We begin May 2013 without a confirmed market high and with the other major averages below all-time highs. The Russell 2000 set its all time high at 954.00 on March 15. The Dow Industrial Average set its all-time high at 14,887.51 on April 11. Dow transports set its all-time high at 6291.65 on March 19.
While I cannot make a prediction that today is a market top, I would not rule it out as history tends to repeat.
What we know today is that the Dow utility average has become the leading index with a four month gain of 18.6% by setting new multi-year highs almost daily since taking out its Aug. 1 high at 499.82 on March 25. Since then utilities have gained 7.6% to the April 30 high at 537.86 vs. its all-time high of 555.71 set in January 2008.
The utility sector is 11.7% overvalued but among the 211 stocks in the sector 62 stocks are rated strong buy and another 127 are rated buy. On April 2 I wrote Dow Utilities Outperform S&P 500 in First Quarter show that 14 of 15 stocks in this index were rated buy, and that one way to play the sector was investing in the Utilities Select Sector SPDR Fund ($41.43), up about 6.0% since that post. Monthly and semiannual value levels are $39.09 and $36.48 with quarterly and annual pivots at $40.27 and $40.52 with this week's risky level at $41.60.
The transportation sector is 14.9% overvalued and among the 177 stocks in this sector 89 are rated sell and another 48 are rated strong sell. With 77.4% of the stocks in the sector rated sell I continue to rate this sector "avoid-source of funds." Since setting its all time high at 6291.65 on March 19 the Dow transportation average is down 1.8%, but ended April up 16.4% year to date.
A way to trade transports is via the iShares Dow Jones Transportation Avg ($110.03). My annual value level is $97.32 with annual and semiannual pivots at $106.22 and $106.95 and monthly and weekly risky levels at $111.46 and $113.38.
In third place year to date is the Dow Industrials with a gain of 13.2%, but the number of buy rated stocks in the Dow has been declining and now stands at just 13. A way to trade the Dow is via the SPDR Dow Jones Industrial ETF ($148.02). Quarterly and annual value levels are $137.01 and $126.69 with semiannual and monthly pivots at $143.01 and $145.87 and weekly risky level at $150.69.
In fourth place year to date is the S&P 500 with a gain of 12.0%, but only 30% of the stocks in the S&P are rated buy, which justifies my call to have 50% of your equity allocation in cash. A way to trade the S&P is via the SPDR S&P 500 ETF Fund ($159.68). Quarterly and annual value levels are $144.56 and $134.74 with semiannual and monthly pivots at $156.59 and $158.22, and weekly risky level at $161.10.
In fifth place year to date is the Russell 2000 with a gain of 11.6%, but my proprietary analytics shows a wall of risky levels. Weekly, monthly and semiannual risky levels are 961.25, 962.82 and 965.51 versus the all-time high at 954.00 on March 15.
If you wish to trade these small caps from the short side consider the ProShares UltraShort Russell 2000 ($19.56). My weekly, monthly and annual value levels are $18.92, $17.93 and $15.98 with a quarterly risky level at $22.77.
In sixth place year to date is the Nasdaq with a gain of 10.2% setting a new multi-year high at 3328.79 yesterday. The Nasdaq 100 is up just 8.5% year to date and 43% of the stocks in this index are rated buy. A way to trade the Nasdaq 100 is via the PowerShares QQQ Trust ($70.72). My annual value level is $60.27 with monthly, quarterly and weekly pivots at $67.17, $68.95 and $70.37 with a semiannual risky level at $78.39.
In the past two weeks I explained why a market top could not yet be confirmed. On April 19 I wrote, Warning Flags Fly, But Stock Top Unconfirmed. Then on April 26 I wrote, Dow, S&P, Nasdaq Poised To Recapture March/April Highs.
Two Ways to Confirm a Market Top:
The S&P 500 has been trading back and forth around its semiannual pivot at 1566.9. Dow transports has also been testing annual and semiannual pivots at 5925 and 5955. The Russell 2000 has yet to test its semiannual risky level at 965.51.
For May I show monthly value levels at 14,651 Dow Industrials and 3233 Nasdaq with a monthly pivot at 1587.3 S&P 500, and monthly risky levels at 6284 Dow transports and 962.82 on Russell 2000.
My annual value levels at 12,696 Dow Industrials, 1348.3 S&P 500, 2806 Nasdaq, 5469 Dow transports and 809.54 Russell 2000 will be tested 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.
- The weekly charts need to shift to negative. This happens when weekly closes are below the five-week modified moving averages at 14,495 Dow Industrials, 1556.5 S&P 500, 3233 Nasdaq, 6071 Dow transports and 928.85 Russell 2000 with 12x3x3 weekly slow stochastic readings declining below 80.00 on a scale of 00.00 and 100.00. Only transports and Russell 2000 have readings declining below 80.00.
- Another confirmation comes from my proprietary analytics. A weekly close below my semiannual value level at 14,323 Dow Industrials.