The following is the US Stock Market section of Monday’s (September 1st) Keys To this Week report, which is probably our most widely read report.
Keys To This Week, published at the beginning of every week, is a bullet-pointed list of key market factors with accompanying charts that are most likely to influence US financial market direction during the next one to several months.
It includes both strategic (looking out 1-2 quarters) and tactical (looking out over the next 30 days) investment ideas, plus our trend model‘s current bias for US stocks, bonds, and currency.
The report also includes sections on US Stock Market Sectors (which includes our proprietary asset flow metric), US interest rates and Treasuries, and the US Dollar.
Asbury Research subscribers can view the entire report by clicking here.
Keys To This Week
Keys To This Week: September 1st, 2014
Posted on: Tuesday, September 2nd, 2014
The US Stock Market
Trend Model: Positive as of August 18th
This week our table retains the previous 2 weeks’ Positive distribution of key Near Term market factors for the US stock market, and the past 9 weeks’ Negative alignment of important Intermediate Term factors. Despite geopolitical tensions in multiple places around the globe, there is currently no immediate sign of a near term peak in the US stock market due to a positive monthly rate of change in the S&P 500 (SPX) amid expanding ETF asset flows, low volatility, and favorable investor sentiment and market breadth data. Moreover, market bellwether Google (GOOG) begins the week situated right on top of major underlying support. However, there are still some significant headwinds to be aware of this month including formidable overhead resistance currently being tested in the market leading NASDAQ 100 (NDX) and PHLX Semiconductor (SOX) Indexes, NDX’s vulnerability to upcoming relative underperformance versus SPX, what appears to be an emerging major bearish trend change in the German DAX, and a seasonally very weak September in the US broad market. However, note that this seasonal weakness typically occurs at the end of the month, not the beginning.
Listed in the order of their importance and expected impact on market direction.
- Near Term Price Momentum: Monthly Rate of Change (MROC), S&P 500 (SPX). NEAR TERM BULLISH. The 1-month rate-of-change (ROC) in SPX turned back to positive (bullish) on August 19th in the US broad market index, and remains above it through the end of last week. It would take a negative shift in this metric to indicate that a corrective decline is underway.
- Asset Flows: PowerShares QQQ ETF (QQQ). NEAR TERM BULLISH. Chart 2 of our August 25th Keys To This Week showed that the total daily assets in QQQ rose significantly above their 21-day moving average on August 18th, indicating a monthly trend of expansion that is near term bullish for the market leading NASDAQ 100.
- Support/Resistance: NASDAQ 100 (NDX), PHLX Semiconductor (SOX) Index. MAJOR DECISION POINT, NEAR TERM BEARISH. Chart 3 of last week’s report showed that NDX is hovering just 2% below major overhead resistance at its 4147 September 2000 benchmark high. In addition, Chart 1 below shows that SOX has been negotiating its 642 March 2002 benchmark high since July. How these two market-leading indexes resolve these major inflection points will be seen as a key indication of whether the 2014 US broad market advance extends its recent gains or begins an overdue corrective decline.
- Intermarket Relationships. German DAX Index. TURNING INTERMEDIATE TERM BEARISH? Chart 2 below shows that the German DAX begins this week situated in the midst of a key band of overhead resistance at 9513 to 9614, which includes its 200- and 50-day moving averages and the 61.8% retracement of its June 20th decline. This resistance area must contain the DAX on the upside if the index is indeed in the midst of a major bearish trend change, as suggested by its recent decline below its 200-day MA. Considering the DAX’s tight and stable positive correlation to the S&P 500 since 1990, most recently 73% since January, as goes the German index from here is likely to go the US broad market.
- Large Cap Stocks: Google (GOOG). MAJOR DECISION POINT, NEAR TO INTERMEDIATE TERM BULLISH. Chart 3 below shows that GOOG begins the week situated just above its $562 per share 200-day moving average, a widely-watched major trend proxy. Considering GOOG’s influence over the broad US market due to its huge market cap, as can be seen by its positive correlation to the S&P 500, we will view its reaction to $562 as an indirect indication of whether the US broad market extends its 2014 gains or begins a corrective decline.
- Volatility: The CBOE Volatility Index (VIX). NEAR TERM BULLISH. The VIX has closed below its 50-day moving average for the past 9 sessions, indicating a level of investor complacency that helped to fuel last week’s US broad market rally. As long as the VIX remains below its 50-day MA, currently situated at 12.68, it will suggest favorable conditions for last week’s rally to continue.
- Investor Sentiment: NEAR TERM BULLISH, INTERMEDIATE TERM BEARISH. Through Friday, about a third of the 18 investor sentiment metrics that we track continue to suggest favorable conditions for more near term strength in the US stock market. However, the rest of these metrics warn of its vulnerability to a larger 1-2 month corrective decline between now and year end.
- Overbought/Oversold. NEAR TERM BEARISH. Chart 5 of last week’s report shows that the S&P 500 has become technically overbought on a near term monthly basis and thus remains vulnerable to a minor multi-week decline.
- Market Breadth: 3 Key US Indexes (SPX, SOX, and RUT). NEAR TERM BULLISH. Near term breadth metrics in several key US indexes are currently rising from near term washed out extremes in market breadth that have previously coincided with near term market strength. Chart 4 below shows that the percentage of S&P 500 constituent stocks trading above their 40-day moving average is currently rising from a August 8th low extreme near 15%, but has not yet reached opposite frothy extremes near 77% that have previously coincided with market peaks.
- Relative Performance: NASDAQ 100 (NDX). TURNING INTERMEDIATE TERM BEARISH? Chart 5 below shows that NDX is hovering at quarterly overbought relative extremes versus SPX, and that previous instances of this have historically coincided with or closely led sustained periods of relative underperformance by NDX. Since Technology, along with Small Cap, tends to lead the US broad market both higher and lower, upcoming relative underperformance by NDX would indirectly suggest a coincident US broad market correction.
- Intermarket Relationships. London FTSE Index. INTERMEDIATE TERM BULLISH. Chart 6 of last week’s report showed that the December 2012 resumption of the March 2009 uptrend in the FTSE, following almost 2 years of sideways investor indecision, targets an additional, eventual 4% rise to 7100. The tight and stable long term positive correlation between the FTSE and the S&P 500 suggests that as goes FTSE, so is likely to go SPX. Also note that FTSE can theoretically correct all the way back to the apex of the triangular indecision area at 5825 without negating the 7100 target.
- Seasonality: NEAR TERM BEARISH, INTERMEDIATE TERM BULLISH. Chart 6 below shows that September is the seasonally weakest month of the year in the S&P 500 since 1957, on average closing 0.68% lower for the month and posting a negative monthly close 54% of the time, but leads into a gradually escalating 4th Quarter recovery that culminates with the strongest month of the year, December. Our September Global Seasonal Analysis report, available later this week, will include more charts and detail on annual, quarterly and monthly seasonal trends for 17 global asset prices including equities, benchmark interest rates, foreign exchange, and key commodity prices based on historical data going back to the 1950s.
A new, updated Keys To This Week report will be distributed to Asbury Research subscribers on Monday morning.
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