Market

Should We Sell In May And Go Away?

The Dow Jones Transportation Average (.DJT) traded to an all-time intraday high of 15,175.18 on Friday, above its monthly risky level at 15,152. Transports closed last week at 15,133.43, up 21% year-to date. The warning here is that this average is extremely overbought.

The Dow Jones Industrial Average (.DJI) and S&P 500 (.SPX) are above their annual pivots at 33,425 and 3,932, respectively. These levels are now considered value levels. Both are extremely overbought.

One upside target still not tested is the monthly risky level at 14,076 on the Nasdaq Composite (.IXIC). The index traded as high as 14,062.49 on Friday, April 16.

The Russell 2000 Index (.RUT) traded as high as 2,360.17 on March 15. The April high is 2,280.83 set on April 5, versus the monthly risky level at 2,324. This is a warning that the overall stock market could be in a topping out scenario. Its 12-week slow stochastic reading is declining.

The Positives and Negatives

The Federal Reserve balance sheet should continue to expand, which is a positive. On April 12 it totaled $7.793 trillion. This is up from $3.760 trillion in August 2019.

The next Federal Reserve meeting is this week and Fed Chief Jerome Powell will unlikely to discuss when the purchase of U.S. Treasurys and mortgage-backed securities will be tapered. The federal funds rate will likely stay at its all-time low through 2022. I will be concerned if the FOMC ignores the recent rise in the Consumer Price Index. The Fed tends to follow the personal consumption expenditures deflator.

This week about a third of the stocks in the S&P 500 will be reporting earnings. Good news appears to be priced-in. The market will also have eyes and ears on White House plans for spending and taxes.

Key earnings reports come from Apple
AAPL
, Alphabet, Amazon
AMZN
, Facebook and Microsoft
MSFT
.

The reading on first-quarter GDP could also be a market-mover. The key to further upside for stocks is a breakout above 14,076 on the Nasdaq and 15,152 on Dow Transports. This will be key to the “Sell in May and Go Away” scenario.

The weekly chart for the Dow Jones Industrial Average (34,043) is positive but extremely overbought. It is well above its five-week modified moving average at 33,064. Its 12x3x3 weekly slow stochastic reading is 94.80, well above the overbought reading of 80.00, on a scale of 00.00 to 100.00. This puts the Dow in an inflating parabolic bubble. Its quarterly value level is 30.546 with semiannual and annual pivots at 32,644 and 33,425.

The weekly chart for the S&P 500 (4,180.38) is positive but extremely overbought. It is well above its five-week modified moving average at 4,035.66. Its 12x3x3 weekly slow stochastic reading is 94.93, well above the overbought reading of 80.00. This puts the S&P in an inflating parabolic bubble. Its annual, quarterly and semiannual pivots are 3,932, 3,809 and 3,785, respectively.

The weekly chart for the Nasdaq Composite (14,016.81) is positive. It is well above its five-week modified moving average at 13,633.69. Its 12x3x3 weekly slow stochastic reading is rising at 72.37. Its quarterly, semiannual and annual value levels are 13,001, 12.395 and 12,000. Its monthly risky level at 14,076 was almost tested last week on Thursday.

The weekly chart for the Dow Jones Transportation Average (15,133.43) is positive but extremely overbought. It is well above its five-week modified moving average at 14,438.97. Its 12x3x3 weekly slow stochastic reading is 96.25, well above the overbought reading of 80.00. The reading above 90.00 puts Transports in an inflating parabolic bubble. Its annual, quarterly and semiannual value levels are 14,425, 12,177 and 12,121, respectively. Its monthly risky level at 15,152 was tested at Friday’s high.

The weekly chart for the Russell 2000 Index (2,271.85) is neutral. It is above its five-week modified moving average at 2,242.24. Its 12x3x3 weekly slow stochastic reading is declining at 69.17. Its annual, semiannual and quarterly value levels are 2,120, 1,880 and 1,855, respectively. The monthly risky level is 2,323.67.

Here’s today’s scorecard:

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