Weekly market recap: Labor market home run

For the week ending May 2, 2014, the labor market blew past estimates in April when the Employment Situation reports were released Friday, beating estimates handily and raising the question that this may be a weather related rebound. And, the Fed released its FOMC meeting statement with no surprises, as $10 billion were evenly cut from Treasuries and mortgage-backed securities.

Growth in the labor market made headlines on both fronts: the Jobs Report listed 288,000 new nonfarm payroll jobs (273,000 private sector; 15,000 public sector) vs. an estimated 215,000; and the Unemployment Rate fell to 6.3 percent, which is well below the estimate of 6.6 percent. Clearly the labor market is improving; but to determine if this is simply a rebound from bad weather, the Fed will be looking more closely at next month’s reports. The low first quarter GDP figure of 0.1 percent growth is also blamed on bad weather.

There were no surprises from the Fed’s FOMC meeting statement as it continues its taper of $10 billion. “In sum, the recent economic data — labor markets, housing, manufacturing, etc… — have provided no reason for the Fed to stray from its course established earlier this year of gradually tapering bond purchases and offering assurances that interest rates will stay low and accommodative policies will remain in place just in case the numbers start to slip.” It is interesting to note that there were no dissents.

On the earnings front, hundreds of companies reported this past week with positive results. The standouts: Merck, Sprint, and Ameriprise Financial beat estimates.

In The News

The good news on Friday was offset by escalating violence in southern Ukraine. The crisis reached a new peak as Ukrainian security forces “launched their most intensive effort yet to try to dislodge pro-Russian separatists, who have reportedly seized a number of government buildings in nearly a dozen cities and towns.” Reports indicate deadly street fighting, downed Ukrainian government helicopters, and 31 people dead from a fire started at a trade union building.

A U.S. jury on Friday ordered Samsung Electronics to pay Apple $119.6 million. This figure is far less than Apple was seeking in their mobile patent litigation, which has been ongoing for three years. “Though this verdict is large by normal standards, it is hard to view this outcome as much of a victory for Apple. This amount is less than 10 percent of the amount Apple requested, and probably doesn’t surpass by too much the amount Apple spent litigating this case.”

Next Week

After a very poor first quarter, recent monthly economic data show a stronger second quarter ahead. Both manufacturing and housing continue to improve.

The focus next week in the U.S. will be on the non-manufacturing side with reports from Markit and ISM. And the Fed will be watching labor market data from the JOLTS report including job openings, hires, and separations.

Globally, the Reserve Bank of Australia, the Bank of England, and the European Central Bank will be releasing their monetary policies. Composite PMIs for April along with merchandise trade and industrial production data will be released.

We are expecting volatility spikes to continue next week as the situation in the Ukraine unfolds. As the Ukrainian presidential elections near, we are expecting the Ukraine crisis to worsen, possibly initiating a big adjustment in the markets.

Market Gauge

Year-to-date the markets are mixed: Dow -0.4%; S&P500 +1.8%; Nasdaq -1.3%.

The Markets for the past week were: DJIA up 0.9%; S&P500 up 1.0%; Nasdaq COMP up 1.2%.

Commodities (ETFs) for the past week were: Gold (GLD) down -0.29%; Silver (SLV) down -1.32%; Oil (OIH) down -0.42%; Dollar (UUP) down -0.33%; 30-yr Bonds (TYX) dropped 8 basis points to 3.37%.

The VIX this past week (a measure of market sentiment and volatility) dropped to 12.91% due to positive earnings and excellent labor market reports.

Top Headlines

To view details of headlines, go online to CNBC.

In the U.S.: Hiring rebounds but more gave up looking; Payrolls jump in April as thaw hits; What’s the real unemployment rate?; Factory orders fall short of forecasts; What millennials don’t know about the job market; Buckle up! Economists turn negative on GDP growth; Treasury official: College should be cheaper; US 1% captures greatest slice of income pie: OECD; US jobless claims jump—but so do spending, income; US manufacturing extends winning streak; Planned layoffs jump in April: Challenger; Why the US is losing leverage with Russia; Yellen: Small bank loan growth a good sign; Fed tapers another $10 billion despite slow growth; Yikes! US economy crawls in first quarter; Disappointing growth could boost Fed’s dovish tones; US works to curb tax-driven business moves abroad; A blow for Obama on minimum wage hike; Midwest business index hits highest since October; US private job creation booms in April: ADP; China to overtake US economy; India trumps Japan; Why the slowdown in US economy may be temporary; Fed taper to cause ‘severe recession’: Economist; and Homeownership falls to 19-year low.

In Europe: Euro zone unemployment steady; RBS Q1 profit trebles to £1.6 billion; Pfizer offer ‘inadequate’: AstraZeneca; Last mango in Paris? EU bans imports; Pro-Russian rebels say Ukraine tries to retake town; Ukraine PM warns of ‘most dangerous 10 days’; Big Oil dollars flow into Ukraine, despite conflict; Wanna be in my gang: Is EU membership worth it?; Turkish police fire tear gas in May Day protests; Clothing group FatFace seeks $743M London listing; UK’s Morrisons cuts more prices to combat discounters; Is this the most boring ad ever made?; Lloyds posts profit increase, sets TSB float date; IMF warns Ukraine on bailout if it loses east; Is sterling punching above its weight?; Portugal to exit massive bailout without backstop; Dolce & Gabbana sentenced to 18 months in jail; GE’s Immelt: Alstom deal makes us $60B player here; Euro zone inflation rises, pressure remains on ECB; IMF slashes Russia forecast, warns of outflows; Ukraine’s east slipping from government’s grasp; Rare Jewish scripture sells for record $3.8M; BNP Paribas profit beats, warns of legal charges; and Co-op Bank review: Downfall due to Britannia takeover.

In Asia: Japan’s jobs market is getting tighter; Are Hirai’s days as Sony CEO numbered?; Last mango in Paris? EU bans imports; Lippo founder: US property looks attractive; Report on missing Malaysia plane reveals confusion; Sony drops to 6-week low after cutting guidance; Why Nike might move production out of China; Japan household spending jumps, jobs market improves; Shanghai Tang founder: I’m a ‘tyrant’ who gets things done; Why Alibaba probably won’t take the US by storm; China overtaking the US economy, but hold on …; Fake Viagra? Inside North Korea’s growing economy; Sony slashes profit forecast by nearly 70%; Is April’s best-performing currency set for further gains?; China plans crackdown on iron ore import loans; China official PMI rises slightly to 50.4 in April; Three killed in China train station attack; Why Sony desperately needs to innovate; After longtime ban, Xbox One to go on sale in China; Singapore’s biggest bank beats profit expectations; HTC chief: Our big problem in smartphone war; Markets show growing unease over Abenomics; OCBC well positioned to cope with headwinds: CEO; and China to overtake US economy; India trumps Japan.

Weekly Review

To see the week in review, go to the Econoday calendar.

On Monday, despite escalating violence in Ukraine and with merger & acquisition talk between Pfizer and AstraZeneca, the Dow rose 0.5% to 16,448.

On Tuesday, with strong earnings from Merck and Sprint, the Dow rose 0.5% to 16,535.

On Wednesday, with no surprise from the FOMC and despite first quarter GDP at 0.1% (blamed on bad weather), the Dow rose fractionally to 16,580.

On Thursday, despite strong manufacturing and consumer sector reports, the Dow dropped fractionally to 16,558.

On Friday, with the escalating Ukraine crisis offsetting excellent labor market reports, the Dow dropped fractionally to 16,512. Gold rose $10 to $1,300.

Next Week’s Calendar

To see what’s on the calendar for next week, go to the Econoday calendar.

The economic calendar for next week is light: on Monday – ISM Non-Mfg Index; on Tuesday – International Trade; on Wednesday – Weekly EIA Petroleum Status Report, Productivity and Costs, Janet Yellen speaks; on Thursday – Weekly Jobless Claims, Janet Yellen speaks; and Friday – JOLTS.

If the Markets move down, stay on the side lines or consider Contra ETFs. For Option players, selling premium is advised.

For more information about options, see the ‘Suggested by the author’ links below.

To the Charts

The following ETFs (DIA, SPY, QQQ) provide a technical review of the Market (and are also excellent Option trading vehicles). Represented are the Dow Industrials (DIA), S&P500 (SPY), and Nasdaq 100 (QQQ).

The Charts for each include views for Monthly, Weekly (including Price Channels), and Daily (including monthly Pivot Points) with MACD and Stochastic indicators. The Pivots are: white for central pivot point; yellow for R1 and S1; magenta for R2 and S2; red for R3 and S3.

DIA

The Dow Industrials (DIA) closed up at 164.75. If the DIA drops, then the next level of support will be at 159.88 (weekly chart); the next level of major resistance is 166.06 (weekly chart).

The monthly chart indicates a bullish posture (up Arrow) with the MACD positive but weakening, and the Stochastic moving up above the overbought area.

The weekly chart indicates a bearish posture (down Arrow) with the MACD positive and strengthening, and the Stochastic moving up at the overbought area.

The daily chart indicates a bullish posture (up Arrow) with the MACD positive but weakening, and the Stochastic moving up above the overbought area.

SPY

The S&P500 (SPY) closed up at 188.06. If the SPY drops, then the next level of support will be at 181.31 (weekly chart); the next level of major resistance is 189.70 (weekly chart).

The monthly chart indicates a bullish posture (up Arrow) with the MACD positive but weakening, and the Stochastic moving up above the overbought area.

The weekly chart indicates a bearish posture (down Arrow) with the MACD positive and strengthening, and the Stochastic moving up below the overbought area.

The daily chart indicates a bullish posture (up Arrow) with the MACD positive but weakening, and the Stochastic moving up above the overbought area.

QQQ

The Nasdaq 100 (QQQ) closed up at 87.49. If the QQQ drops, then the next level of support will be at 83.28 (weekly chart); the next level of major resistance is 91.36 (weekly chart).

The monthly chart indicates a bullish posture (up Arrow) with the MACD positive but weakening, and the Stochastic moving down above the overbought area.

The weekly chart indicates a bearish posture (down Arrow) with the MACD negative but strengthening, and the Stochastic moving up above the oversold area.

The daily chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving up at the overbought area.

Dow, S&P closes at another record high; market awaits U.S. payroll report

This sounds like a broken record, but the Dow and the S&P 500 ended at a new record on Thursday, according to Reuters, after the European Central Bank (ECB) cut rates to record lows and the ECB promised to fight against deflation. The Dow Jones industrial average rose 98.58 points or 0.59 percent, to 16,836.11, the S&P 500 gained 12.58 points or 0.65 percent, to 1,940.46 and the Nasdaq Composite added 44.59 points or 1.05 percent, to 4,296.23.
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Reuters pointed out that with “Thursday’s advance, the S&P has risen in nine of the past 11 sessions, up 3.6 percent over that period, and ended at a record high five times in the past six sessions.”

This is a continuation of the “Obama Stock Market,” as the Dow and the S&P 500 have continued on its meteoric rise. On President Obama’s first inauguration day on Jan. 20, 2009, the DJIA was sitting at 7,949.09. It then bottomed on March 9, 2009 at 6,547.05, which at the time was its lowest level since 1997.

The market could keep its upward spiral today, as investors are now await Friday’s U.S. payrolls report for May from the Department of Labor’s Bureau of Statistics. There is no doubt that once again job growth will be positive, but the question remains just how positive. Some are expecting slowed job growth for May and for the unemployment rate ticked up.

The number of Americans filing new claims for unemployment benefits rose slightly last week, but the trend there has been down, hovering around the 300,000 per week on jobless claims. “The number of data we got this week so far on the labor market have not provided a clear direction for tomorrow’s numbers,” said Randy Frederick, managing director of trading and derivatives with the Schwab Center for Financial Research in Austin. “So I wouldn’t be surprised if the market sold on the (payrolls) news tomorrow, but it’s likely to just be a knee-jerk reaction.”

Aside from the ECB news, there was other market news that impacted the continuing rally. Amazon.com Inc. is teasing with a next big thing on June 18, an expected “launch event” in Seattle to be hosted by CEO Jeff Bezos. That stock jumped 5.5 percent to $323.57.

Sprint has agreed to pay about $40 per share to buy T-Mobile US. Rite Aid shares slid 7.4 percent to $7.87 after it estimated first-quarter profit much below expectations. Ciena Corp shares jumped 18.4 percent to $22.48 after the company posted earnings that beat expectations and gave a revenue outlook above forecasts.

Also, on Wednesday, UnitedHealth announced a massive 34% dividend increase. The new dividend is payable on June 25th with an ex-dividend date of June 12. The new annual dividend of $1.50/share gives the stock a current yield of almost 1.90%, up from the 1.67% in 2012 when the stock was added to the Dow 30, according to Seeking Alpha.

But most important this morning, the payroll report which will be released 8:30 EST.

Reuters – Dow, S&P close at new records; payrolls in focus

Weekly market recap: Markets continue to rise

For the week ending May 24, 2014, the markets made strong gains with the S&P500 posting another record high and closing above 1900 for the first time. Economic news was mostly positive, especially for Housing and Manufacturing.

Both Existing Home Sales and New Home Sales showed marked improvement, meeting and beating expectations respectively. Still, after 5 years into the recovery, real estate sales have not reached historic averages and are still below last year’s pace (due partly to bad weather).

The PMI Manufacturing Index Flash is also up markedly, confirming the regional manufacturing reports from New York and Philadelphia. This counters the surprising decline in the manufacturing component of the Industrial Production report the prior week.

On the earnings front, as earnings season comes to a close, worse-than-expected results were posted by Staples and Urban Outfitters.

In The News

Apple sets a 52-week high on acquisition talks with Beats, which makes high-end headphones. The deal is for $3.2 billion, although there has been no announcement to date.

The conflict between Ukrainian troops and pro-Russian militants has escalate with just days before the May 25 presidential election. At least 32 people were killed in the Luhansk region.

Next Week

The economy continues to improve with expectations that economic growth will continue through the rest of the year.

The focus next week in the U.S. will be on the following: Durable Goods Orders and S&P Case-Shiller HPI on Tuesday; GDP and Pending Home Sales on Thursday; and Personal Income and Outlays on Friday.

Globally, with the increase in flash PMIs being offset by political uncertainty in Thailand and Ukraine, focus will be on the EU parliamentary elections on May 25 and consumer spending data.

We are expecting the markets to continue to improve next week if the election outcome in the Ukraine does not lead to further chaos and civil war. There is a moderate amount of economic data being reported, but no surprises are anticipated. Expect to see a rise in volatility if geopolitical concerns escalate.

Market Gauge

Year-to-date the markets are up: Dow 0.2%; S&P500 2.8%; Nasdaq 0.2%.

The Markets for the past week were: DJIA up 0.7%; S&P500 up 1.2%; Nasdaq COMP up 2.3%.

Commodities (ETFs) for the past week were: Gold (GLD) up 0.01%; Silver (SLV) up 0.27%; Oil (OIH) up 1.80%; Dollar (UUP) up 0.42%; 30-yr Bonds (TYX) rose 6 basis points to 3.40%.

The VIX this past week (a measure of market sentiment and volatility) dropped to 11.36% due to improved economic news.

Weekly Review

To see the week in review, go to the Econoday calendar.

On Monday, with little news, the Dow rose fractionally to 16,511.

On Tuesday, with hawkish comments from Philly Fed President Plosser and disappointing earnings announcements from Staples and TJX, the Dow dropped -0.8% to 16,374.

On Wednesday, with dovish statements from the FOMC and bargain hunting, the Dow rose 1.0% to 16,533.

On Thursday, with mixed economic news and a narrow range bound day, the Dow rose fractionally to 16,543.

On Friday, with a big jump in New Home Sales, the Dow rose 0.4% to 16,606.

Next Week’s Calendar

To see what’s on the calendar for next week, go to the Econoday calendar.

The economic calendar for next week is full: on Monday – closed for Memorial Day; on Tuesday – Durable Goods Orders, S&P Case-Shiller HPI, Consumer Confidence, Dallas Fed Mfg Survey; on Wednesday – nothing; on Thursday – Weekly EIA Petroleum Status Report, Weekly Jobless Claims, Pending Home Sales, FedSpeak; and Friday – Personal Income and Outlays, Chicago PMI, Consumer Sentiment, FedSpeak.

If the Markets move down, stay on the side lines or consider Contra ETFs. For Option players, selling premium is advised.

For more information about options, see the ‘Suggested by the author’ links below.

To the Charts

The following ETFs (DIA, SPY, QQQ) provide a technical review of the Market (and are also excellent Option trading vehicles). Represented are the Dow Industrials (DIA), S&P500 (SPY), and Nasdaq 100 (QQQ).

The Charts for each include views for Monthly, Weekly (including Price Channels), and Daily (including monthly Pivot Points) with MACD and Stochastic indicators. The Pivots are: white for central pivot point; yellow for R1 and S1; magenta for R2 and S2; red for R3 and S3.

DIA

The Dow Industrials (DIA) closed up at 165.83. If the DIA drops, then the next level of support will be at 159.88 (weekly chart); the next level of major resistance is 167.29 (weekly chart).

The monthly chart indicates a bullish posture (up Arrow) with the MACD positive but weakening, and the Stochastic moving up above the overbought area.

The weekly chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving up above the overbought area.

The daily chart indicates a bullish posture (up Arrow) with the MACD just positive, and the Stochastic moving up toward the midpoint.

SPY

The S&P500 (SPY) closed up at 190.35. If the SPY drops, then the next level of support will be at 181.31 (weekly chart); the next level of major resistance is 190.42 (weekly chart).

The monthly chart indicates a bullish posture (up Arrow) with the MACD positive but weakening, and the Stochastic moving up above the overbought area.

The weekly chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving up above the overbought area.

The daily chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving up toward the overbought area.

QQQ

The Nasdaq 100 (QQQ) closed up at 89.88. If the QQQ drops, then the next level of support will be at 83.28 (weekly chart); the next level of major resistance is 91.06 (weekly chart).

The monthly chart indicates a bullish posture (up Arrow) with the MACD positive but weakening, and the Stochastic moving down above the overbought area.

The weekly chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving up at the midpoint.

The daily chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving up above the overbought area.

Climate Change Debate: Science versus Cult

Climate change deniers are steadfast in their belief that the scientific community is wrong about global warming due to human activities, but offer no empirical evidence to the contrary, only opinion based on a belief system that is unassailable. Having made up their minds before any debate cannot assail their position with facts. They can advance a doubt on an affirmative proposition and that is that. Case close.

Having an opinion based on a fundamental belief is having an accepted truth and reality not worthy of a debate because such opinion is not open to change. This is the definition of a cult, a group of very devoted believers outside the mainstream of critical thinking. The scientific community is almost unanimous about the threat of climate change. A cult would choose to deny the ocean getting warmer yet would tend to believe in a story about a global flood that wiped out all of humanity and all living things except one family and animals in an ark. The human race should all look like the lone survivors of the great flood but the clear evidence of widespread human and animal diversity will not dissuade devoted believers.

A cult could also be based on a political covenant where acceptance of climate change amounts to mortal sin, a transgression against the high power it is dependent on for political and economic support. Arguing against a faith-based position is futile.

Science has made giant strides to improve the fortune of the planet and inhabitants, but it has not always been correct and sometimes places lives in jeopardy. Perhaps an “act of god” could reverse the dire scientific prediction of climate change but why take the gamble? Present generation owes future generations to leave a better place. Start the debate on solutions.

Weekly market recap: Markets advance on low volume

For the week ending May 31, 2014, the markets advanced during the short 4-day week (markets closed on Monday for Memorial Day) with the S&P500 again making new highs on low volume, and the Dow posting a new record close on Friday. The advance occurred despite a very poor GDP figure indicating a contraction in the economy for the first quarter.

For the month, both the S&P500 and Dow had the largest gains since February with each making new record highs. The S&P500 gained 2.1 percent for the month, closing at 1,923.57; the Dow gained 0.8 percent, closing at 16,717.17.

GDP dropped to -1 percent after a first quarter revision (down from initially +0.1 percent) following a fourth quarter 2.6 percent rise. This is the first negative number in GDP in 3 years. The largest portion of the drop, as much as 1.5 GDP points, is blamed on bad weather; the remainder is blamed on a decline in inventory investments (especially car dealerships), U.S. exports, and reductions in spending on government programs and housing.

On the earnings front, as earnings season comes to a close: Costco, missed estimates; Kors and Toll Brothers beat estimates, and HP hit estimates (although revenue missed).

In The News

U.S. warned China today to halt actions in Asia that are causing destabilization; specifically its actions asserting claims in the South China Sea. In response, China said it would not initiate aggressive action in that area unless provoked.

The situation in the Ukraine grows worse under President-elect Petro Poroshenko (the inauguration is scheduled for June 7). Acting Defense Minister Mykhilo Koval said Ukrainian forces will continue operations in East Ukraine, charging that Russia was conducting “special operations”. Poroshenko will be meeting with world leaders next week to garner support for military actions against the separatists.

Next Week

Despite the negative first quarter GDP figure, the markets believe that economic growth will continue through the rest of the year.

The focus next week in the U.S. will be on the following: ISM Mfg Index, International Trade, and the Employment Situation (Jobs Report and Unemployment Rate).

Globally, where the economic data in Europe disappointed, the focus will be on the ECB and its Monetary Policy Announcement. China will be reporting its PMI Manufacturing for May on June 2.

We are expecting increased volatility next week as there is an abundance of economic data being released; of key importance will be the Jobs Report and Unemployment Rate. If the turmoil in Ukraine leads to further Russian involvement, expect the markets to drop.

Market Gauge

Year-to-date the markets are up: Dow 0.8%; S&P500 4.1%; Nasdaq 1.6%.

The Markets for the past week were: DJIA up 0.7%; S&P500 up 1.2%; Nasdaq COMP up 1.4%.

Commodities (ETFs) for the past week were: Gold (GLD) down -3.28%; Silver (SLV) down -3.11%; Oil (OIH) up 1.86%; Dollar (UUP) down -0.05%; 30-yr Bonds (TYX) dropped 9 basis points to 3.31%.

The VIX this past week (a measure of market sentiment and volatility) rose to 11.40% due to uncertainty over economic growth.

Weekly Review

To see the week in review, go to the Econoday calendar.

On Monday, markets closed for Memorial Day.

On Tuesday, with a strong Durable Goods report, the Dow rose 0.4% to 16,675. Gold dropped $25 to $1,265.

On Wednesday, with little news, the Dow dropped -0.3% to 16,633.

On Thursday, despite a negative GDP (offset by a very positive Weekly Jobless Claims report), the Dow rose 0.4% to 16,698.

On Friday, despite soft economic news, the Dow rose fractionally to 16,717.

Next Week’s Calendar

To see what’s on the calendar for next week, go to the Econoday calendar.

The economic calendar for next week is full: on Monday – ISM Mfg Index, Construction Spending; on Tuesday – Motor Vehicle Sales; on Wednesday – ADP Employment Report, International Trade, Productivity and Costs, Weekly EIA Petroleum Status Report; on Thursday –Weekly Jobless Claims; and Friday – Employment Situation.

If the Markets move down, stay on the side lines or consider Contra ETFs. For Option players, selling premium is advised.

For more information about options, see the ‘Suggested by the author’ links below.

To the Charts

The following ETFs (DIA, SPY, QQQ) provide a technical review of the Market (and are also excellent Option trading vehicles). Represented are the Dow Industrials (DIA), S&P500 (SPY), and Nasdaq 100 (QQQ).

The Charts for each include views for Monthly, Weekly (including Price Channels), and Daily (including monthly Pivot Points) with MACD and Stochastic indicators. The Pivots are: white for central pivot point; yellow for R1 and S1; magenta for R2 and S2; red for R3 and S3.

DIA

The Dow Industrials (DIA) closed up at 166.93. If the DIA drops, then the next level of support will be at 159.88 (weekly chart); the next level of major resistance is 167.29 (weekly chart).

The monthly chart indicates a bullish posture (up Arrow) with the MACD positive but weakening, and the Stochastic moving up above the overbought area.

The weekly chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving down above the overbought area.

The daily chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving up at the overbought area.

SPY

The S&P500 (SPY) closed up at 192.68. If the SPY drops, then the next level of support will be at 181.31 (weekly chart); the next level of major resistance is 192.68 (weekly chart).

The monthly chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving up above the overbought area.

The weekly chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving up above the overbought area.

The daily chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving up above the overbought area.

QQQ

The Nasdaq 100 (QQQ) closed up at 91.31. If the QQQ drops, then the next level of support will be at 83.28 (weekly chart); the next level of major resistance is 91.31 (weekly chart).

The monthly chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving down above the overbought area.

The weekly chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving up above the midpoint.

The daily chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving down above the overbought area.

Trading options for income: Two earnings trades

In our quest to understand trading options for income, we often consider strategies specific to earnings season, when companies release their earnings reports. A bullish strategy (Sunnyside Up) is compared to a bearish strategy (Over Easy).

The bullish Sunnyside Up strategy consists of an ATM (at the money) Call debit spread (bull Call spread) and a 1 SD (standard deviation) OTM (out of the money) short Call (which finances the debit spread). The short Call should bring in enough premium to result in a net credit for the strategy. This is an undefined risk strategy requiring 3 options for a 1 lot (the Call debit spread plus the short Call).

An ATM debit spread consists of buying one ITM option (1 strike in) while selling one OTM option (1 strike out).

The bearish Over Easy strategy consists of an ATM Put debit spread (bear Put spread) and a 1 SD OTM short Put. The short Put should bring in enough premium to result in a net credit for the strategy. This is an undefined risk strategy requiring 3 options for a 1 lot (the Put debit spread plus the short Put).

Tasty Trade recently tested the two earnings strategies over 3 years using the following equities: AAPL, AMZN, CMG, GOOG, NFLX, and PCLN (total of 72 occurrences). The option chain closest to expiration was selected, and the OTM option chosen was the first resulting in a credit greater than the cost of the debit spread and greater than 84 percent OTM. The trade was closed the day after earnings announcement.

The results: the bullish Sunnyside Up strategy had a P&L of $7,642 (95% winners) while the bearish Over Easy P&L was -$3,419 (82% winners).

In conclusion, the Sunnyside Up strategy outperformed the Over Easy strategy despite being in a bull market; its P&L, average credit, and even the percent OTM of the naked option were better for the Sunnyside Up strategy. One consideration is that these are undefined risk strategies; hence the buying power reduction will be very high (for AAPL, typically 3x greater than a defined risk strategy using a $25 wide credit spread). In fact, on the last earnings play for AAPL (April 23, 2014), this strategy lost -$1,733.

Sears planning more stores closures in its steep, uphill climb to profitability

According to yesterday’s Wall Street Journal, Sears Holdings Corp. (SHLD) is expected to announce more store closures as part of a steep, uphill climb back to profitability, with the backdrop of its recently reporting its 28th consecutive quarterly loss of $358 million dollars in the 4th quarter of 2013. Sears will be announcing financial results for its fiscal 2014 first quarter on or about Thursday, May 22, 2014, said the company.
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Sears is sure to report its 29th consecutive quarterly loss, the only question remaining is how steep of a loss and how much cash is being burned. That report will also be significant in determining the number of stores to close.

When it comes to the store closings, Sears chief executive officer Eddies Lampert rationalizes it this way: “You don’t need 2,000 stores to be competitive in the U.S.” Lampert said this at the company’s annual meeting at its headquarters in Hoffman Estates, Ill. Since 2005, Sears has closed more than 500 locations, Lampert said.

Yet losses keep mounting, in spite of these cost-cutting moves to return to profitability.

In the past, Mr. Lampert said he was more inclined to keep a marginal store open, but now if a store weren’t turning a healthy profit, his choice would be to not renew the lease. He didn’t say how many stores would be closed.

Lampert is betting the entire business on their hope for success with its “Shop Your Way” rewards loyalty program. Thus far, in spite of having “millions of members,” the losses mount.

Sears, which includes the flagship Sears and Kmart chains, is trying to reverse years of losses and declining sales. To do that, Mr. Lampert is building a loyalty program and investing in online initiatives. So far, the benefit hasn’t been enough to offset weakness in Sears’ brick-and-mortar stores, where the company still gets the majority of its sales.

Sears isn’t alone in shrinking. As American shopping habits change with more sales online and fewer shopping trips to indoor shopping malls, many retailers are rethinking their stores’ footprint.

The main question is this: Can Sears become a force in the online, ecommerce world?

The competition is heavy and the Sears “brand” has taken a beating with consumers over the years.

J.C. Penney, RadioShack Corp. and Staples Inc. have all announced plans to close stores this year. In addition, Office Depot Inc. said Tuesday it intends to close at least 400 stores in the U.S.

At Sears, many stores are simply too big, Mr. Lampert said. So he plans to continue to lease space at some desirable locations to other retailers like Sears has with Whole Foods Market and Dick’s Sporting Goods Inc. Mr. Lampert sees rental income as a growing revenue stream in the future.

That sounds more like a dream, than a real plan.

Stock market preview for the week of May 26, 2014

The S&P 500 finished Friday at a record high of 1900.53 also being its first close above 1900. The index pushed higher in four sessions, breaking a two week drought by finishing the week with a 1.21% gain. The index has increased in 20 of the past 29 sessions.

Average daily volume levels decreased 8.84% compared to the average daily volumes of the previous week. The week’s largest volume was seen during the week’s lone retreat on Tuesday, with the lowest volume seen on Friday. The five day volume variance decreased 0.37% over that seen in the previous week to 25.51%.

After the S&P 500 began the week higher on Monday, Tuesday’s pullback again found support near the 1865 upper level of the Midrange Resistance Level (MRL) with a rebound at 1868.14. The index has moved progressively higher since, showing continued bullishness. Thursday’s low appeared to find support near the 1883 resistance within the 100 L, rebounding at 1885.39 after retreating from Wednesday’s close of 1888.03, and Friday’s move higher broke and closed above the 1897 resistance with the push to record highs.

The last trading day before a long holiday weekend often sees the index’s price retreat, as many investors move to the sidelines to prevent a news event in foreign markets from stymieing the market when US markets are closed for the holiday. Friday’s price increase would appear to show a heighten level of investor confidence that stock prices could move higher.

Major Stock Market Indexes

The index charts of the Dow Jones Industrial Average, S&P 500, NASDAQ, New York Stock Exchange and Russell 2000 continued to show bullish signs. All five indexes have pushed higher in five of the past six sessions with the lone setback coming during a lower finish on Tuesday.

The Russell 2000 continues to lag in its rebound. Although the current high fell somewhat short of the previous cycles high, it finished the week near this high. A break above the previous cycle’s high would give it two higher highs in a row.

The NASDAQ again pushed to highs higher than that seen in the previous cycle and is near to establishing an uptrend. The NASDAQ broke and closed above the 50 EMA on Thursday, with Friday’s continued move higher gapping above the 50 EMA. It finished the week with its highest close since April 3.

The S&P 500, Dow Jones and New York Stock Exchange pushed and close above their 13 EMA’s on Wednesday and appear to beginning a trend higher above this indicator.

The S&P 500 also broke above resistance at 1897 on Friday, finishing above the century mark at 1900 for the first time. It finished above resistance at 1883 in four of the past five sessions. The index also found support near the 1883 resistance with a rebound above this resistance during a retreat on Thursday.

Current conditions make it seem likely the indexes could move higher in the week ahead.

US Treasury Charts

The 20 year US Treasury Bond slipped in three sessions, falling and finishing below the 13 EMA on Wednesday and Thursday before rebounding back above it on Friday. The 20 year Treasury price has fallen in nine of the past 15 sessions. The three gapping moves higher during the previous week now appear to be inconsistent with price movements over that 15 day time period. Treasuries saw little price movement higher after these large opening gaps and upward price movement during normal trading hours appeared to lack sustainability in the other three sessions with moves higher. This chart continues to be bullish, but is now showing signs of faltering. Treasuries have fallen from fully overbought conditions, but are not yet oversold.

Long term Treasuries price charts continue to look bullish. This is a somewhat bearish indication for stocks.

The interest rate on the 10 year US Treasury Note pushed higher in three sessions during the week. It was turned back at the 13 EMA in Thursday’s climb higher and slipped into Friday’s stock rally, both being somewhat bearish. At the same time a continued move higher after a rebound near a bullish support and an increase over the previous week are bullish indications. This chart is still near oversold conditions.

Gold

Gold slipped to about 1291 early Sunday night before beginning a rebound before the Hong Kong open that carried gold higher to finish the night at about 1295.

Monday morning saw gold level off in Hong Kong before spiking higher to about 1301 shortly after the London open. It bounced slightly higher to about 1303 before slipping back to 1300 before the New York open. Shortly after the New York open it spiked higher again to about 1305, but that spike turned into a long downtrend falling steeply initially then more slowly as the night progressed until it bottomed at about 1291 shortly after the Hong Kong open. Gold rebounded from that low to finish the night at about 1293.

Tuesday saw gold begin to trend lower reaching a low of 1286 shortly after the New York open. It bounced back to 1289 and traded flatly until spiking higher to a little over 1296. After a few bounces lower, it began a flattish trend lower reaching about 1293 by mid-session in Hong Kong. It later rebounded to finish Tuesday at about 1295.

Gold trended lower for most of Wednesday reaching a low of about 1283 on the New York Gobex. It rebounded quickly to about 1293 and then traded mostly flat to finish the night at about 1292.

The flatness continued early Thursday before gold began a trend higher in Hong Kong that reached about 1297 shortly after the New York open, where it spiked to 1303 then trended fairly steeply lower to 1294. Gold continued a slight trend lower, but traded very flatly within a point or so of 1294 before rebounding late in the Hong Kong session to finish the night at about 1295.

Friday saw gold trend lower to 1288 shortly after the New York open and then spike back up to 1294 in early trading. It trended lower to about 1291 and then mostly higher before rounding slightly lower into a New York Spot close of 1292.30, which was just slightly lower than the 1292.90 New York Spot close of the previous week.

Gold appears to be range bound spending the past two weeks within about the same boundaries. Gold spent much of past week trending lower off of spikes higher, giving a somewhat bearish feel to recent trading.

S&P 500 Constituent Charts

Overall the constituent charts continue to show bullishness.

Many of the stocks that turned higher after setbacks a few weeks ago have continued higher and established uptrends. Several have pushed to new yearly highs and several have broken above resistance in moves higher.

Many of the constituents that are in short term downtrends or cycling lower appear be at or near likely support levels.

Several constituents have reversed long downtrends and are now trending higher. If these stocks continue in previously established cycles, they have considerable upside potential.

Although an increasing number of constituents are beginning to hold in or near overbought levels again, the remainders are in a fairly wide range of stages of between overbought and oversold conditions, showing reduced correlation. This is part of the staggering pattern referenced in these articles and is generally a bullish sign. The presence of this pattern generally reduces the size of daily price moves on the index, since not all the constituents are moving into or out of overbought or oversold conditions at the same time. Smaller price moves on the index show reduced volatility, and low volatility is a bullish indication. Although price moves on the index are generally smaller they most often produce an overall price move higher. Once this pattern is fully established, it often sustains for long durations.

Several stocks took fairly steep pullbacks in the past week or so. Many of these were due to earnings misses or reduced guidance. Some have rebounded quickly from these falls, while others appear to be finding support levels. Although earnings misses and guidance reductions are headline grabbers and often cause selloffs, many of the earnings reports contain silver linings that are easily overlooked by investors during early news releases. As a result many of these pullbacks appear to present buying opportunities.

Indicators

Although the indicators featured in these articles are not always correct, they have been many times and being so they are worth reading about and taking note of.

The +/(-) 90 D and 100 L indicators are currently active. The+2% H and -2% L indicators expired with Friday’s close and are currently dormant. 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 during the past week. The thirty day period that the index normally sees offsetting moves in, expired with Friday’s close. This indicator would normally fall to a low state for another five trading days due to a small chance that a market move of this proportion could happen during the fringe days around the expiration date. However, current market conditions make it seem unlikely a move higher of this proportion would occur in this instance and therefore this indicator was allowed to fall dormant early.

The -2% L indicator did not provide a correct indication during the past week and expired with Friday’s close. This indicator is now dormant.

The +/(-) 90 D that became active on Feb 21, 2014 has performed as follows to this point in the format: highest close / lowest close / last close.

+3.50 / -1.12% / 3.50%

The S&P 500 has closed above the resistance found within the 100 L at 1883 for three consecutive days and in four of the past five sessions. Generally three consecutive closes above a resistance level tend to show the resistance has been broken, however the index had closed above this resistance for three consecutive days earlier on April 1 through April 3 but succumbed to this resistance again.

The 1883 resistance has been formidable. Since March 6 the index saw 13 daily highs and six closes fall within three points of the 1883 resistance level. Only 23 daily highs moved above it and the index closed above this level only 13 times during that 56 trading day stretch. As a result, the resistance has caused the index to move virtually sideways for over two months. The sideways move had taken the index near its lower trend line in the rebound off March 2009 crash lows. Rebounds off or near this trend line have consistently moved higher, making it seem fairly likely the current move higher could continue.

So far the 1883 resistance has offered support for five daily lows within three points of the resistance. Only two of these supports were found above this resistance level, the latest being on Thursday. The other was on May 14, but the index fell and closed below the 1883 resistance on May 15, whereas Friday continued higher off Thursday’s rebound. Rebounds found near prior resistance are often bullish indications.

Current Cautions

The index rebounded to recover from the significant drop seen within the 100 L. It seems possible the resistance at 1883 has given way, and the index also breached resistance at 1897 in the run higher. The later portions of that run rebounded bullishly above the 1883 resistance resulting in Friday’s push into and close within the upper half of the 100 L resistance. The upper resistance level of the 100 L appears to be softer than the lower level. If Friday’s run broke the 1897 resistance, it seems possible the index could begin to trend higher and break free of the 100 L.

Average daily volume levels decreased 8.84% compared to the average daily volumes of the previous week. Decreasing volumes into runs higher are generally bullish indications. As in the past week, the week’s largest volume was seen during the week’s lone retreat on Tuesday, but again this volume was lower than volumes seen earlier during moves higher. The five day volume variance decreased slightly by 0.37%, remaining in a bullish posture.

The next likely area resistance could be found once the index passes the 100 L at 1900 is in the Midrange Resistance Level (MRL) between 1940 and 1955. The MRL appears to have the potential to cause a significant pullback, but probably not a large pullback if one were to be seen there. It also seems possible the index could move past this level without incidence.

It appears possible the index could reach the 1940 to 1955 MRL in conjunction with the expiration period of a 90 Day indicator. The expiration period of a 90 Day indicator activates a 90 E indicator. Although not always so, the 90 E indicator is potentially bearish as the S&P 500 has often exhibited bearish traits during the active periods of this indicator in the past. Therefore the presence of a 90 E indicator at this resistance increases the chances a significant pullback could be seen. The expiration period also falls within a timeframe that is sometimes somewhat bearish for stocks.

At the same time, the long sideways move at the 1883 resistance appears to have increased upward tensions in many of the constituent stocks. It does not seem likely these tensions could be fully relieved in the relatively short move to the MRL, which could limit the downside potential at this resistance. Although the potential for a significant pullback could increase if the index should reach this resistance with a potentially bearish indicator active and during a potentially bearish timeframe, barring any unforeseen circumstances, it continues to seem unlikely a pullback at this level would be large and still might not reach significant levels.

There is a slight chance that resistance could also be seen at 1970, but this resistance does not appear to have the potential to cause a significant pullback. If the resistance at 1970 is seen at all, it will probably do little more than slow the index’s ascent for a relatively short duration.

There continues to be many reasons to be bullish at the current time. Any pullbacks in stock prices seen along the way are probably a good opportunity to add.

If the index continues within the trend established off the crash lows, it seems possible it could reach the 2000 to 2100 level in seven to 16 months if it reaches this level near the upper trend line and within 34 to 40 months if it reaches this level near the lower trend line. The data suggests the Midrange Resistance Level (MRL) at 2035 to 2055 could hold the resistance level of concern within this range at 2040. More details of this potential resistance can be seen in past articles.

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 allows exact, and these resistances could react sooner or later than expected, it is also possible the resistance will not be seen at all.

Many of these sources of information were used in this article.

Subscribe to receive Email alerts for new articles as they are published near the top or bottom of this page.

Have a great day trading,
ronz

Access link to all of Ron’s past articles.

Disclosure: Ron is currently about 84% invested long in stocks in his trading accounts. His investment level remained constant over the past week although he bought two issues with the cost of these purchases partially offset by the sale of one issue and dividend payments. Ron feels comfortable with his investment level at the current time and plans to try to stay near this investment level for the time being. 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 ten issues in the coming week and 18 in the following week. If no further investment changes are made during this timeframe these dividend payments will not change his investment level.

Some of the trades made during the past week may have been due to repositioning investments as discussed in a previous article.

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.

Stock market preview for the week of June 2, 2014

The S&P 500 pushed to record high closes in three sessions during the holiday shortened trading week. The index matched the week ago gain of 1.21% in its push higher and has increased in 23 of the past 33 sessions.

Average daily volume levels of the four days in the holiday shortened week increased 5.81% compared to the average daily volumes of the five days in the previous week. The week’s largest volume was seen on Friday, with the lowest volume seen on Thursday. The five day volume variance also increased 10.67% over that seen four days ago to 36.19%.

The S&P 500 finished at record highs on Tuesday, Thursday and Friday with Wednesday providing a small setback. The three higher closes has taken the index near the upper boundary of the 100 L at 1925.

Major Stock Market Indexes

The index charts of the Dow Jones Industrial Average, S&P 500, NASDAQ, New York Stock Exchange and Russell 2000 continued to show bullish signs as all five indexes finished the past week with gains.

The NASDAQ and Russell split for the week, each finishing two sessions higher and two lower.

The Russell 2000 gapped to the 50 EMA at Tuesday’s open and continued higher through the session. Although Wednesday finished lower, it held above the 50 EMA through the session and Thursday began to widen the gap the index was running above its 50 EMA. Friday began higher, but the price slipped during the session breaching the 50 EMA briefly before rebounding bullishly to finish the session above it. The push higher during the week eclipsed the high seen in the previous cycle, giving it two higher highs in a row. All four sessions in the past week along with the previous Friday finished above the upper trend line of the recent downtrend, and it appears the Russell could have broken from its downtrend.

The NASDAQ saw a bullish cross as its 13 EMA pushed back above the 50 EMA on Tuesday. The NASDAQ continued to widen the gap it is running above the 50 EMA during the week, with all but Friday’s session low being higher than the previous session. Although the NASDAQ has not yet established an uptrend, the recent run higher makes it look likely it will.

The Dow Jones, S&P 500 and New York Stock Exchange each finished higher in three of four sessions during the week, with all posting small loses on Wednesday.

The Dow Jones finished Friday at a record high close. During the week it established and held a fairly steady gap above its rising 13 EMA. Although the Dow chart would probably look much more bullish without the component changes from last September, the remaining components are taking up the slack in the recent lackluster performance of the additions. At the same time the additions are showing some signs that they might break out of their recent slump and a rebound to or near yearly highs seems possible.

The S&P 500 and New York Stock Exchange finished at record high closes three times in the past week, The NYSE held a fairly steady gap above its rising 13 EMA during the week, while the S&P 500 slightly but progressively widened this gap in its run higher.

The indexes are currently overbought so a pullback does not seem unlikely; however chart formations make it seem possible they could hold in or near overbought conditions for the time being. If a pullback where to occur, dips to or near the 13 EMA could be buy signals.

US Treasury Charts

The 20 year US Treasury Bond pushed higher in the first two sessions maintaining its uptrend before beginning to fall on Thursday. The bulk of this move higher was seen when the 20 year Treasury again gapped widely higher at the open on Wednesday finishing with the highest close in 2014. Although the regular session saw relatively little additional gains, it closed near the day’s highs. The 20 year began to slip off these highs on Thursday with Friday continuing lower.

The 20 year is fully overbought and has not fallen to fully oversold in almost two months even though it has finished 11 of the past 19 sessions lower. Although the price has continued higher during this timeframe due to large opening price gaps, without these gaps, the price drops during normal trading hours have far outweighed the increases. Lacking these gaps, it seems possible the 20 year T-Bond could have established a downtrend during this timeframe due to the lackluster price movements during normal trading hours.

The normal trading hour price action makes it appear that domestic US Treasury Bond investors are taking profits into the foreign investments that are causing the higher opening price gaps. It seems possible if these price gaps cease, profit taking on these foreign investments could continue. This chart appears to be bullish, but continues to show signs of faltering.

Uncovered price gaps are nearly always eventually covered. The 20 year has left several gaps higher uncovered in its recent move higher, but the one of greatest concern to those recently becoming long holders of Treasury Bonds was that of March 12. That gap occurred three days into the recent bullish run off of lows and was very near the yearly low.

Long term Treasuries price charts continue to look bullish, but setting aside the recent large opening price gaps higher, they appear somewhat bearish. Therefore at this time the Treasury charts appear neutral to somewhat bullish for US stocks prices.

The interest rate on the 10 year US Treasury Note fell in the first two sessions before rebounding late week. It was again turned back at the 13 EMA on Tuesday and finished that session a little lower. It gapped lower at Wednesday’s open and finished the session steeply lower, breaking below earlier support and continuing in the recent downtrend. It continued lower early Thursday, but rebounded strongly to finish the session higher, with Friday’s finish adding to those gains. This chart continues to look bearish. It is in fully oversold conditions.

Gold

Gold slipped to about 1291 early Sunday night before beginning a small rebound shortly after the Sydney open that carried it back to about 1293, but slipped off that high to finish the night at about 1292.

Early Monday morning gold pushed back to about 1294 before trending lower in bounces to about 1291 by the London open. It rebounded back to about 1293 and traded tightly to this level through the US holiday shortened session. It slipped back to 1291 after the New York Globex open Monday night, trending in bounces higher to about 1293 after the Hong Kong open, then slipped back to finish the night at about 1291.

Tuesday trended fairly steeply lower until reaching about 1260 shortly after the Hong Kong open Tuesday night. It rebounded back to about 1265 and traded closely to it for the remainder of the night, finishing at about 1264.

Wednesday gold trended higher to reach about 1266 shortly after the New York open, but dropped back to 1256 by midsession. It rebounded back to 1260 before the NYMEX close and then bounced slowly lower to reach 1255 about midsession of late night trading in Hong Kong. It rebounded off this low to finish the night at about 1258.

It continued higher to about 1260 early Thursday before reversing trend and falling to about 1251 just before the London open. It trended slowly higher again to reach about 1260 midsession in New York. Gold slipped slowly lower off that high to 1256 in Sydney, but then pushed higher again to about 1261 early in the session in Hong Kong. It slipped slowly off that high to finish the night at about 1257.

Friday gold traded within a point of 1257 until slipping lower near the London open to 1253. It bounced between 1252 and 1256 until slipping steeply lower near the London close during New York trading then more slowly lower to reach a midsession low of about 1243. It trended mostly higher off this low into a New York Spot close of 1249.30, which was a fair amount lower than the previous week’s 1292.30 New York Spot close.

Gold took a fairly bearish turn in the past week, fracturing support levels established after breaking lower from the March rebound. Gold began a slight downtrend after the initial drop from March highs that resulted in a more or less sideways move along that support but saw gradually lower highs in rebounds during that time. This established a downward biased wedge on that support line.

This sideways move and wedge pattern broke lower at about the time it ran into the upper trend line of the downtrend established in the break lower from the third rebound in 2012. March’s high also turned lower near this upper trend line. The upper trend line of this downtrend will probably offer resistance, as could the recently broken support level. These resistances could limit upside potential in gold.

It therefore seems possible the recent break lower could send gold to a retest of earlier lows. This makes support at about 1190 look like an important testing ground, with a break below this support being a very bearish sign.

This week’s drop sent gold to a small monthly loss on both the London Fix and New York Spot.

A continued breakdown in gold could be bullish for stocks.

S&P 500 Constituent Charts

Overall the constituent charts continue to show bullishness.

Many of the constituents are in very bullish runs consisting of one or two day pullbacks followed by several days of moves higher. Many are riding higher above the 13 EMA and many are rebounding higher after drops to or near the 13 EMA.

The constituents continue to increase the numbers breaking above long or short term resistances.

Increasing numbers are breaking to 52 week highs with others nearing these levels.

More of the constituents that have not yet turned higher are showing signs they could turn higher from recent pullbacks. Several broke above upper trend lines in recent downtrends. Some moved to higher highs, others rebounded from lower lows and some established uptrends after having two consecutive higher highs and higher lows. Some broke above the 50 EMA after having fairly long draughts below it. Many of these stocks are moving higher above the 13 EMA or are beginning to ride above it more often than not. Some are still basing, but appear to be nudging higher in these bases.

Many of the constituents that took large moves higher on good earnings news appear to be rebounding after initial pullbacks in these higher moves. Some have already breached the initial highs while others appear to be rebounding off support levels like the 13 EMA. It seems likely many of these stocks could continue higher in these runs. Some that took these large moves higher on good news have continued fairly steady higher, without much of a pullback after the initial surge.

Many of the Biotech’s that took large pullbacks earlier have seen substantial rebounds off lows in those falls.

The staggering pattern continues to strengthen.

The index is overbought so it seems possible that a pullback could be seen in the week ahead. It looks likely that many of the constituents could move higher into that pullback limiting the drop or even nudging the index higher. A fair number of the constituents have established trends of holding in or near overbought levels. It seems possible some of the constituents that have not yet established a trend of holding in or near overbought levels are in runs that could do so and this could add further buoyancy. The S&P 500 currently holds the most bullish chart of the indexes covered. Even though the index is overbought, a pullback is not a given. It seems possible if one is seen it could be short and fairly small and therefore it seems possible the index could move higher in the week ahead.

Indicators

Although the indicators featured in these articles are not always correct, they have been many times and being so they are worth reading about and taking note of.

The +/(-) 90 D and 100 L indicators are currently active. See a more detailed description of most of the indicators developed through research and featured in these articles here.

The +/(-) 90 D that became active on Feb 21, 2014 has performed as follows to this point in the format: highest close / lowest close / last close.

+4.76% / -1.12% / 4.76%

The +/(-) 90 D will expire in 22 trading days. Due to this expiration a 90 E will become active in 9 trading days. The indicator becomes active 13 trading days before the expiration and remains active for 13 trading days after the expiration resulting in a 27 trading day active period.

Although not always the case, as can be seen in several instances in past articles the 90 E has been present during periods that the S&P 500 has exhibited bearish traits. The indicator is not always present during bearish times, occasionally it is present during bullish moves too and a couple of these instances are also covered in past articles. The past two occurrences of this indicator saw a little of both beginning with a bearish period and ending with a more bullish move.

It seems possible this indicator could become active as the index enters potential resistance at the 1940 to 1955 MRL. The resistance at this level appears to have the potential to provide a significant pullback on the index, but it does not seem likely this resistance is strong enough to provide a large pullback if a significant pullback is seen. There are some fairly good reasons to believe the index could move past this level without seeing a significant drop, but if a significant pullback is seen, it seems likely it could remain shallow, probably within the 3% to 5% range.

The S&P 500 record high finish Friday of 1923.57 pushed near the upper resistance level of 100 L at 1925. Although the index is overbought, which might cause a short term pullback at this resistance, resistance in the upper portion of the 100 L appears soft so it seems possible the index could break above the 100 L in a rebound from that pullback. It also seems possible the index could begin to hold in or near overbought conditions, therefore this resistance level could be broken in a continued run higher.

Current Cautions

The index rebounded to recover from the significant drop seen within the 100 L. The upper resistance level of the 100 L appears to be softer than the lower level. It seems possible the index could continue to trend higher and break free of the 100 L.

The next likely area resistance could be found once the index passes the 100 L at 1900 is in the Midrange Resistance Level (MRL) between 1940 and 1955. The MRL appears to have the potential to cause a significant pullback, but probably not a large pullback if one were to be seen there. It also seems possible the index could move past this level without incidence.

It appears possible the index could reach the 1940 to 1955 MRL in conjunction with the expiration period of a 90 Day indicator. The expiration period of a 90 Day indicator activates a 90 E indicator. Although not always so, the 90 E indicator is potentially bearish as the S&P 500 has often exhibited bearish traits during the active periods of this indicator in the past. Therefore the presence of a 90 E indicator at this resistance increases the chances a significant pullback could be seen. The expiration period also falls within a timeframe that is sometimes somewhat bearish for stocks.

At the same time, the long sideways move at the 1883 resistance appears to have increased upward tensions in many of the constituent stocks. It does not seem likely these tensions could be fully relieved in the relatively short move to the MRL, which could limit the downside potential at this resistance. Although the potential for a significant pullback could increase if the index should reach this resistance with a potentially bearish indicator active and during a potentially bearish timeframe, barring any unforeseen circumstances, it continues to seem unlikely a pullback at this level would be large and still might not reach significant levels.

Recent chart action in Treasuries and Gold make it seem possible they could add to pushes higher in equities. Although Treasury Bonds have pushed to the highest levels seen in 2014, they have performed poorly during US trading hours indicating a domestic selloff could be underway. Selloffs in Treasuries often make their way into equities. Gold appears to have begun a bearish move lower and if it continues, this selloff could also add to a move higher in equities.

There is a slight chance that resistance could also be seen at 1970, but this resistance does not appear to have the potential to cause a significant pullback. If the resistance at 1970 is seen at all, it will probably do little more than slow the index’s ascent for a relatively short duration.

Average daily volume levels of the four days in the holiday shortened week increased 5.81% compared to the average daily volumes of the five days in the previous week. Although a volume increase was seen, it was relatively small and was seen in a continued move higher. It was also probably affected somewhat by the shortened trading week. The week’s largest volume was seen on Friday, with the lowest volume seen on Thursday. The five day volume variance also increased 10.67% over that seen four days ago to 36.19%, but still within levels normally seen during bullish moves higher.

There continues to be many reasons to be bullish at the current time. Any pullbacks in stock prices seen along the way are probably a good opportunity to add.

If the index continues within the trend established off the crash lows, it seems possible it could reach the 2000 to 2100 level in seven to 16 months if it reaches this level near the upper trend line and within 34 to 40 months if it reaches this level near the lower trend line. The data suggests the Midrange Resistance Level (MRL) at 2035 to 2055 could hold the resistance level of concern within this range at 2040. More details of this potential resistance can be seen in past articles.

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.

Comments:

Recently attention was drawn to the retail sector that had underperformed during the long sideways move on the S&P 500. Although some continued to perform well, the financial sector was also hit fairly hard during this time period as some in this sector fell rather drastically. Recently many of these charts are showing signs they are beginning to rebound from lows. Many in this sector have continued to hold low P/E ratios since the financial crisis, even those that saw earnings rebound quickly and have continued to see earnings growth. Pullbacks in many of these stocks appear to be buying opportunities.

Many of these sources of information were used in this article.

Subscribe to receive Email alerts for new articles as they are published near the top or bottom of this page.

Have a great day trading,
ronz

Access link to all of Ron’s past articles.

Disclosure: Ron has invested in several financial stocks over the past month or so and continues to look for opportunities in both the retail and financial sectors. Ron is currently about 81% invested long in stocks in his trading accounts. His investment level decreased over the past week due to the purchase of one issue with the cost of this purchase more than fully offset by the sale of one issue with a larger than normal position size and dividend payments. Ron feels he is slightly oversold 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 18 issues in the coming week and 21 in the following week. If no further investment changes are made during this timeframe these dividend payments will not change his investment level.

Some of the trades made during the past week may have been due to repositioning investments as discussed in a previous article.

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.

Consistent income trading options: Increasing capital deployment of the SPX

In our quest to understand trading options for consistent income, we often consider the impact on P&L of entering new trades as soon as we close the last. This method increases the use of risk capital without adding to capital at risk, effectively improving capital efficiency. A recent article on Capital Redeployment tested the effects on five ETFs; this article will focus on just the SPX using short Strangles and exiting at 25 percent of premium received.

A short Strangle is an undefined risk option strategy in which an OTM (out of the money) Call option is sold while concurrently selling an OTM Put option, resulting in premium received. The max gain is the premium; the max loss cannot be determined which is why this is called an undefined risk trade. A one lot Strangle requires just 2 options to be sold (1 option per leg). When trading low cost underlyings, like ETFs, the Strangle offers the opportunity to bring in more premium than is practical with an Iron Condor (IC).

To determine the impact of increasing capital deployment on the SPX, Tasty Trade recently conducted a test from 2012 through May 2014 monthly expiration (a total of 28 months). To increase the number of redeployment trades, winners were exited when 25 percent of the premium was reached.

The test criteria was as follows: enter a 1 SD (standard deviation) short Strangle at the first trading day of each month, with about 45 DTE (days till expiration); exit the trade when 25 percent of premium is reached, or hold to expiration; if exiting with a profit and 15 DTE or more remain, enter another 1 SD short Strangle; repeat as often as possible.

The results: when comparing redeployment at 25 percent vs. single trades exited at 50 percent, the latter had a higher P&L, higher Percent Winners, highest Daily P&L, and lowest Max Loss.

In conclusion, while the overall totals seem to indicate that the redeployment at 25 percent is less desirable than a single trade exited at 50 percent, a closer look reveals a different conclusion. If we only look at redeploying twice (rather than three or more), the P&L would be $17,278 (25%) vs. $14,890 (50%). This difference is significant, while the Max Loss is close (-$2,977 vs. -$2,871 respectively).

Also, since the time period (from 2012) is predominantly bullish, it would be helpful to see if the losses for the Third and Fourth trades occurred predominantly on the Call side of the short Strangle. Perhaps testing at different SDs (for example, 1.5 SD and 2 SD) would yield interesting and revealing results.

And then there is the consideration of Weekly trades using the 50 percent exit strategy for a single trade. This represents, on average, 4.33 trades per month (compared to the 2.78 trades of this test).