Photo by Spencer Platt
The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite set all-time intraday highs on February 6. On Friday, the strength reversed somewhat as the spreading coronavirus hit the stock market once again. Now there is fear that the disease will cause a global economic slowdown.
Here’s Last Week’s Scorecard
Scorecard For The Major Equity Averages
Global Market Consultants
The Dow Jones Industrial Average ended last week at 29,102 after setting its all-time intraday high of 29,408.05 on February 6. The weekly chart shifted back to being positive but overbought versus neutral a week ago. The Dow ended the week above its five-week modified moving average at 28,639. Its 12x3x3 weekly slow stochastic reading declined to 81.41 last week, down from 86.78 on January 31. This reading will likely fall below the overbought threshold of 80.00 this week. My quarterly value level is 27,432 with weekly, annual, monthly and semiannual risky levels at 29,500, 29,964, 30,059 and 30,361, respectively.
The S&P 500 ended last week at 3,327.7 after setting its all-time intraday high of 3,347.96 on February 6. The weekly chart shifted back to being positive but overbought versus neutral a week ago. The S&P ended the week above its five-week modified moving average at 3,249.1. Its 12x3x3 weekly slow stochastic reading declined to 86.16 last week, down from 90.04 on January 31. It’s no longer in an “inflating parabolic bubble” formation. My quarterly value level is 3,103.0 with a semiannual pivot at 3,304.4 and weekly, monthly and annual risky levels at 3,379.5, 3,400.3 and 3,466.5, respectively.
The Nasdaq Composite ended last week at 9,520.51 after setting its all-time intraday high of 9,575.66 on February 6. The weekly chart remains positive but overbought. The Nasdaq ended the week above its five-week modified moving average at 9,138.14. It’s 12x3x3 weekly slow stochastic reading declined to 89.49 last week, down from 92.05 on January 31. It’s no longer in an inflating parabolic bubble formation. My quarterly value level is 8,860 with semiannual, annual and monthly pivots at 9,074, 9,352 and 9,519, respectively. This week’s risky level is 9,716.
The Dow Jones Transportation Average ended last week at 10,875. The weekly chart remains negative. Transports is below its five-week modified moving average at 10,877. It’s 12x3x3 weekly slow stochastic reading declined to 59.72 last week, down from 68.94 on Jan. 31. This shows risk to its 200-week simple moving average or “reversion to the mean” at 9,814. My quarterly value level is 10,349 with weekly, monthly, semiannual and annual risky levels at 11,078, 11,383, 12,155 and 12,755, respectively. Transports is 6.6% below its all-time intraday high of 11,623.58 set back on Sep. 14, 2018.
The Russell 2000 ended last week at 1,656.77 with a neutral weekly chart. The small-cap index ended the week just above its five-week modified moving average at 1,647.06. It’s 12x3x3 weekly slow stochastic reading declined to 67.03 last week, down from 76.93 on January 31. This shows risk to its 200-week simple moving average or reversion to the mean at 1,467.51. This index is back above its quarterly pivot at 1,616.55. Its weekly, monthly, semiannual and annual risky levels are 1,684.01, 1,699,61, 1,831.90 and 1,910.58, respectively. The Russell 2000 is 4.9% below its all-time intraday high of 1,742.09 set back on August. 31, 2018.
How to use my value levels and risky levels:
The closes on December 31, 2019 were inputs to my proprietary analytics. Quarterly, semiannual and annual levels remain on the charts. Each uses the last nine closes in these time horizons.
Monthly levels for February were established based upon the January 31 closes.
New weekly levels are calculated after the end of each week.
New quarterly levels occur at the end of each quarter. Semiannual levels are updated at mid-year. Annual levels are in play all year long.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in.
To capture share price volatility investors should buy on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before its time horizon expires.
How to use 12x3x3 Weekly Slow Stochastic Readings:
My choice of using 12x3x3 weekly slow stochastic readings was based upon back-testing many methods of reading share-price momentum with the objective of finding the combination that resulted in the fewest false signals. I did this following the stock market crash of 1987, so I have been happy with the results for more than 30 years.
The stochastic reading covers the last 12 weeks of highs, lows and closes for the stock. There is a raw calculation of the differences between the highest high and lowest low versus the closes. These levels are modified to a fast reading and a slow reading and I found that the slow reading worked the best.
The stochastic reading scales between 00.00 and 100.00 with readings above 80.00 considered overbought and readings below 20.00 considered oversold.
A reading above 90.00 is considered an “inflating parabolic bubble” formation that is typically followed by a decline of 10% to 20% over the next three to five months.
A reading below 10.00 is considered as being “too cheap to ignore” which typically is followed by gains of 10% to 20% over the next three to five months.
Want to learn how to integrate trading levels into your everyday trading strategy? Check out my new publication, 2-Second Trader.