The S&P 500 closed with its first yearly gain on Friday. It started the week with two small losses before seeing gains in next three sessions as the index added 1.35% for the week. The increase stretched the index’s winning streak to fifth straight weekly gain. Although the move higher has been strong, runs higher lasting five weeks or more are above average and those that last more than six weeks are rare. The index has finished higher in 13 of the past 20 sessions.
The S&P 500 weekly chart pictured above shows the index continued in a move above the lower trend line. It moved above the 100 L resistance at 2000 late in the week and pushed near the upper boundary of the 2035 to 2055 MRL Friday. During the final session it fought to a high of 2052.36 before slipping to finish at 2049.58, providing the first close in 2016 above the Dec 31, 2015 close of 2043.94.
This week’s chart includes the downtrend channel created in the overall trend lower that began from May highs. Although the current rebound was strong, the chart clearly shows the S&P 500 is still entrenched within this downtrend channel. Nearly every major index in the world has seen a similarly strong rebound off recent lows, but also remains within established downtrend channels. Most of the world’s indexes have been in downtrends that have lasted more than nine months, but some began to trend lower over a year ago.
The chart also shows the continued trend lower from May 2015 highs had only been broken once. That occurred when the July 20, 2015 intraday high broke above the upper trend line, but it fell from that high to a close below the trend line. Although not pictured, a trend using that July intraday high to establish this trend shows a similar pattern, only a slightly steeper retreat. Although the current trend lower is small, larger downturns often start with a small trend lower. If the index were to break lower into a large downturn, it is likely to establish a new trend that is more steeply lower in that retreat.
The late week move higher was aided by a somewhat positive statement by the Federal Reserve, yet that statement did not include a rate increase. The statement also dimmed hopes of rate increases in 2016 to two from the four they planned earlier. The Fed blamed the lack of rate increases at this meeting on foreign economic troubles, but it seems likely things at home are not developing quite as they had hoped either.
The stock market appeared to react strongly to the lack of a rate increase. Although many believe that a weak dollar and low interest rates are good for the US economy, nearly all major trends in economic data seem to show this perception is false. Many economists that have long held strongly to these and other past perceptions are now beginning to see the data does not support those notions.
The rally was also helped by some encouraging manufacturing data. Both the Empire State and Philadelphia Fed PMI reports showed an expansion from the prior month as they broke multi month strings of declines. The reports were much stronger than the very weak data the previous month, but that rebound in the month over month comparisons came after an extended string of monthly downturns. Increases in the data during this time of year are also common due to seasonal influences. Considering the long string of declines prior to the increase, the seasonal increases seemed somewhat weaker than normal. It is not uncommon for this data to take a turn lower following this seasonal increase. The reports gave reason for limited optimism; yet it seems possible the month over month improvement could appear better than it actually was.
The following earnings update may not include all constituents that reported earnings during the past week and it could include some that reported earlier. Earnings were found for three of the S&P 500 constituents that reported earnings. These constituents reported total earnings that were 68 cents higher than they reported the same quarter a year ago. This represented a 0.03 percent increase of the index’s total trailing twelve month earnings from a week ago and an average increase of 4.73 percent in the TTM earnings of those constituents. There were two constituents that reported earnings greater than the same quarter of a year ago and one reported earnings below the same quarter of a year ago.
Those that had not yet reported first quarter earnings saw a $2.02 reduction in first quarter earnings projections. There were 41 constituents with increases and 73 constituents saw decreases. Those that had already reported first quarter earnings prior to the current week saw no change in second quarter earnings.
The S&P 500 constituents saw current year earnings projections decrease by $3.25 compared to a week ago. There were 63 constituents that saw their current year projection increase while 98 saw decreases.
The S&P 500 saw 213 constituents that finished the week below their 200 DMA, compared to 241 a week ago. There were 243 constituents that finished the week either below their 200 DMA or less than one dollar above it, compared to 279 a week ago. There were 305 constituents that finished the week with a 200 DMA in decline compared to 331 a week ago.
The S&P 500 saw 295 constituents finish the week greater than ten percent below 52 week highs, compared to 319 a week ago. There are eight constituents that finished the week less than five percent from 52 week lows, compared to two a week ago. There were 73 constituents that saw new 52 week highs while eight constituents reached new 52 week lows during the week. The constituents that reached 52 week highs finished the week with an average P/E of 23.26. The average even weighted TTM P/E of the index increased with the index price to 19.62.
There were 181 of the S&P 400 constituents that finished Friday beneath their 200 DMA, compared to 218 a week ago. The index finished Friday with 223 constituents either below or less than one dollar above their 200 DMA, compared to 253 a week ago. There were 263 constituents that had a 200 DMA in decline, compared to 275 a week ago.
There were 265 of the S&P 400 constituents that finished the week greater than 10 percent below 52 week highs, compared to 279 a week ago. There were two constituents that finished the week less than five percent from 52 week lows, the same as week ago. The mid-caps saw 47 constituents reach new 52 week highs while one fell to new 52 week lows during the past week. The S&P 400 finished the week with an average TTM P/E of 20.01.
The featured and supporting indicators discussed below are not always correct, but they have been many times. Being so they are worth reading about and taking note of.
The 100 L at 2100, +2% H, -2% H and 90 E indicators are currently active. The +2% H and -2% H could slip to a low level of likelihood after Monday’s close with the conditions of this change explained below. The 90 E will expire after the market close on Monday. See a more detailed description of most of the indicators developed through research and featured in these articles here.
The S&P 500 saw no volatile events during the past week. The index pushed above resistance in the upper half of the 100 L at 2000. The index continued higher into the 2035 to 2055 MRL and after seeing Friday’s intraday high slip from resistance near the upper boundary, it finished the week within that resistance.
The S&P 500 started Monday lower at 2019.27, fell to a low of 2012.05 and pushed to a high of 2024.57 before finding resistance near the boundary of the 100 L at 2000 and slipping to close at 2019.64. Tuesday opened lower at 2015.97 and fell to a low of 2005.23 before finding support and rebounding to finish a cent off the session high at 2015.93. Wednesday opened lower at 2014.24 and fell to a low of 2010.04 before rebounding to a high of 2032.02 and falling to a close of 2027.22. Thursday opened lower at 2026.90 and fell to a low of 2022.16 before finding support in the upper half of the 100 L at 2000 and rebounding to a high of 2046.24 and then settling lower to finish in the 2035 to 2055 MRL at 2040.59. Friday gaped higher to start at the session low of 2041.16 and continued to a high of 2052.36 before finding resistance near the upper boundary of the 2035 to 2055 MRL and slipping into a close of 2049.58.
The index left an open gap higher on Friday and covered the Jan 5 gap lower. Gaps lower on July 22, Dec 2, Dec 7, Dec 8, Dec 30 and Dec 31 along with gaps higher on Feb 12, Feb 16 and March 11 remain open. Although all of these gaps are likely to be filled at some point, current conditions make it seem possible some of the gaps lower could remain open for some time.
The -2% H and +2% H indicators saw no correct indications during the past week. The -2% and +2% indicators will fall to a low level (L) of likelihood after the market close on Monday provided a condition with major influence is not seen in that session. This change coincides with the expiration of the 90 E along with the lack of a volatile move on the S&P 500 within the past ten trading days.
Although the index had fallen from the 100 L at 2100 and it is still active along with many supporting indicators that are at very high levels, the index is outside the normal influence range of the 100 L. Absent a volatile daily session, a significant price direction change, the index reentering the influence of the 100 L resistance at 2100, or the activation of another indicator with major influence, the two indicators will fall into a low state. The presence of any of these conditions would again put these indicators in a high state. In the unlikely event none of these conditions are seen during the next 17 trading days, these indicators would fall into dormancy until an indicator or market condition with major influence is again seen.
Volatile conditions continued to be seen at elevated levels in the world markets during the week. Although volatility remained at higher than normal levels; the past week lacked a session with a very large number of world indices in volatile daily price changes. Directions of volatile moves were mixed during the week, but eight of the nine volatile moves on the world indices were higher on Friday. Most supporting volatility indicators continued to subside during the past week, but still indicate a very high potential for volatility.
The 90 E will expire after Monday’s close. The index retreated in the largest percentage loss since 2012 during this presence of the 90 E. There was a stark increase in volatile conditions seen during this indicator’s presence. The S&P 500 saw six volatile session finishes during this extended presence. Five other sessions reached volatile intraday declines but rebounded to finish at less than volatile levels along with one near volatile move higher. The index began a significant decline on the first day of this indicator’s fringe area prior to activation and also saw a session with an intraday volatile decline during this three day fringe period.
Although this indicator will be considered dormant after Monday’s close and volatile conditions have appeared to calm somewhat as of late, the 90 E indicator often ushers in periods with elevated volatility. Supporting volatility indicators are not at the extreme highs seen during earlier volatile conditions, but they are at the very high levels seen prior to the 90 E becoming active. A great deal of recent volatility in world markets has been in bullish moves higher, yet the presence of volatile conditions is generally a bearish indication. During periods of heightened volatility, bullish moves often turn in volatile countermoves lower. Overall conditions still appear to have very high potentials to create volatile market conditions and very few of these conditions appear to support continued moves higher.
The average daily volume increased 0.16 percent from the previous week. Volume was highest during Friday’s triple witching and lowest on Monday. The five day volume variance increased by 63.42 percent to finish the week at 86.45 percent. Although average volume and five day volume variance levels pushed higher, much of this change was due to Friday’s triple witching. The five day variance would have edged slightly higher, but volume levels would have subsided without considering Friday’s volumes.
Volume fell to levels normally consistent with bullish periods before shooting higher on Thursday and Friday. Friday’s triple witching volume was 2.69% lower than seen during December’s very large triple witching volume. Although lower than December, it was very high compared to the same period in the past two years. The volume on Friday was 17.08 percent higher than in March 20, 2015 triple witching and 23.38 percent higher than in March 21, 2014 triple witching. Very large triple witching volumes are potentially bearish indicators.
The world indices saw early week volatility again give signs of turning lower, but again finished the week in a fairly strong move higher. Overall volatility appeared to be calm relative to very high levels earlier, but the world indexes still saw above average levels of daily volatile activity. Volatility indicators edged lower, but remained within the very high levels seen prior to earlier volatile conditions.
Most of the World’s indices have been in downtrends lasting over nine months. Although many saw very large increases in the recent run higher, most remain firmly entrenched within downtrend channels.
Despite some seasonal increases, economic conditions in the world’s major economies continue to appear to be deteriorating. Increasing numbers of indicators are showing trends common prior to or during recessions. Several of the world’s economies are in recession, and many others appear to be showing troublesome trends and conditions that could lead to recessions.
Since the first of the year the current constituents of the S&P 400 and S&P 500 combined to see to over 60 percent reach new 52 week lows. Despite a continued rebound, the S&P 500 saw a week over week increase in the numbers reaching new 52 week lows with some falling to multi year lows.
Most stocks continue to hold within long or short term downtrends. Most have reached fully oversold conditions and many have held within these levels for extended times. Although a somewhat bullish indication, these runs are reaching durations that normally see a break lower. Many of the constituents appear to have started to trend lower from resistance levels.
Although the index recovered from the most recent significant retreat, it remains within the overall retreat from May highs and the lower downturn from November highs. The S&P 500 has seen a large number of significant retreats off cycle highs since moving lower from the May high. The large number of significant retreats from cycle highs without recovering the first retreat is a bearish indication. Chart formations from these failures appear to show the index could be turning lower from a top.
The S&P 500 continued in a rebound above the lower trend line. The index saw several failures at or near the lower trend line during that rebound. This makes a subsequent fall to or through the lower support line highly likely. Seven of the 11 previous drops below the lower trend line have continued to or below the lower support line. Although not a certainty, conditions continue to make a retreat that breaks lower in this instance seem likely. Six of those seven previous retreats include: The near crash in 2011 that fell 19.39 percent, the crash in 2007 that fell 56.78 percent, the crash in 2000 that fell 49.15 percent, the near crash in 1998 that fell 19.34 percent, the near crash in 1990 that fell 19.92 percent and the crash in 1987 that fell 33.51 percent.
The 90 E will expire after Monday’s close. Although it is nearing expiration, this indicator has ushered in periods that continued to have high levels of volatile conditions after it had expired in the past. Although they have subsided from earlier extremes, most supporting volatility indicators are still in the very high levels seen prior to the increased volatility seen after the 90 E became active.
Companies are increasing characteristics that they tend to exhibit prior to larger downturns. S&P 500 constituents saw cost reductions increased by tens of billions in the fourth quarter. Early reports in the first quarter show these trends continuing with hundreds of millions more in the few that have reported. Reductions in stock buybacks, reduced rates of dividend increases and an increase in dividend cuts have been seen. Although a rebound in buybacks was seen, many are borrowing to continue these buybacks and some are borrowing to continue dividends at current levels. The index has seen increases in the number of constituents that have negative TTM earnings along with a continued increase in those that have seen quarterly earnings losses. It seems likely the results first quarter could see worsening conditions in many of the above.
Already low earning projections that continue to fall, continued lackluster earnings and worsening conditions in some of the strong earners, contraction in economic indicators, similarities in current chart formations to past formations during collapses, past timelines, resistance found at the lower trend line prior to breaking above it, large increases in the numbers of stocks falling to 52 week lows and fairly steady increases in the numbers of breaks of long standing support levels in these drops even into a bullish rebound, decreases in the numbers reaching 52 week highs and a high TTM falloff rate in 52 week highs, increases in the numbers of indices that reached crash levels in the prior retreat, continued increases in characteristics companies’ exhibit prior to larger downturns along with worldwide stock overvaluations make it seem possible the S&P 500 could see a large retreat during the year, potentially reaching crash potentials.
The next likely resistance level above the 100 L at 2100 could be seen at the 2140 to 2160 MRL. Earlier highs on the S&P 500 could have seen the effects of this resistance level, but since the index has not yet reached this resistance level the index is still considered within the influence range of the 100 L. Therefore this resistance is not yet considered active. This resistance appears to have the potential to cause a significant pullback.
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 and have also shown resistance or support during subsequent retreats; 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.
Have a great day trading.
Disclosure: Ron is currently about 53 percent invested long in stocks in his trading accounts, unchanged from the prior week. During the past week he purchased one issue and reinvested dividends in three issues with the cost of these purchases nearly fully offset by the sale of four issues and dividend payments. He will receive dividend payments from nine issues in the coming week and 24 in the following week. If no further investment changes are made during this time frame, these dividend payments would not change his rounded investment level.
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.
The opinions expressed by Ron are his own and may or may not reflect those of byteclay.com. This article is not intended to provide investment advice; but instead 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.