I focus on what I consider the five most important averages or indices within the stock market.
The Dow Jones Industrial Average is above its 200-day simple moving average at 26,223.77 but is below its June 5 to June 10 “island reversal.” Its weekly chart is positive.
The S&P 500 is above its 200-day simple moving average at 3,033.07 as a golden cross is confirmed on July 10. It traded above its June 5 to June 10 island. Its weekly chart is positive but overbought.
The Nasdaq Composite is well above its 200-day simple moving average at 8,872.06 and is above a golden cross that formed back on June 2. Its weekly chart is positive but extremely overbought. Its 12x3x3 weekly slow stochastic reading is above 90.00 on a scale of 00.00 to 100.00, putting the index into an inflating parabolic bubble formation. The Nasdaq set its all-time intraday high of 10,824.78 on July 13 then closed below its semiannual pivot at 10,639, which is a sign of a top.
The Dow Jones Transportation Average moved back above its 200-day simple moving average at 9,655.34 on July 15. Its weekly chart is positive with the average just below its 200-week simple moving average at 9,926.38. Transports set its all-time intraday high of 11,623.58 on September 14, 2018.
The Russell 2000 is just above its 200-day simple moving average at 1,467.43. Its weekly chart is positive with the average just below its 200-week simple moving average at 1,487.28. The small-cap index set its all-time intraday high of 1,742.09 on August 31, 2018.
Given these dynamics I cannot be bullish or bearish on the stock market. The reversal of the Nasdaq establishes the high end of a trading range. Monthly or quarterly value levels set the low end of the trading ranges.
Fundamental reasons for concern:
- About 5.4 million Americans who lost their jobs during the Covid pandemic have also lost their health insurance.
- About 50% of Americans saw declining income during the Covid pandemic.
- New York City empty apartments are at record levels causing lower monthly rent.
- Nearly 50 million Americans have suffered job losses since the economic shutdown, which is about 31% of the workforce.
- Mortgage demand surges 33% as rates decline to 3%, a record low.
- As of mid-June, 4.6 million homeowners were in forbearance. This enables them to delay payments for at least three months.
- The Federal Reserve balance sheet remains a factor as it peaked on June 8.
The daily chart for the Nasdaq:
The daily chart covers the last 52 weeks with daily price bars. The blue line is the 50-day simple moving average and the green line is the 200-day simple moving average. The Nasdaq has been above a golden cross since June 2, 2020. This pattern led the index to its all-time intraday high of 10,824.78 set on July 13.
On February 25, the Nasdaq gapped below its 50-day simple moving average. Failure to hold its 200-day SMA on March 9 led to the March 23 low of 6,631.42. The V-shaped bottom from this low reached the 50-day and 200-day simple moving averages on April 14. The annual pivot at 9,352 was recaptured on May 20.
On July 13, the Nasdaq set its all-time intraday high at 10,824.79 but closed that day below its semiannual pivot at 10,639. The subsequent low was 10,182.46 set on July 14. The Nasdaq is well above its 50-day and 200-day SMAs at 9,776.35 and 8,872.01, respectively.
The weekly chart for the Nasdaq:
The weekly chart for the Nasdaq is positive but overbought with the index above its five-week modified moving average at 9,928.90. The Nasdaq has been above its 200-week simple moving average or the reversion to the mean at 7,331.70 since the week of March 27. The 12x3x3 weekly slow stochastic reading rose to 91.67 last week, moving above the 90.00 threshold putting the Nasdaq into an inflating parabolic bubble formation. This is a stock market warning.