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Dow, S&P, Nasdaq Poised To Recapture March/April Highs

NEW YORK ( TheStreet) -- A week ago I wrote, Warning Flags Fly, But Stock Top Unconfirmed. Given this assessment I was not surprised by this week's rebound. In other words, if a top cannot be confirmed, perhaps we have not seen the top yet.

Last week the Dow industrial average declined 317 points closing the week at 14,548 with the Nasdaq down 89 points to 3206. The prior week's closes were 14,865 on the Dow and 3295 Nasdaq. If the markets do not recover all of last week's declines warning flags still fly.

Here are three reasons why stocks rebounded this week:

U.S. Treasury 30-Year bond yield fell to 2.821% on Tuesday, which made stocks less overvalued or more undervalued. With 58.2% of all stocks overvalued there is room to recapture the March/April highs.

Comex Gold appears likely to end the week back above its 200-week simple moving average at $1437.9 indicating that the April 16 low at $1321.5 is a tradable bottom.

Nymex Crude Oil may have traded below its 200-week SMA at $87.58 but did not close below that key level last week. Oil stayed above $87.58 this week helping stocks rebound.

When you can't confirm a stock market top it leaves open the possibility that the March/April highs can be tested again as April ends and May begins. Even so, let me remind readers that warning flags remain.

Dow Transports and Russell 2000 were the leaders to new all time highs in mid-March. Today, the 12x3x3 weekly slow stochastic reading for transports declined to 78.14 from 82.66 last week alleviating the overbought condition. Similarly the 12x3x3 weekly slow stochastic reading for the Russell 2000 fell to 77.10 from 80.88 last week. These declining readings below 80.00 are warning flags. Weekly closes below five-week modified moving averages at 6067 transports and 929.56 Russell 2000 confirm market tops.

Fundamentally the transportation sector remains rated "avoid-source of funds" as 77.8% of all stocks in this sector are rated sell or strong sell.

Dow Industrials, S&P 500 and Nasdaq remain overbought on their weekly charts, so a market top cannot yet be confirmed. The 12x3x3 weekly slow stochastic readings have declined, but remain overbought; 90.77 from 93.20 Dow industrials, 87.98 from 89.70 S&P 500 and 83.10 from 84.39 Nasdaq. The five-week MMAs are 14,491 industrials, 1556.9 S&P 500 and 3234 Nasdaq.
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