TomAspray's  Instablog

Stocks continued higher for the fourth week in a row as the major averages have already easily exceeded the most bullish Wall Street forecasts for the entire year. All of the major averages are all showing double-digit gains, which was suggested in late 2012 by the upside breakout of the NYSE A/D line.

The weekly and daily technical studies continue to support higher prices but the risk is high in establishing new positions in the major averages. The last significant swing low in the Spyder Trust (SPY) was at $153.55, which is just over 8% below last Friday's close. There are still stocks that have completed continuation patterns or that have pulled back to good support while the major averages have moved higher. Therefore, finding high-probability entry levels where the risk can be well controlled is still the key.

Because of the market's strength, I was not surprised that my weekly scan of the stocks in the S&P 500 revealed that 23 closed above their weekly starc+ bands on Friday. Of course, this does not automatically rule buying one of these stocks but definitely should be factored in when one is determining an entry level.

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In the table above, those stocks that are highlighted in red also closed last week above the monthly starc+ bands for May, which is a more important sign of them being in at a high risk buy level. I often use these levels, in conjunction with pivot and Fibonacci levels, to determine profit taking levels. Those who are long any of these stocks should consider taking some profits now if they have not done so already.

The fact that the Spyder Trust (SPY) also closed the week above both its weekly and monthly starc+ bands does increase the probability of a lower weekly close in the next three-four weeks. Some of the stocks on the table are likely to be even higher later in the year after a normal correction occurs as their long-term patterns look strong.

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Chart Analysis: The weekly chart of the Spyder Trust (SPY) shows how rare it is for it to close above the starc+ band. For the coming week, the starc+ band is at $167.67.

• The upper trading channel, line a, is in the $170 area.
• The weekly NYSE Advance/Decline made further new highs last week and continues to act strong as it is well above its rising WMA.
• The A/D line staged a major upside breakout in July 2012 as it moved through resistance at line c.
• Then in January, the trading range was resolved (point 1), which was bullish.
• The weekly McClellan oscillator shows a pattern of higher lows and is still well below overbought levels.
• As I tweeted over the weekend, the weekly and daily OBV on SPY (not shown) also confirmed the price action.
• There is minor support now in the $164.70-$165.50 area and then at $162.30-$162.80.

Boston Scientific Corporation (BSX) is a $12.29 billion manufacturer of medical appliances and equipment. BSX had a low of $4.79 in July 2012 and is up 90% from the lows.

• The weekly chart shows that a bottom formation going back to late 2010 was completed just two weeks ago as it surged through the resistance at line d.

• The monthly R1 pivot resistance is at $10.31 with the upside targets from the trading range at $11.25 (point 2).
• The relative performance moved above its WMA in late 2012 and then completed its bottom in January.
• The RS line has major resistance at line f.
• The weekly on-balance volume (OBV) closed above its WMA in early January.
• The major resistance for the OBV at line g was overcome in early April
• There is first resistance at $8.45, which was last week's close and then major in the $7.65-$8 area.

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Northrop Grumman Corp. (NOC) was a stock recommended in early December but several weeks later it dropped below the prior two month lows and hit my stop.

• In the middle of April, NOC overcame major resistance, line a, at $71.30.
• This completed the trading range with upside targets in the $82-$84 area, which have already been met.
• NOC closed last Friday well above both the monthly and weekly starc+ band.
• The uptrend in the relative performance, line b, was broken as the stop was hit.
• The downtrend in the RS line, line c, was broken in late April, and it is now rising very sharply.
• The weekly OBV broke through its resistance, line d, in December and held above its WMA even while the stock was dropping.
• The OBV started to move sharply higher in March and is now acting very strong as volume was very heavy last Friday.
• There is initial support in the $73.50-$74.40 area.

Microsoft Corp. (MSFT) has had an incredible run from the December lows at $26.26 and then gapped above its downtrend, line f, in late April.

• The 2012 highs at $32.95, line e, were overcome three weeks ago.
• In 2007, MSFT made its all-time high of $37.50.
• The relative performance broke its uptrend line g, last summer indicating it was underperforming the S&P 500.
• This changed the week ending April 20 when the downtrend in the RS line (line h) was broken as MSFT closed at $29.76.
• The OBV moved through its resistance in early March, line I, and now looks very strong as it rising sharply.
• There is first support at the 2012 highs and then at $30.65 to $31.70

What it Means: Boston Scientific Corporation (BSX) is the one stock of the three that I will be watching carefully on a correction because of its long-term base formation. Typically, when you get this level of overbought readings, a multiple week correction is likely.

I had the right idea on Northrop Grumman Corp. (NOC) but just got in too early and was stopped out. Then I missed the opportunity to get back in.

I made some nice profits in Microsoft Corp. (MSFT) in 2012 but weakness in the tech sector early in the year kept me on the sidelines.

How to Profit: No new recommendations for now but keep an eye on my Twitter feed as there are several stocks that look interesting despite the overextended status of the averages.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks finished the week with nice gains, as even though the market was lower most of Friday, once again late buying pushed the major averages back into positive territory.

For the week, the ranges in some of the other world markets, like gold, were much more dramatic. The yellow metal was hit hard Friday, as expected.

Stocks spent most of the week responding to earnings reports, as there was little in the way of economic data. The new highs in the major averages were confirmed by the market internals, and the number of stocks on the NYSE making new highs surged to over 500, which was above the January high.

The financial networks almost appear to be showing reruns; many fundamentalists either argue for much higher prices or that the market is ready to fall off the cliff.

Traders continue to act skeptical without being too bearish, as the market has been finishing days higher despite early declines. Once we get the first strong down day, their attitudes are likely to change significantly.

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There was some data on margin debt last week that I found surprising. As of the end of March, investors had $379.5 billion in margin debt, which was just below the prior record of $381.4 billion set in July 2007. But is this something investors should be concerned with?

Twenty or 30 years ago, I think there was a closer correlation with speculative excess than there is now. For many, the interest rate on margin debt is lower for consumer loans, and the margin debt is also tax deductible. This can help to explain the 28% increase in margin levels over the past year.

As was evidenced by the plunge in gold prices, many traders were forced to sell their gold positions to meet margin calls, pushing prices even lower. So as you can see, it can accentuate a severe market decline. In my opinion, it is not a reason to sell, but is just another sign of the increasingly positive attitude toward the stock market.

Much of the focus for the week was on Japan and the continued weakness in the yen. The country's monetary policy is having a very positive impact on its exporters. Meanwhile, the US dollar has been gaining strength against many currencies. This has added additional pressure on the precious metals.

Some analysts are still taking the view that the move in Japan's Nikkei-225 and the yen is almost over. But a longer historical view might convince them otherwise.

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The monthly chart of the Nikkei-225 and USD/JPY only goes back to 1992, and does not show the Nikkei's high of 38,952 in December 1989. The downtrend from just the 1995 and 2007 highs is still above the market in the 16,000 area. It also does not reflect that USD/JPY made a high soon after the stock market peaked, at 160, nor that it traded at 303 in 1975.

The downtrend of the USD/JPY is now above 108, but a move this year to 125 would not surprise me at all. This makes the recent action look less impressive, though the length of the decline in these markets increases the odds that a major bottom is being formed.

I would expect to see a decent pullback in these markets in the coming months, which should present a much better buying opportunity than chasing prices at current levels. Prices right now are too far above meaningful support.

Many of the overseas markets are also acting well. The German Dax made another new high last week, and several of the other country ETFs also broke out to the upside. A new recommendation was made in the iShares MSCI Mexico Investable (EWW), and the holdings in Singapore and Indonesia have done quite well.

In contrast to last week, there are quite a few important economic reports due out this week. They start Monday with retail sales and business inventories. Last week's same-store sales data suggests April may be better than March's disappointing results, as lower gas prices have helped.

On Tuesday, we get import and export prices, followed on Wednesday by the Producer Price Index, industrial production, and the Housing Market Index.

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Industrial production in the US was stronger than expected last month. The chart actually shows steady improvement over the past three months. Globally, it is a mixed bag; while UK numbers were better than expected, those from Mexico were much weaker.

In addition to the jobless claims, on Thursday we also get the Consumer Price Index, housing starts, and the Philadelphia Fed Survey. Finally, on Friday we have the mid-month reading on consumer sentiment from the University of Michigan and the Conference Board's Leading Indicators.

What to Watch
The rotation into technology has been a big plus for the market. You are starting to see money moving out of the more defensive sectors. This is consistent with the improved outlook for the economy, and will be a positive factor as the year progresses.

The ability of the S&P 500 to reverse to the upside in April after briefly violating the widely watched 1,540 level has hopefully taught many that any one price level is not that important unless there are other signs of weakness.

Everyone now appears to be watching the 1,595 to 1,600 level, and then the 1,570 to 1,580 area. A break of this lower level would be negative if accompanied by confirmation from the other technical studies.

Bullish sentiment of individual investors jumped sharply last week, according to AAII, as 40.7% are now bullish, up from 30.9% last week. The bearish percentage has now declined to 27.4%.

Financial newsletter writers have also become more bullish now, at 52.1%, which is up from 44.3% two weeks ago. These numbers could reach more extreme levels in a few more weeks.

The daily chart of the NYSE Composite, below, shows the recent breakout above the resistance at 9,265 (line a). This now becomes the first good support. This also now corresponds to the rising 20-day EMA and the daily Starc- band. Thre is more important support in the 9,000 area (line b).

The daily Starc+ band was tested last Wednesday, with the upper band now at 9,545. It is still over 300 points below the May 2008 high of 9,724. This also corresponds to the upper boundary of the trading channel on the weekly chart (not shown).

The daily NYSE Advance/Decline made another new high last week and is still well above its strongly rising WMA. In early 2013, the WMA was rising at a similar angle. There is support at the April highs and then at the uptrend (line c).

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S&P 500
The daily chart of the Spyder Trust (SPY) made a high last week of $163.70, which is not far below the quarterly R2 resistance at $164.58. This week, the Starc+ band is at $165.50.

The daily on-balance volume (OBV) broke out above resistance (line e) in the latter part of April and continues to act strong, as its WMA is in a clear uptrend. The weekly OBV (not shown) made another new high last week, and is confirming the price action.

The daily S&P 500 A/D line signaled the most recent rally phase by moving through its resistance. It made another new high last week. A break of its WMA and support (line g) would be the first sign of a more meaningful correction.

There is support now in the $159.80 area, with additional support at $156.20 and the uptrend (line b).

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Dow Industrials
The SPDR Diamond Trust (DIA) made another new high last week, as the Dow Industrials crested the 15,000 level. DIA reached a high of $151.37, with the Starc+ band at $152.60. The recent trading range still has measured upside targets in the $153 to $154 area.

The daily Dow Industrials A/D line (not shown) again made new highs last week, while the relative performance has dropped back below its WMA and is now testing its uptrend (line c). The RS line broke its downtrend (line b) in February.

The weekly OBV made new highs last week after staging an impressive break through its resistance (line d) at the start of March. Initial support now sits in the $148.20 to $149.60 area.

Nasdaq-100
The impressive recent action in the PowerShares QQQ Trust (QQQ) even shows up on the weekly chart, as it already quite close to the weekly Starc+ band at $73.80.

The move above the September high makes the $70.58 area (line d) a first key support level. The 20-week EMA is now at $68.60, with the weekly support (line e) at $68.

The relative performance broke its downtrend (line f) in the middle of March, and now appears to have completed its bottom, as it has moved well above its WMA. The weekly OBV has moved out of its tight range, but is still well below the September highs.

The weekly Starc+ band is at $72.55, with the monthly at $75.80. The breakout completed a trading range about ten points wide, so this gives upside targets in the $80 to $81 area.

NEXT: Small Caps, Best Sectors, Commodities and Tom's Outlook

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The Spyder Trust (SPY), as well as the Dow Industrials, broke their five-day winning streak on Thursday and the futures are a bit lower early Friday. No real US economic data today for the market to react to but Asian markets were strong on the back of the higher dollar and weaker yen.

A further correction in the stock market is possible at any time but it would take a weekly close below the prior week's lows to signal a more significant market turn. However, there is one market that has rebounded sharply over the past few weeks, tempting some to buy. A look at the technical studies suggests that it is ready for another wave of selling.

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Chart Analysis: The weekly chart of the Spyder Gold Trust (GLD) shows that a LCD sell signal was triggered the week ending October 12, 2012, when it closed at $170.06.

• The uptrend in the weekly OBV, line b, was broken in December as the volume spiked.
• As the selling picked up in April, Fibonacci support as it hit a low of $130.50.
• The major 50% support from the 2008 lows is at $126.
• GLD has rebounded over the past three weeks to fill the gap as it hit a high of $143.43.
• There is much stronger resistance now in the $148-$150 area.
• The OBV rallied back to its declining WMA (see arrow) in early February and shows a clear pattern of lower lows.
• The on-balance volume (OBV) has major resistance at its WMA and the downtrend, line a.

The daily chart more clearly shows the recent rebound and the sideways pattern that has formed over the past 11 days. Gold futures are lower in early trading so this range will likely be broken today.

• It is a negative sign that prices have just been testing the flattening 20-day EMA but have not been able to decisively close below it.
• The daily chart shows that there is another gap in the $148.85 (line d) to the $150.65 area.
• The daily downtrend, line c, is now in the $154 area.
• The daily OBV has just rallied back to its long-term downtrend, line e, which is also negative and consistent with a failing rally.
• The OBV has failed to make it back to the former support, now resistance at line f.
• There is minor support now in the $139 area, which is likely to be broken today.

In last month's article, The Most Oversold Gold Miners, I took a look at the oversold status of gold mining stocks as several had closed below their starc- band. The technical outlook then suggested that while some analysts were turning bullish, oversold rallies were expected to fail.

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Many have rallied 20% from the lows, and the weekly chart of the Market Vectors Gold Miners ETF (GDX) shows that it has just been moving sideways for the past four weeks.

• Everyone who bought since early 2010 was holding a losing position after the support at $38.80 (line a) was broken in February.
• GDX has not yet filled its gap from April.
• A drop back below the daily support at $28 will reaffirm the downtrend.
• The monthly pivot is now at $31.84 and the failure of GDX to move above it on the recent rally is a sign of weakness.

The chart of the Market Vectors Junior Gold Miners ETF (GDXJ) looks even weaker as it has formed a clear pattern of lower lows, line d.

• GDXJ is already close to its recent lows at $11.28 and the daily OBV (not shown) has been back below its WMA since early May.
• The monthly pivot is at $13.61 with stronger resistance now in the $15.50-$16 area.
• The long-term downtrend is in the $17.80 area.

What it Means: Gold and the gold miners were weak enough before the US dollar started to gain strength. It will take much more time from a technical perspective before a sustainable bottom can be formed in gold or the miners. Typically, gold does form a seasonal low in late July.

How to Profit: No new recommendation

Portfolio Correction: Yesterday's portfolio page did not reflect that our long position in Murphy Oil Corp. (MUR) was stopped out at $59.19.

I will be out next week and the next Charts in Play column will be released on May 20.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.