Dow, S&P, Nasdaq Poised To Recapture March/April Highs

TheStreet.com

NEW YORK (TheStreet) -- A week ago I wrote, Warning Flags Fly, But Stock Top Unconfirmed. Given this assessment I was not surprised by this week's rebound. In other words, if a top cannot be confirmed, perhaps we have not seen the top yet.

Last week the Dow industrial average declined 317 points closing the week at 14,548 with the Nasdaq down 89 points to 3206. The prior week's closes were 14,865 on the Dow and 3295 Nasdaq. If the markets do not recover all of last week's declines warning flags still fly.

Here are three reasons why stocks rebounded this week:

U.S. Treasury 30-Year bond yield fell to 2.821% on Tuesday, which made stocks less overvalued or more undervalued. With 58.2% of all stocks overvalued there is room to recapture the March/April highs.

Comex Gold appears likely to end the week back above its 200-week simple moving average at $1437.9 indicating that the April 16 low at $1321.5 is a tradable bottom.

Nymex Crude Oil may have traded below its 200-week SMA at $87.58 but did not close below that key level last week. Oil stayed above $87.58 this week helping stocks rebound.


When you can't confirm a stock market top it leaves open the possibility that the March/April highs can be tested again as April ends and May begins. Even so, let me remind readers that warning flags remain.

Dow Transports and Russell 2000 were the leaders to new all time highs in mid-March. Today, the 12x3x3 weekly slow stochastic reading for transports declined to 78.14 from 82.66 last week alleviating the overbought condition. Similarly the 12x3x3 weekly slow stochastic reading for the Russell 2000 fell to 77.10 from 80.88 last week. These declining readings below 80.00 are warning flags. Weekly closes below five-week modified moving averages at 6067 transports and 929.56 Russell 2000 confirm market tops.

Fundamentally the transportation sector remains rated "avoid-source of funds" as 77.8% of all stocks in this sector are rated sell or strong sell.

Dow Industrials, S&P 500 and Nasdaq remain overbought on their weekly charts, so a market top cannot yet be confirmed. The 12x3x3 weekly slow stochastic readings have declined, but remain overbought; 90.77 from 93.20 Dow industrials, 87.98 from 89.70 S&P 500 and 83.10 from 84.39 Nasdaq. The five-week MMAs are 14,491 industrials, 1556.9 S&P 500 and 3234 Nasdaq.

If you can't confirm a top, than a re-test of the March/April highs are feasible: The all-time highs are 14,887.51 Dow industrials and 1597.35 S&P 500 set on April 11 with a multi-year high at 3306.95 on the Nasdaq. The all-time highs are 954.00 on Russell 2000 set on March 15, and 6291.65 on Dow transports on March 19.

Utilities remain in the leadership role:

The Dow Utility Average set a series of multi-year highs this week including $533.73 on Thursday. This is not surprising and is another warning flag as utilities tend to trade higher when the five major averages are topping out. There are 63 strong buy rated stocks and 130 buy rated stock in this sector of 215 names, thus 89.8% of all utility stocks have buy ratings.

Here's how four of my focus stocks traded after reporting their quarterly results:

Procter & Gamble ($76.58) beat EPS estimates by three cents earning 99 cents, but the buy rated company lowered forward guidance. After setting a multi-year high at $82.54 on April 23 the stock was taken to the woodshed to a low of $76.35 as this bubble stock pops. My annual value level is $75.13 with my annual pivot at $78.73 and monthly pivot at $79.68.

3M Company ($104.88) missed EPS estimates by four cents earning $1.61 per share. This buy rated stock fell from $107.39 at Wednesday's close to $103.50 on Thursday. My monthly value level is $102.90 with a weekly pivot at $108.35 and semiannual risky level at $111.34.


Starbucks ($60.50) matched EPS estimates after the close Thursday earning 46 cents a share. The stock has been trying to re-capture its April 2012 high at $62.00. Given a miss on the revenue line Starbucks declined to around $58.75 in after hours trading. My semiannual value level is $49.88 with a monthly pivot at $60.63 and quarterly risky level at $63.10. My monthly pivot was tested to the upside before the close on Thursday.

Amazon.com ($274.70) beat EPS estimates by eight cents earning 18 cents per share. I saw an after hours knee-jerk high of about $288.00, above the all time high set at $284.72 on Jan. 25. Given a miss on the revenue line and disappointing guidance, I observed a low print around $259.50 as my weekly, monthly and quarterly pivots at $262.35, $278.07 and $278.28 became magnets. Given the stock's strong sell rating and initial after hours strength investors had the opportunity to book profits as a "source of funds." My semiannual and annual value levels are $241.23 and $226.80.


Summarizing by the numbers:

A weekly close above my semiannual pivot at 1566.9 on the S&P 500 indicates upside potential to my semiannual risky level at 965.51 on the Russell 2000. This would lead the major averages to re-tests of the March/April highs and to new highs going into May. My semiannual value level remains at 14,323 Dow industrials with annual and semiannual pivots at 5925 and 5955 on Dow transports. A weekly close below my semiannual value level at 14,323 on Dow industrials would signal a market top.

My prediction remains that my annual value levels 12,696 Dow industrials, 1348.3 S&P 500, 2806 Nasdaq, 5469 Dow Transports, and 809.54 Russell 2000 will be tested at some point in 2013.

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.

It's Official: Action Alerts PLUS beats the S&P 500 with Dividends Reinvested! Cramer and Link were up 16.72% in 2012. Were you? See what they are trading for 14-days FREE.

Rates

View Comments (0)