Confirming Cycle Highs Remains Elusive

TheStreet.com

NEW YORK (TheStreet) -- Here we go again trying to confirm recent market highs as cycle highs. All five of the major equity averages must have negative weekly chart profiles simultaneously. That won't happen this week as the weekly charts for the Nasdaq Composite and Russell 2000 remain positive but overbought.

The weekly charts attempted to time the May highs as cycle highs, but all five of the major equity averages didn't shift to negative.

Similarly, we tried to confirm the early August highs as cycle highs, but again all five major averages didn't shift to negative, preventing this confirmation.

Today the only major average that could have a negative weekly chart is the Dow Jones Industrial Average given a close today below its five-week modified moving average at 15,182.

The fundamentals have been favoring a market top since mid-May as the stock market has been trading under the cloud of a ValuEngine valuation warning since then with 65% or more of all stocks overvalued. Today 76.5% of all stocks are overvalued, 41% by 20% or more.

The DJIA set an all-time high at 15,342.40 on May 22, and then declined to 14,551.27 on June 24. The next rally was to another all-time high at 15,658.43 into Aug. 2, which was followed by a decline to 14,760.41 into Aug. 28. The third all-time high since May was 15,709.58 set on Sept. 18. As the daily chart below shows, the subsequent low at 14,719.43 on Oct. 9 was a test of the 200-day simple moving average.

Courtesy of MetaStock Xenith

Even after the DJIA rose 323 points on Thursday, the benchmark was 2.7% below its May 22 high. This week my weekly value level at 14,809 was violated with the week's low at 14,719.43, which held my semiannual value level at 14,724. The 14,809 level then became a weekly pivot which was quickly penetrated and held on Thursday.

The Dow is the only one of the five major averages that stayed below its 50-day simple moving average at 15,195. Volatility between now and year end can be mind-boggling. The nearest value levels below 14,724 are my annual value levels at 12,696 and 12,509.

This month's risky level is at an all-time high at 15,932 with semiannual and quarterly risky levels at 16,490 and 16,775. The upside to these levels is 9% and 10.9%, while the downside to the first annual level is 16.1%.

This week, I wrote four articles concerning topping out issues. On Wednesday, I wrote, Tracking Sector ETF Bubble Characteristics where I showed that eight of 11 key sector-oriented exchange-traded funds may have peaked in the Sept. 19/Sept. 20 window.

All 11 ETFs ended Wednesday below their 50-day SMAs. Six popped back above these key levels, while four came back to a test and one stayed below its 50-day SMA. All 11 stayed shy of the risky levels I showed in the table in that report.

Also on Wednesday, I wrote, The Ups and Downs Among Internet Stocks, and surprisingly while these stocks rebounded on Thursday, the upside volatility was muted vs. the recent downside. For example, Google ($868.24 vs. $853.67 on Oct. 9) stayed below my semiannual pivot and risky level at $880.49 and $892.48.

On Thursday, I wrote, 11 Dow Components vs. Their 200-Day Moving Averages, and the stocks that flipped back above their 200-day SMAs are Cisco Systems , Intel Corp , Pfizer , and Procter & Gamble . The overall DJIA tested and held its 200-day as shown above. That reflects that this average experienced a reversion to the mean.

Also on Thursday, I wrote, Four 'Too Big to Fail' Regional Banks Are Above 200-Day SMA where I showed that 22 of the 24 stocks in the regional banking index were below their 50-day SMAs.

Only four of the banks moved back above their 50-day SMAs including the following: Bank of New York , First Niagara , Peoples United and US Bancorp . Northern Trust was the only bank that was below its 200-day SMA and it stayed below.

My semiannual pivot at 3759 on the Nasdaq has been a strong magnet with monthly, semiannual and quarterly risky levels at 15,932, 16,490 and 16,775 Dow Industrials, 1746.4, 1743.5 and 1853.8 S&P 500, 3830 and 4025 Nasdaq, 6811, 7104 and 7205 Dow Transports and 1092.46, 1089.42 and 1163.21 Russell 2000.

My annual value levels remain at 12,696 Dow Industrials; 1348.3 S&P 500; 2806 Nasdaq; 5469 Dow Transports; and 809.54 Russell 2000.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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