to cause a very large drop possibly reaching crash potential. The 2035 to 2055 MRL also holds the level of concern at 2040. Data evaluation pointed to resistance at 2040 as the most likely area that a crash would be seen between 2000 and 2140. The research also suggested if this crash were to occur, it probably finds bullish support somewhere near the two previous tops in 2000 and 2007.
Current chart formations tend to make a fall in excess of 10% seem possible within the 2035 to 2055 MRL, depending partly on the outcome within the 100 L resistance level. If the rebound from the significant drop within the 100 L carries the index into the 2035 to 2055 MRL, it seems possible the MRL could produce a drop that reaches the lower trend line or lower support line and probably stays within the 10% to 18% range. Chart formations make it seem possible a drop that reaches crash proportions could be seen. If a drop to crash potentials is seen, it probably would not exceed 22% by much, but could possibly reach 25% if many of the constituents fall to lower support levels.
It seems fairly likely a larger drop could be seen with the next significant pullback, if the 100 L should fall to a significant level from the likely resistance within the upper half, it would inherit the above projections for the 2035 to 2055 MRL.
A possible signal that an area of resistance could hold potentially larger drop potentials is the presence of several volatile daily moves (those of 2% or greater) within a relatively short time period, for instance three or four within a few weeks more or less. The larger the number of volatile moves, the more potentially dangerous a resistance becomes. These volatile moves won’t necessarily all be seen once the index reaches the resistance level, but they could be. The index is within a time period that holds a higher than normal percentage of these volatile moves.
Strengthening in the dollar could lead to continued pullbacks in commodity prices. It seems possible drops in commodity prices could be a catalyst for bringing the index into a larger drop. Large price drops on the index can be traced back to earlier slips in commodities prices.
The index has again broken above the upper trend line. It also reached the 2000 level early than projected due to the run above the upper trend line.
Breaks above the upper trend line often produce larger retreats on the index at some point, although it is not uncommon for the index to see one or more significant drops before seeing this larger retreat. The index has rebounded from three significant retreats since initially breaking above the upper trend line.
Constituent chart formations make it seem possible the index is nearing an area that this larger drop could occur at. Constituents continue to flatten against resistance levels with many turning lower from these flattening patterns. Some constituents flattened at resistances below the previous high and many turned lower from these resistances and have subsequently broke through major support levels. These stocks appear to be turning lower from topping patterns. As these topping patterns continue to develop, drops often steepen in subsequent pullbacks.
Increases in these topping pattern failures are reason for concern. They appear to be at levels that could cause a large drop. Current chart formations make additional failures in these patterns seem likely. It seems fairly likely deeper falls could be seen on many of the constituents in retests of support levels in a subsequent drop.
Tops very seldom happen with all stocks failing at once, the numbers tend to grow until the weight of those that failed overwhelms those in bullish runs, dragging all lower in the larger retreat. It seems possible these numbers could reach a tipping point in a future retreat. It does not seem unlikely over half of the constituents could be in downtrends lasting more than a month soon.
Additionally resistance breaks are becoming scarce. Resistance breaks are necessary for a bullish run to continue. Few have broken higher and maintained these trends afterwards. Fewer constituents are in bullish runs, with many of these runs showing choppiness.
Some of the constituents have continued in bullish runs, but many of these runs left unfilled gaps. Gaps generally fill at some point, and it seems fairly likely they could in a larger downturn.
It also appears upward tensions in the constituents continue to wane. Some constituents appeared to over extend moves higher caused by earlier upward tensions. This could increase downward pressure on these stocks when they finally turn lower.
Chart analysis makes it seem possible a drop catalyst might not be from an outside influence, but instead from a pullback caused by a large number of failures in current topping patterns. The chances that a fall could reach crash proportions in this drawback appears to have increased somewhat.
Ultimately the direction that the stock market takes from here could be influenced by news events.
There continues to be many reasons to be bullish at the current time; however the index is nearing an area of potential concern and some caution should be exercised. Any pullbacks in stock prices seen along the way are probably a good opportunity to add although some flexibility in these investments could become necessary. If a large pullback is seen on the index, it could be prudent to increase equities holdings into this drop.
If gold should rebound into a large selloff in stocks, it could also 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.
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. Gold charts used for analysis and commentary were provided by Kitco.
Note to examiner screeners.
This article was not written in first person. There is not one instance of ME, MY or I included in the content. The disclosure and disclaimer are in third person; RON, HE, HIS.
But this is in first person: I apologize to my readers for changing the format of my articles to try to become “Newsworthy” for Google Finance. I will change it back for the next article.
Have a great day trading,
Disclosure: Ron is currently about 68% invested long in stocks in his trading accounts reflecting a reduction in his investment level over the past week. The change in his investment level was due to the sale of four small positions 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 27 issues in the coming week and seven in the following week. If no further investment changes are made during this timeframe, his rounded investment level would not change due to these dividend payments.
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.