Don't Ignore Risk to 200-Day Moving Averages

TheStreet.com

NEW YORK (TheStreet) -- The Dow Industrial Average, S&P 500 and NASDAQ powered to new all time or multi-year highs this week, while the Dow Transportation Average and Russell 2000 did not. All five of the major equity averages began 2013 above their 200-day simple moving averages (SMA) and have stayed above.

This morning I looked back to the beginning of the new millennium and observed that each of the major equity average crossed their 200-day SMAs at least once in every year. Traders and investors must consider this risk as the markets outrun these averages as mojo on weekly charts trump overvalued valuations.

The 200-day SMAs are 13,441 Dow Industrials, 1445.6 S&P 500, 3069 DASDAQ, 5382 Dow Transports and 850.28 Russell 2000.


My measure of momentum is the 12x3x3 weekly slow stochastic, and these readings continue to be extremely overbought at 96.24 Dow Industrials, 94.56 S&P 500, 89.38 NASDAQ, 88.77 Dow Transports and 89.43 Russell 2000. Remember that readings above 80.00 are overbought on a scale of 00.00 t0 100.00.

At ww.ValuEngine.com, we show that 61.1% of all stocks are overvalued with 15 of 16 sectors overvalued; ten by double-digit percentages.


My proprietary analytics still show that the major equity averages straddle semiannual value levels, pivots and risky levels. My semiannual value level is 14,323 on Dow Industrials with semiannual pivots at 1566.9 on the S&P 500 and 5955 Dow Transports, and my semiannual risky level at 965.51 Russell 2000.

My suggested investment strategy remains the same. Investors should have at least 50% cash on the sidelines, particularly if you doubled your money over the past four years. Continue to avoid the construction and transportation sectors as a "source of funds." In the construction sector we show that 51.9% of all stocks are rated sell or strong sell. In the transportation sector we show that 78.5% of all stocks are rated sell or strong sell.

On Monday, I wrote Sequestration Could Ding Q1 Earnings and kicked off earnings season profiling the following stocks:

Alcoa ($8.32 vs. $8.24 on April 8) beat EPS estimates by a penny, earning 11 cents a share, but the hold-rated stock could not gain any upside traction.

Constellation Brands ($49.42 vs. $47.84 on April 8) beat EPS estimates by two cents earning 47 cents a share. This hold-rated stock held my monthly pivot at $48.19, then set a new multi-year high at $49.54.

Family Dollar ($59.78 vs. $59.40 on April 8) missed EPS estimates by a penny, earning $1.21 a share. This buy-rated stock traded between $58.27 and $60.90 on Wednesday around my monthly pivot at $59.00.

Bed Bath & Beyond ($64.00 vs. $63.76 on April 8) matched EPS estimates, earning $1.68 a share. This buy-rated stock opened higher on Thursday trading up to $68.30 then faded to a day's low at $63.69 versus my semiannual pivot at $64.14.

JB Hunt Transport ($74.22 vs. $73.40 on April 8) missed EPS estimates by three cents after the close on Thursday, earning 61 cents a share. This sell-rated stock slumped to $72.05 in after hours trading between my monthly value level at $71.26 and weekly pivot at $73.61.

On Tuesday, I wrote Rating the Three Consumer Sectors and profiled seven buy rated retail-wholesale stocks. I gave this sector an overweight rating and provided buy-and-trade strategies for these names: (each had tradable short term upside.)

American Eagle Outfitters ($19.91 vs. $19.37 on April 9) traded higher testing its 50-day SMA at $20.05 on Thursday.

Dick's Sporting Goods ($47.96 vs. $46.70 on April 9) traded higher to $48.92 but closed below its 50-day and 200-day SMAs at $48.15 and $49.23.

Foot Locker ($34.06 vs. $33.25 on April 9) traded higher ending Thursday above its 50-day and 200-day SMAs at $33.72 and $33.88 after a day's high at $34.60.

PetSmart ($65.99 vs. $63.43 on April 9) traded higher to $67.08 on Thursday versus my monthly risky level at $67.23.

Tech Data ($45.25 vs. $45.17 on April 9) traded up to $46.06 on Wednesday, then down to $44.25 on Thursday staying above its monthly value level at $43.90 and influenced by its weekly pivot at $45.85.

Vera Bradley ($22.36 vs. $22.38 on April 9) stayed above its Jan 14 low at $22.00 without much volatility one way or the other.

Whole Foods Market ($87.42 vs. $83.74 on April 9) traded up towards its 50-day SMA at $87.91.

On Wednesday, I wrote Time to Double-Dip Apple Shares as the stock continued to hold my annual pivot at $421.05 and traded as high as $437.99.

Google ($790.39) rebounded to $793.10 but stayed below its 50-day SMA at $798.71.

Amazon ($269.85) traded higher to $270.97 on Thursday.

Before the open on Thursday we learned that the International Data Corporation (IDC) reported that global PC shipments fell by 13.9% in the first quarter citing sluggish demand for Microsoft's Windows 8 software. This implied improved demand for tablets such as Amazon's Kindle Fire.

AMZN shares moved above my weekly pivot at $264.15 on Thursday but stayed well below my quarterly risky level at $278.28.

At the time of publication the author had no position in any of the stocks mentioned.

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

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