This week's closes could confirm cycle highs
The downside risk in terms of the Nasdaq is 21.8% by year end.
The Russell 2000 ended August at 1,010.90, below its five-week modified moving average at 1024.96, but its 12x3x3 weekly slow stochastic reading is 81.85 -- still above the overbought threshold of 80.00. Odds favor that this measure of technical momentum will be declining below 80.00 this week, which would match the negative profiles of the industrials, S&P and transports.
The major focus is thus on the Nasdaq, which ended August right on its five-week MMA at 3589.87 with its 12x3x3 weekly slow stochastic reading at 86.65, still well above 80.00. The Nasdaq needs a weekly close below 3589 with this mojo measure declining below 80.00, which may have to wait until the second Friday of September.
Here's my Market Pulse as September begins: The Russell 2000 and Nasdaq are the year to date leaders -- up 19.0% and 18.9%, respectively. The Dow Industrial Average has become the laggard, up 13% on the year. The biggest loser since setting a new all time high at 6686.86 on Aug. 1 is the Dow transportation average, which is down 6.5% since then. This table shows the '% Upside' to my semiannual risky levels and the '% Down' to my annual value levels. If all five major averages confirm negative weekly chart profiles the downside risk in terms of the Nasdaq is 21.8% by year end.
You can trade the Dow Industrials using SPDR Dow Jones Industrial ETF Trust (DIA) ($147.85), which broke below its 50-day simple moving average at $152.57 on August 15 and has its sight on a test of the 200-day SMA at $144.12.
The weekly chart profile is negative with the five-week MMA at $151.27. My quarterly value level is $142.41 with a semiannual pivot at $147.00 and weekly risky level at $153.60. My annual value level is $126.69, with my semiannual risky level at $164.69.
You can trade the S&P 500 using SPDR S&P 500 ETF Trust (SPY) ($163.65), which broke below its 50-day SMA at $166.01 on Aug. 27 with its 200-day SMA at $156.34. The weekly chart profile is negative with the five-week MMA at $166.07. My quarterly value level is $152.34 with a semiannual pivot at $160.60 and weekly risky level at $171.60. My annual value level is $134.74 with my semiannual risky level at $174.10.
You can trade the Nasdaq 100 using PowerShares QQQ Trust Series 1 (QQQ) ($75.47), which is still above its 50-day SMA at $74.69 with its 200-day SMA at $70.06. The weekly chart profile remains positive but overbought with the five-week MMA at $75.23 and with the 12x3x3 weekly slow stochastic reading at 85.68.
A weekly close below the five-week MMA with mojo declining below 80.00 would shift this weekly chart to negative. My quarterly pivot is $73.00 with monthly, weekly and semiannual risky levels at $78.18, $78.93, $79.76 and $80.87. My annual value level lags at $60.27.
At the time of publication the author held no positions in any of the stocks mentioned.
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