Here is the local take on the S&P500 from Traverse City, Michigan:
The week began with a very impressive run, looking very bullish and pushing many of the S&P500 constituent stocks out of the downtrends they were in. In contrast, the pullback Thursday looked very bearish, pulling many of the indexes back near previous lows before it rebounded strongly in the final hour of trading as shorts began to cover the early news from Greece on a likely resolution of their debt crisis.
The rebound did not hold up Friday as again the overall market fell lower, but most constituent stocks and most of the indexes held above the lows seen intraday Thursday. Most of the constituent stocks also held above the most recent lows in the current retreat, and broke above the most recent highs in the last push higher.
Most of the constituent stocks that have recently broke from downtrends did not fall back to levels within the previous downtrend during the two day pullback, so it is likely they will continue higher. Many of the constituent stocks that appear to have begun basing held these base levels and few saw lower lows than their previous baseline low. Many of the stocks that had broken higher have begun riding atop the 13 EMA higher.
We are beginning to see constituent stocks push to or near 52 week highs. There had been a relative absence of this into the current low of this pullback, as almost all the constituent stocks turned lower.
Some constituent stocks that appeared to have begun to turn higher have since slipped lower. Some have also continued in their previous downtrends. Even in the most bullish of runs some stocks will continue downtrends, so at this point it is not a major concern.
Also as mentioned in previous articles, long sustained bullish runs require that some stocks pullback while others push higher, providing a staggered pattern that buffers falls and pushes the overall index price higher. When all stocks are moving in the same direction, the direction is likely to change.
This often happens as normal moves from oversold or overbought conditions push stocks or the indexes above or below technical levels, and these technical breaks move more buyers in or out of the market. We could be at one of these technical breaks.
At the same time, some of the stocks that have continued in downtrends are at or near levels that could provide support. At the current time most of the constituent stocks are in or beginning to establish trends higher.
The constituent stocks are mixed between oversold and overbought conditions using short term indicators, however, most are still deeply oversold using longer term indicators. These stocks could run higher for several months before reaching overbought conditions based on the longer term indicators. Overall the constituent stocks are showing the early indications that they will likely turn higher.
Let’s look more closely at the DJIA, S&P500, NADAQ, Russell 2000 and NYSE indexes.
The intraday highs of the early week rebound broke above the most recent two intraday tops on all the indexes except the NASDAQ, where it only managed to break above the most recent top. The lows seen intraday Thursday were higher than the previous low on all the indexes, and the retest Friday fell short of Thursday’s intraday low on all of the indexes.
At this point, we are seeing a higher high and higher low on all the indexes. If the higher low holds and stocks begin to push higher, it will likely begin to pull technical traders back in. If this happens, it will likely bring the next push higher to a higher high, and in turn confirm a push higher to yet more technical traders.
All the indexes except the DJIA have begun to establish a trend higher as upper and lower trend lines are beginning to appear. This is an early indication that the indexes could be set to move higher, and again could begin to pull technical traders back in.
The indexes also continue to chop, moving fairly quickly between highs and lows, which is often seen during direction changes. However this chop appears to have broken higher from bases or lows on the indexes. If this push higher continues, the choppiness is likely to soften as the move higher progresses.
All the indexes have made the initial break above the 13 EMA, with only the Russell 2000 managing to close the week above its 13 EMA. Even though the other four have not held above the 13 EMA, the initial break of this level after a significant pullback is often a bullish indicator.
The NASDAQ and Russell 2000 finished the week higher than the previous week, while the other three finished the week slightly lower. These two indices often lead in rebounds. Currently tech and tech retail in the S&P500 are at very low TTM P/E’s.
Currently the news continues to be mixed; one day brings relatively good news, the next relatively bad news. Many of the issues that have had bearish implications appear to be coming to a more positive conclusion than was initially feared. Although new issues could develop, currently the overall news seems less bearish, and the fear levels that were feeding this pullback could begin to fade.
Again, these fears could reignite or be redirected, so there is still some reason to be cautious, but early indications seem to point to a more bullish period beginning. We may or may not have seen the low in this downtrend, but overall the markets appear to be set to make a push higher.
The 9 day, +90 D, 90 E, +2% H and -2% L indicators are currently active. See a more detailed description of these indicators here.
Even though there has been several near volatile moves recently (unlike the volatility indexes like VIX or VXN, in this case volatile moves are measured by the percentage of moves between closing prices or day to day intraday highs or lows) both the +2% H and -2% L are beginning to weaken. This could indicate the choppiness that we have seen recently could begin to abate. Neither of these indicators have toggled off (or in the case of the +2% H, lower) but the current conditions are showing less volatile conditions could begin to prevail. Less volatile conditions are normally bullish.
The +90 D indicator has 6 trading days remaining before expiration. It has performed as follows to this point:
+4.40% / -3.77% / -2.88%
Current cautions: The bearish pullback seen here is not uncommon during this time period; the duration of this pullback varies, although most stay within about an eight week timeframe. The +90 Day indicator will expire on July 5, therefore the 90 E indicator is active, although this indicator has a high success ratio in showing market price direction changes, it is not a certainty it will perform as expected in this instance. Both the +2% H and – 2% L indicators are active indicating a higher than normal chance of volatile market moves exists. Periods of high volatility are normally bearish, with certain exceptions. Both of these indicators are beginning to weaken, and could indicate a more bullish period is about to begin.
Due to time constraints, I have discontinued the brief weekly update of the S&P500 portion of my article. I hope to include this again in future articles as time allows.
Part of this time has been spent in bringing new “Local Companies Worth Investing In” series of articles to my readers. During the past week I provided two new companies to take a look at: Textron Inc.(TXT) and RadioShack Corp (RSH). I hope to finish more of these articles in the weeks ahead. Many of the stocks featured in the past have performed well. Many of these stocks are currently in pullbacks that have brought them into appealing price ranges again too. This being the case, many of the past articles are worth looking into again too. Links to past articles are available near the bottom in both the TXT and RSH articles.
Have a great day trading,
Disclosure: I currently have investments in both TXT and RSH. I am currently about 91% invested in stocks. The increase in my investment level over that in my last article was due to one buy order that filled Friday offset slightly by a relatively slow week in dividend payments. I allowed all orders that I opened for the week to expire on Friday. I will probably reopen some new orders later. Although I was acting more aggressively to fill orders during the week by upping the buy limit price on most of my orders and swapping out of stocks that had taken recent runs, the results this week would indicate otherwise. It still looks like a rebound could be near or might have already begun, and although I am still not entirely at ease, I will likely continue to be a little more aggressive in trying to fill buy orders during the week ahead.
Disclaimer: What I provide in the Quick Market Takes 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 intend 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.
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.