Medium term buy signal made this past week

Have not posted for a several months... busy, lazy, or just waiting for the 200 day moving average to be touched which I probably should not had concentrated too much on this summer. Because of the fear that the SP500 and the stock market will get a steep sell off toward the 200 DMAs had prevented me from being fully invested in the last medium term buy signal in early August. So I'm ignoring the 200 DMA for now this time as there is another buy signal made this past week. There could be one more retest down toward today's low in a week or two... or this could be THE bottom. Either way, coming out of October I expect the stock market to rally for the rest of the 4th quarter to new record highs in the SP500.

Got the break higher... now at medium term overbought and a record broken concerning the 200 DMA

Since the last post, the stock market shot up higher after consolidating for several weeks. The break above SP500 1900 was finally completed and the indexes had a nice week long rally. I thought the move higher could be done early last week but then on that Thursday started another move higher for three more days before pausing or pulling back slightly. So this week my indicators are now at short and medium term overbought thus this warrant caution at minimum as individual stocks could be hit with some selling before the indexes. Now comes the new record concerning the SP500 200 day moving average. Going back the past +25 years, the longest the SP500 have been above its 200 DMA without retouching it has been 18.5 months. Currently it's about a week away from 19 months and the SP500 is still +7% above the 200 DMA at 1808. Is it different this time? In Wall Street, that's a dangerous question to ask. Stock market appears resilient and the truth is we are still in a long term secular bull market. But eventually I believe the SP500 will meet the 200 DMA some where between current level of mid 1900s to the lower level of the 1850s.

At narrow trading range while waiting for the 200 DMA to catch up but main risk is still to the downside

As the title of this post states, the stock market in the last several weeks have been going in short moves up and down slowly waiting for the 200 DMA to catch up. I'm guessing the SP500 could make a sharp quick move down once the 200 DMA moves up toward the 1800-1825 level. The Dow and NYSE Composite, like the SP500, have been moving in rising trading ranges.

Unfortunately for the Nasdaq, Nasdaq 100, and Russell 2000, they have been moving in declining trading ranges. The Russell 2000 index has already touched its 200 DMA in mid April while the Nasdaq indexes came close but no cigar.

The Nasdaq and Nasdaq 100 are in a potential technical pattern whereas a break out of the trend lines will be a false one as it reversal back into the opposite direction. I anticipating this would be a false breakout higher (to go along with the SP500 making an initial break above 1900) and then a reversal back down for an eventual retouching the  200 DMA.

Struggling to stay afloat for the coming month.

From the last post I gave while I was on a spring break vacation I noted a rally was overdue due to oversold readings. Got a week long rally but then the market turned back down the last several days. The stock market is using the Ukaine crisis as an excuse for most of the selling. The real issue should be that the SP500 has now gone 17+ months since it last touched its 200 day moving average (the longest in the last 25+ years being 19 months in 1996.) So I could see some consolidation or more likely... weakness in the coming month as the SP500 is still about +5% above its 200 DMA.

At very short term oversold again

I'm on vacation right now so this post will be short. Like the last post, I'm looking for a rally here due to very oversold readings for the short term. The stock market didn't quite reach the downside target nor the upside target I was looking for in my last post and the follow-up comment. Maybe this is what I am anticipating from the last post.

Short term oversold that's setting up a strong short term rally but may need one more day of scary sell-off

From the last post I stated a short term overbought should last a few more weeks before running into a pause or consolidation. We got that in early March where individual stocks, especially speculative momentum stocks, started to sell-off. I followed up with a comment to the last post of a possible brief rally of the stock market with the SP500 rallying back toward the 1870-1880 level. Was unsure whether the SP500 would continue higher from there or would come back down. Well, from the past week the Nasdaq, Nasdaq 100, and Russell 2000 had sold off quite a bit. The other major indexes... Dow, SP500, and NY Composite had held up better. With the weakness from the last three weeks the stock market is now at short term oversold levels though not at medium term oversold yet. But I still see the stock market could drop a bit more before turning higher again. If there is further brief weakness than I'm looking at the SP500 1830-1835 level to eventually see a short term rally to develop that could eventually lead to a break above 1880 and higher. Looking ahead that could get the investors excited as the SP500 finally rallies toward 1900+ after having failed to hold at 1880 this month, March. But a rally above 1900+ could be short term lived as the SP500 and stock market should make likely break back lower with a sharp quick sell-off to eventually retouched its 200 day moving average, which by then should be moving slowly higher toward the 1800+ level.

Short term overbought last week - next 3 months could be range bound consolidation

From the last post I hinted the stock market could start to rally soon. But the following week there was an one day 2% sell-off before the rally I was looking for finally happened. I also followed up in the comment section of the post that a medium term oversold bullish setup could be occurring too. So since then the stock market has gotten an impressive two week rally especially the Nasdaq. But the medium term indicators has gotten close to overbought for the New York Stock Exchange while the Nasdaq exchange is between neutral and overbought. So caution is warranted here.

As current, the stock market is short term overbought. I would think this occurrence would be like the same situations of the past 6 months... grind a little higher before stalling on the 3rd or 4th week. The problem, which I been stating for the past few months, is the 200 day moving average is going need to be retouched which this hasn't happen yet since 15 months ago. In my Nov. 13, 2013 post I looked back the last 30+ years of the SP500 going beyond 12+ months without retouching its 200 DMA and most went up to 15 months before getting a quick sell-off back down. I also illustrated in the 1996 chart it went up to 18+ months before selling off over 8% intraday before recovering back higher.

So whether the stock market can continues to grind slower higher, any move higher will be temporary as a quick move down is expected and any move lower will also be temporary. I expect to see range bound consolidation for the next few months. Risk has risen and I had reduced my positions to less than 50% and into less volatile stocks. Will continue to reduce positions and go into short term and day trade modes if risk continues to rise. I anticipate the stock market will eventually move higher at the 2nd half of the year.

At short term oversold. Rally here as happened last several times or it's a plunge toward the 200 DMA?

Writing this new post while the stock market is still in session and down intra-day. Just wanted to note that I'm getting short term oversold readings from my indicators. The last three times this happened the stock market in the next day or so bounced back for a rally that lasted about three or four weeks before stalling. In recent posts, I did anticipate a quick strong sell-off to occur around January or February. This looks like what I was anticipating. The SP500 is now down over +4% below its all-time high of 1850 set seven days ago and about +4% above its 200 DMA. So will the SP500 continue to plunge down toward the 200 day moving average (at the 1700 level) I been worried about for the last few months? It could happen but I'm betting for a bounce in the next few days for another strong rally higher.

A look at bullish long term charts to go along with the usual short term overview.

Since the last post on a look out for a short term oversold rally, the SP500 had rallied +3% higher. Each of the previous two short term buy signals, I recalled on my last post, lasted about 4 to 5 weeks before stalling. The SP500 may had already started stalling last week given an overstretched price away from its 200 day moving average. It will be 14 months in mid January since the SP500 (along with the Russell 2000 and NYSE Composite) last touched its 200 DMAs. The SP500 is +8% above its 200 DMA so that's quite steep considering the index don't often go beyond 12+ months haven't touched its 200 DMA. The Nasdaq and Nasdaq 100 are 12+ months overstretched.

On rare occasions, the SP500 has overstretched up to 15 to 18 months before touching its 200 DMA again. Looking back, the years 1954 and 1994 comes to mind. Both have similar price patterns as 2013 and both continued to move higher the following year while stretching the streak to 15 to 18 months before touching the 200 DMA.

Like 2013, both 1954 and 1994 had big gains and the following years were up though about half of the gains of the previous year. Some of my quantitative work hints either or both of the 1st or 2nd quarter of 2014 could be a pause/consolidation phase before moving higher at the 2nd half of the year.

Now lets look at two long term charts I believe should indicate we are in a secular bull market that still have plenty of years to go on the upside.

The long term chart above shows three incidents of breaking above decade long resistance levels. This chart is from October 2013 when the SP500 was at 1695. It is now around 1830, already breaking higher two months later. In layman's term, this look very bullish long term. This is a technical view of a bullish price pattern.

The above chart, which has been circulated on the internet, shows the 10 year annualized return of the Dow Industrial index. The first 3 shaded green boxes indicates the stock market moving from oversold conditions at the beginning to overbought conditions at the end. If the 4th smaller shaded green box is just the beginning then it's likely there is many more years of upside to go. This is a fundamental view of a bullish return rate cycle.