The S&P 500 finished higher on Monday, but lower in each session since. The retreat broke a five week string of gains as the index slipped 0.67 percent lower during a holiday shortened trading week. The index has seen gains in 14 of the past 24 sessions, but the three straight session losses it finished the week in was the longest string of declines since it began to rebound from a five straight session drop that finished on Feb 11.
Many of the S&P 500 & S&P 400 constituents broke below their 13 EMA during the past week breaking several week runs above the 13 EMA they were in. Several also fell steeply below the 50 EMA in these retreats. Some saw a second failure at the 13 EMA after they had fallen briefly below the 13 EMA earlier and rebounded back above it. Many of those constituents with rebounds back above the 13 EMA saw that rebound fail at or before the previous high and have slipped lower than the previous drop during the past week.
Aside from those that have already fallen deeply below the 13 EMA, many of the constituents have failed to close above the 13 EMA since slipping below it and are seeing resistance at or near the 13 EMA in daily highs. Although the trend of breaks below the 13 EMA continued through the week, a fairly large number failed to finish a session above their 13 EMA during the past week. Some that began trending slowly lower below their 13 EMA earlier slipped much steeper in these retreats and into a trend with a gap below the 13 EMA in these declines.
Not all constituents are turning lower, some have continued in bullish rebounds that are running above the 13 EMA, yet many of those that are still in runs look to be near potential resistances that they could turn lower at. Even though some that are in runs have so far maintained closes above the 13 EMA, some have slipped from recent highs in moves that have left them at or near the 13 EMA. Many of these retreats began at or near resistance they had fallen from earlier.
The numbers showing a potential downturn and began trends lower beneath the 13 EMA during the past week are very high. Many of the retreats below the 13 EMA fell at resistance levels that seem likely to cause larger retreats than those seen to this point. The constituents are also still largely overbought and this makes it seem possible the retreat could continue. Overall impressions the charts give tend to indicate a failure could be developing.
Several world indices also saw potential failures in the past week. China’s Shanghai Composite saw a seventh failure at resistance during the past week and it appears to be trending lower off that resistance. That resistance began to form near the 3000 level in early January and appears to have the properties generally found in ceiling resistances.
This resistance level developed near previous support that was generated during a government backed attempt to stem an earlier downturn in stock prices. The resistance initially formed during four small rebounds seen before the index slipped to new 52 week lows earlier in the year. It has since seen three larger rebounds retreat after nearing this level. The latest drop from this resistance began after Monday’s intraday high of 3028.32 reached the highest level seen since the initial retreat from the potential ceiling resistance. It has since seen a bouncy trend lower in the following sessions.
Although the Shanghai chart shows a short term uptrend from recent lows, like most major world indices it is still firmly entrenched in a long term downtrend. The current uptrend appears to be forming a wedge against this possible ceiling resistance. If the index were to see a break lower in this wedge pattern, it seems likely it could continue to fall in the next leg down of the current downtrend. Other indexes are showing similar patterns that indicate they could have begun turns lower at potential failure points.
There were two S&P 500 constituent changes announced in the past week along with three S&P 400 constituent changes. The first change was due to S&P 500 constituent Exelon Corp. (EXC) completing its acquisition of constituent Pepco Holdings Inc. (POM). As a result S&P 400 constituent Hologic Inc. (HOLX) will take Pepco’s place in the S&P 500 after the March 29 close. The second change will see Ensco PLC (ESV) replaced in the S&P 500 by S&P 400 constituent Centene Corp. (CNC) and Ensco will be moved to the S&P 400, with this change also scheduled after the market close on March 29. Centene completed its acquisition of S&P 400 constituent Health Net (HNT) making its total market value more representative of the large caps; while Ensco has seen its stock price plummet and as a result had one of the lowest market caps in the S&P 500.
The Ensco departure continues an over year long trend of low market cap valuation constituent changes due to falling stock prices causing these low market cap valuations. Based on Friday’s close, the Ensco stock price had fallen nearly 84 percent in the downtrend from the Feb 2013 highs. As noted earlier, this trend is common prior to and during large market downturns.
As a result of these changes the S&P 400 will see two new constituents, Abiomed Inc. (ABMD) and First Industrial Realty Trust Inc. (FR). They will be added after the March 29 close to fill the remaining vacant index spaces in that index. Although these changes have not yet been officially made, since the mergers have already completed and trading in Pepco and Health Net has been halted, these changes are reflected in the data presented below.
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 six of the S&P 500 constituents that reported earnings. These constituents reported total earnings that were 5 cents higher than they reported the same quarter a year ago. This represented a 0.002 percent increase in the index’s total trailing twelve month earnings from a week ago and an average increase of 0.22 percent in the TTM earnings of those constituents. There were three constituents that reported earnings greater than the same quarter of a year ago and three reported earnings below the same quarter of a year ago.
Those that have not yet reported first quarter earnings saw a 75 cent reduction in first quarter earnings projections. There were 29 constituents with increases and 47 constituents saw decreases. Those that had already reported first quarter earnings prior to the current week saw a 3 cent increase in second quarter earnings projections. One constituent saw a projection increase while all others were unchanged.
The S&P 500 constituents saw current year earnings projections decrease by 95 cents compared to a week ago. There were 66 constituents that saw their current year projection increase while 81 saw decreases.
The S&P 500 saw 228 constituents that finished the week below their 200 DMA, compared to 213 a week ago. There were 256 constituents that finished the week either below their 200 DMA or less than one dollar above it, compared to 243 a week ago. There were 285 constituents that finished the week with a 200 DMA in decline compared to 305 a week ago.
The S&P 500 saw 301 constituents finish the week greater than ten percent below 52 week highs, compared to 295 a week ago. There are four constituents that finished the week less than five percent from 52 week lows, compared to eight a week ago. There were 37 constituents that saw new 52 week highs while one constituent reached new 52 week lows during the week. The constituents that reached 52 week highs finished the week with an average P/E of 22.02. The average even weighted TTM P/E of the index decreased with the index price to 19.52.
There were 199 of the S&P 400 constituents that finished Friday beneath their 200 DMA, compared to 181 a week ago. The index finished Friday with 238 constituents either below or less than one dollar above their 200 DMA, compared to 223 a week ago. There were 253 constituents that had a 200 DMA in decline, compared to 263 a week ago.
There were 270 of the S&P 400 constituents that finished the week greater than 10 percent below 52 week highs, compared to 265 a week ago. There were six constituents that finished the week less than five percent from 52 week lows, compared to two a week ago. The mid-caps saw 20 constituents reach new 52 week highs while four fell to new 52 week lows during the past week. The S&P 400 finished the week with an average TTM P/E of 19.78.
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% L and -2% L are currently active. The 90 E expired 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 slightly above the 2035 to 2055 MRL during Tuesday’s session high of 2056.60 before slipping lower from that resistance. The index slipped back into the upper half of the 100 L at 2000 on Thursday before rebounding to finish the week just inside the 2035 to 2055 MRL at 2035.94.
The S&P 500 started Monday lower at 2047.88 it fell to a low of 2043.14 and reached a high of 2053.91 before finishing at 2051.91. Tuesday also started lower and fell to a low of 2040.57 and then rebounding to the highest point of the current rebound at 2056.60, before slipping to finish at 2049.80. Wednesday opened lower at the session high of 2048.55 and fell to a low of 2034.86 before finishing at 2036.71. Thursday also opened lower at 2032.48 and fell to a low of 2022.49 before rebounding to a high of 2036.04 but short of covering the opening gap lower before slipping to close at 2035.94.
The index left an open gap lower on Wednesday and Thursday and covered the March 18 gap higher during the week’s retreat. 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% L and +2% L indicators saw no correct indications during the past week. As expected the -2% and +2% indicators fell into a low level (L) of likelihood after the market close on Monday. Current market conditions make it seem possible this change could be brief. It seems likely a condition with major influence could be seen and put them back into high levels of likelihood prior to these indicators falling into dormancy in 13 trading days.
Volatile conditions continued to be seen in the world markets during the week. Directions of volatile moves continued to be mixed and there continued to be an absence of very large numbers in concurrent daily moves. At the same time volatile moves lower appeared to continue to gain predominance and the past week finished without a run as Friday saw six of the seven indexes in volatile moves lower. Overall supporting volatility indicators eased slightly during the past week, although the overall move in these indicators was somewhat lower, some indicators edged higher. Most remain at very high levels, indicating a continued heightened potential for market volatility.
The average daily volume decreased 21.84 percent from the previous week. Volume was highest on Wednesday and lowest on Monday. The five day volume variance increased by 6.14 percent to finish the week at 92.59 percent.
The large decrease in the average daily volume was partly due to the high volumes seen in last Friday’s triple witching, but was also due to a fairly sharp drop in volumes. Aside from a rebound in volume in the previous Thursday and the triple witching Friday, volumes have fallen to levels generally associated with bullish conditions. At the same time volume appeared to finally reach these levels very late in the run higher.
The high five day volume variance was still unduly effected by last Friday’s triple witching, without it the four day variance was only 7.79 percent and extremely low. Low variances are a bullish indication; however extremely low variances are often seen prior to turns lower.
Overall world market volatility appeared to be calm relative to very high levels earlier, but the world indexes are still seeing above average levels of daily volatile activity. The numbers seeing volatile moves lower continued to edge higher during the week.
Most of the World’s indices have been in downtrends lasting over nine months. Although many saw very large increases during the latest rebound, 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 the recent rebound, the indexes saw increases in the numbers reaching new 52 week lows with some falling to new multi-year lows. Although at greatly reduced levels than seen during earlier downturns, there were continued increases in breaks of long term support levels during the recent rebound. Even if these stocks rebound, a break of long term support greatly increases the chances of deeper drops later. Many of the constituents broke long term support levels prior to the recent rebound.
Most stocks have reached fully overbought conditions or begun to trend lower from overbought conditions. The past week saw a large increase in breaks below the 13 EMA that failed to rebound back above the 13 EMA. There was also a stark increase in those that saw breaks gap below the 13 EMA and in falls below the 50 EMA. Many have begun trends lower at potential resistance levels that appear likely to provide deeper drops than seen to this point. Many that continued in moves higher appear to be at or near potential resistance levels.
Long term charts continue to show increases in those that have folded lower from long term tops or that have flatten at recent highs. Most stocks in drops from those highs have continued to hold within long or short term downtrends. Although a few appear to have broken long downturns after very large drops, they still exhibit short to midterm earnings degradation and little mid to long term earnings growth potential. Other than pure speculation, this leaves them without an upside catalyst and therefore makes it seem likely they could begin to base at these lower levels or see a downtrend change and continue lower at a smaller angle of decent. Most of these stocks appear to be near or already trending lower from potential tops in base trends.
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 broke a long string of weekly increases and began a retreat very near a resistance that held significant drop potential during the initial move into this resistance level. A subsequent fall to or through the lower support line remains 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 expired after Monday’s close. Although now considered dormant, this indicator has ushered in periods that continued to have high levels of volatile conditions after it had expired in the past. Although they are below earlier extremes, most supporting volatility indicators are still in the very high levels seen prior to the increased volatility that was seen after the 90 E became active. Overall these supporting indicators subsided slightly during the past week, but not all fell, some ticked higher. These indicators show the potential for volatile conditions at still at very high levels.
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. The S&P Dow Jones Indices reported fourth quarter buybacks slipped 3.1 percent from those in the third quarter. Many are borrowing to continue these buybacks and some are borrowing to continue dividends at current levels. For the second straight quarter and third in the past four, the total spent on share repurchases and dividends outpaced total operating earnings, ballooning to over a $44 billion shortfall in the fourth quarter. To make matters worse, operating earnings do not include hundreds of billions spent on cost savings measures in the past year, as companies consider these onetime expenses, even though many have reported these “onetime” restructuring changes in each of the last four quarters and plan to continue with these charges in the quarters ahead. 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 first quarter results 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 has investments in EXC and POM and has no investments in HOLX, ESV, CNC, HNT, ABMD or FR. He is currently about 53 percent invested long in stocks in his trading accounts and unchanged from the prior week. Although the rounded investment level remained unchanged, during the past week he sold one issue and received dividend payments. He will receive dividend payments from 24 issues in the coming week and nine in the following week. If no further investment changes are made during this time frame, these dividend payments along with the expected settlement of the recent merger between Pepco and Exelon would reduce 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.