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Don't Ignore Risk to 200-Day Moving Averages

Stocks in this article: AA STZ BBBY FDO JBHT AEO DKS FL PETM TECD VRA WFM AAPL GOOG AMZN

NEW YORK ( TheStreet) -- The Dow Industrial Average, S&P 500 and NASDAQ powered to new all time or multi-year highs this week, while the Dow Transportation Average and Russell 2000 did not. All five of the major equity averages began 2013 above their 200-day simple moving averages (SMA) and have stayed above.

This morning I looked back to the beginning of the new millennium and observed that each of the major equity average crossed their 200-day SMAs at least once in every year. Traders and investors must consider this risk as the markets outrun these averages as mojo on weekly charts trump overvalued valuations.

The 200-day SMAs are 13,441 Dow Industrials, 1445.6 S&P 500, 3069 DASDAQ, 5382 Dow Transports and 850.28 Russell 2000.


My measure of momentum is the 12x3x3 weekly slow stochastic, and these readings continue to be extremely overbought at 96.24 Dow Industrials, 94.56 S&P 500, 89.38 NASDAQ, 88.77 Dow Transports and 89.43 Russell 2000. Remember that readings above 80.00 are overbought on a scale of 00.00 t0 100.00.

At ww.ValuEngine.com, we show that 61.1% of all stocks are overvalued with 15 of 16 sectors overvalued; ten by double-digit percentages.


My proprietary analytics still show that the major equity averages straddle semiannual value levels, pivots and risky levels. My semiannual value level is 14,323 on Dow Industrials with semiannual pivots at 1566.9 on the S&P 500 and 5955 Dow Transports, and my semiannual risky level at 965.51 Russell 2000.

My suggested investment strategy remains the same. Investors should have at least 50% cash on the sidelines, particularly if you doubled your money over the past four years. Continue to avoid the construction and transportation sectors as a "source of funds." In the construction sector we show that 51.9% of all stocks are rated sell or strong sell. In the transportation sector we show that 78.5% of all stocks are rated sell or strong sell.

On Monday, I wrote Sequestration Could Ding Q1 Earnings and kicked off earnings season profiling the following stocks:

Alcoa ($8.32 vs. $8.24 on April 8) beat EPS estimates by a penny, earning 11 cents a share, but the hold-rated stock could not gain any upside traction.

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