The Bull is Back – Weekly Technical Outlook
This has to be the most cooperative bull market of all time. Fiscal crisis in Europe, solved. Continuation of Quantitative Easing by the Fed, done, not just for now but forever. In this type of market, bad news is good news and good news is great news. Recipe for a long-term top? Based on what?, is my question.
After over a month of consolidation around 1400, benign jobs data propelled the index through 1412 to the 1430 level. Another four days of consolidation and more quantitative easing and the index settles north of 1450 at 1459. This is perhaps the quickest 60 point up move the market has witnessed since the wicked volatility during the financial crisis.
So what are investors to do? For now, sit tight and let the market take you out of your long-term positions. This week, a critical level on the downside will be 1450. The reason for this being is that 1450.50 was Thursday’s close and Friday’s low was 1449.50. In my opinion, the fact that the index could only dip one point below Thursday’s close, indicates there is more pain to be inflicted on the bears. Of course there is not any easily identifiable support under that level, but with the bloodied bears competing with the underinvested money managers, the index and its components may be stacked with bids on any pullbacks.
I do not want to go out on a limb here, but I think Apple (NASDAQ:AAPL) is going to 7000, I mean 700. The deployment of iPhone 5 did not disappoint and pre-sales are through the roof. With Apple still changing hands at a modest price/earnings ratio (16.25), one should not count on the price going down until the earnings do, and that does not appear to be happening anytime soon. It is hard to imagine what Apple would do if they increased their skimpy dividend or announced a stock split.
From a technical perspective, the only resistance is the all time of high of 696.98 and the psychological 700 level. For investors looking to sell Apple on weakness (if it ever has any), a break below Thursday’s low (674.77) would be a cause for concern.
Similar to the index, Exxon-Mobil (NYSE:XOM) had its consolidation phases and then explosions to multi-year highs. However, in Exxon-Mobil’s case large institutional sellers were the culprits at 88 and 90. Now with those sellers out of the way, Exxon-Mobil may easily gravitate to its all time high of 96.12. If Chevron Corporation can blow away all time highs on a daily basis, what is preventing Exxon-Mobil from doing the same? For those investors protecting long-term gains, 90 will be an important support level on any pullbacks.
PC’s are a dying breed, and International Business Machines (NYSE:IBM) anticipated this years ago as they moved their focus into information technology. Now they are reaping the benefits. IBM is in the midst of a major run from its 181.85 low in July. It has put in place a string of eight consecutive higher lows and higher closes. Most likely that string will be broken this week, so investors should focus on the highest low (206.05) as a possible exit point on a pullback. For those trying to pick a top, investors should expect resistance at the double top from May 1st (208.93) and May 3rd (208.93) ahead of the all time high of 210.69.
General Electric (NYSE:GE) moved through the 21 handle like a hot knife through butter, very unusual for this heavily traded issue. Perhaps its 3.08% dividend and chance of capital appreciation has caught investors attention. As discussed earlier, General Electric has not even recovered half of the losses incurred during the financial crisis. That level comes in at the 23.50 area and frankly there is very little resistance between Friday’s high (22.37) and that level. Of course, there will be some large institutional sellers at the half and whole numbers, but they may not pose much of a threat and we may see similar trading action as we saw in the 21 handle. For the time being, minor support can be found at Friday’s low (21.98) and major support is located at Wednesday’s low (21.66).
Risk-on was in full force Friday as traders dumped defensive issues such as AT&T (NYSE:T). Investors sold these stodgy issues and opted for the technology and oil sectors. Earlier in the week, AT&T just missed reaching its 52 week and multi-year high of 38.28, stalling at 38.21. From the opening bell on Friday, AT&T got clobbered, finally bottoming at 37.05 and rising slightly to close at 37.26. Now AT&T will be confronted once again with large sellers all the way up to 38.00 as investors attempt to wiggle out of their large positions. If AT&T penetrates Friday’s low, minor support can be found at 36.70 and major support at the cluster of lows around the 36.50 level.
In four of the last five trading sessions Chevron Corporation (NYSE:CVX) has made a new all time high and close. During this fabulous run, CVX has put in place seven consecutive higher lows. Since it is nearly impossible to determine where the top is, investors should pay attention to the triple bottom from Tuesday (114), Wednesday (114.03) and Thursday (114.12) to determine whether or not CVX is primed for a pullback.
Another defensive issue to get the axe on Friday was Johnson&Johnson (NYSE:JNJ). Although it did not incur the same beating as AT&T, JNJ fell nearly one point before rallying to close at 68.47. Expect large sellers to realign themselves between Friday’s high (69.91) and Thursday’s high (69.17) if JNJ attempts to rally. Traders trying to protect profits from JNJ’s run from 61.71 in early June should be cognizant of the triple bottom from Wednesday (68.03), Thursday (68) and Friday (68.08) lows. Below that level no major support can found until the September 4th low of 66.97.
A recipient of money taken out of defensive stocks was Wells Fargo (NYSE:WFC). After Goldman Sachs (NYSE:GS) removed WFC from its conviction buy list earlier in the week (oops!!), and disappointing news on net interest margins, WFC flirted with the major support at 34. But then in the blink of an eye, WFC exploded through its former 52 week high, and sprinted through the remainder of the 35 handle and half of the 36 handle. WFC has now entered the vacuum area it crashed down through during the financial crisis. The top of that level was 38.78 and stands as major resistance for this issue. Expect larger sellers at the half and whole numbers as funds attempt to capitalize on this unusual move in WFC. On the downside, minor support can be found at Friday’s low (35.56), but no major support until the triple bottom from Tuesday (34.10), Wednesday (34.21) and Thursday (34.14) lows.
Coca-Cola (NYSE:KO) is a newcomer to the Big 10. Although it is considered a defensive stock, it did not incur the same wrath as other issues in the sectors did on Friday. The reason for this being is that KO has already declined significantly after rallying to 40.69 on the heels of its stock split. KO has formed a double top from the Thursday (38.49) and Friday (38.55) highs. This area will serve as major resistance if KO attempts to reach the 39 handle once again and make an attempt at a new multi-year high. On the downside, minor support can be found at Friday’s low (38.01) and major support at the cluster of lows around 37.60 from earlier in the week.
In closing, the index’s impressive rally this week cannot be overlooked. Despite market pundits claiming to be long the market, many are underinvested. On the flip side, market technicians stating year-end targets have been met, will only revise them higher if the market does indeed continue to rally. In my opinion, there is very little resistance from Friday’s high (1468) up to the 1500 level. As long as the index maintains 1450 on a closing basis, that 1500 level may not be too far out on the horizon.
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