We are ending the first quarter of 2011 focusing on some key levels for the major equity averages. The Dow Transportation Average and Russell 2000 traded above their February highs on Wednesday. The Dow Transports traded as high as 5307.37 but did not close above its February 17th closing high at 5298.10. Such would have been the first step towards a Dow Theory Buy Signal. The Russell 2000 ended Wednesday 0.3% above its February high. The Dow Industrial Average is below its February high at 12,391.29 by just 0.3%.
Tracking Dow Theory - The Dow Transports need to close above its February 17th closing high at 5298.10. If that happens and is followed by the Dow Industrial Average closing above its February 18th closing high at 12,391.25, we will have a Dow Theory Buy Signal. The other major averages that remain below their February highs are; S&P 500 by 1.2%, NASDAQ by 2.2%, NASDAQ 100 by 2.8% and the SOX by 6.9%.
The Trading Range Scenario – The Dow Industrial Average remains in a trading range between its March 16th low at 11,555.48 and its February 18th high at 12,391.29. Strength can stretch to this week’s risky level at 12,488, which would still be a high below 12,600. Given a weekly close below the five-week modified moving average at 12,038 the weekly chart profile shifts to negative, which would target my annual risky level at 11,491. New monthly and quarterly levels will be available Friday.
Stocks Remain Overvalued Fundamentally – We are operating under a ValuEngine Valuation Watch with more than 60% of all stocks overvalued. At Wednesday’s close 61.7% of all stocks were overvalued. In addition all 16 sectors are overvalued with 10 by double-digit percentages. A ValuEngine Valuation Warning occurs when more than 65% of all stocks are overvalued. This last occurred at the mid-February highs.
More bad news on the housing market - The Mortgage Bankers Association reported that mortgage applications for both refinancings and home purchases fell 7.5% in the week ended March 25th. A major factor is the increasing mortgage rates as the 30-Year fixed rate mortgage rose to 4.92 percent last week from 4.80 percent the prior week.
10-Year Note – (3.448) The 200-week simple moving average is 3.554 with the 50-day simple moving average at 3.465, and the March 16th low yield at 3.139. Weekly and annual value levels are 3.641 and 3.791.
Comex Gold – ($1422.1) The 50-day simple moving average is $1389.2 with the March 24th all time high at $1448.6. Daily, semiannual and weekly risky levels are $1432.1, $1452.6 and $1469.8.
Nymex Crude Oil – ($104.30) The daily chart shows a potential double-top just shy of my semiannual risky level at $107.14. My annual pivots are $101.92 and $99.91. My weekly pivot is $105.31. Today’s risky level is $107.54. A close below $99.91 signals a double-top for crude oil.
The Euro – (1.4121) The weekly chart shows the euro overbought versus the dollar with the 200-week simple moving average as support at 1.3967. My weekly pivot is 1.4119 with the November 4th high as resistance at 1.4281.
Daily Dow: (12,351) My annual value level lags at 11,491 with the February 18th closing high at 12,391.25 and daily and weekly risky levels at 12,522 and 12,488. Given a Dow Theory Buy Signal and a new high for the laggard SOX, the upside is to my annual risky level at 13,890. Without a Dow Theory Buy and given a weekly close below 11,491 the downside is to semiannual value levels at 10,959 and 9,449.
Key Levels for the Other Major Equity Averages
- The S&P 500 (1328.3) The 50-day simple moving average is 1307.33 with daily and weekly risky levels at 1342.9 and 1353.7. The S&P 500 needs to close Thursday above 1327.2 to achieve a positive March. The February high is 1,344.07.
- The NASDAQ (2777) The 50-day simple moving average is 2743 with daily and weekly risky levels at 2822 and 2830. The NASDAQ needs to close Thursday above 2782 to achieve a positive March. The February high is 2840.51.
- The NASDAQ 100 (NDX) (2337) The 50-day simple moving average is 2318 with daily and weekly risky levels at 2384 and 2389. The NDX needs to close Thursday above 2351 to achieve a positive March. The February high is 2403.52.
- Dow Transports (5277) Set a new YTD high at 5307.37 on Wednesday. My annual pivot is 5179 with weekly and daily risky levels at 5295 and 5340, and the February 17th closing high at 5298.10.
- The Russell 2000 (840.37) Set a new YTD high at 840.76 on Wednesday. My annual value level is 784.16 with daily and weekly risky levels at 851.09 and 857.75.
- The Philadelphia Semiconductor Index (SOX) (441.38) I show no nearby value levels with the 50-day simple moving average at 445.50, and daily and weekly risky levels at 449.88 and 459.29. The SOX needs to close Thursday above 458.62 to achieve a positive March.
That’s today’s Four in Four. Have a great day.
Chief Market Strategist
Chief Market Strategist
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As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. I have daily, weekly, monthly, and quarterly newsletters available that track a variety of equity and other data parameters as well as my most up-to-date analysis of world markets. My newest products include a weekly ETF newsletter as well as the ValuTrader Model Portfolio newsletter. You can go to http://www.valuengine.com/nl/mainnl to review sample issues and find out more about my research.
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