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Difficulty Confirming Market Top

I was on Yahoo Finance Breakout on Thursday afternoon explaining the technical conditions that are necessary to confirm the May 20, May 22 highs for the five major equity averages; the Dow Industrial Average, the S&P 500, the Nasdaq, the Dow transportation average, and the Russell 2000. Here's the video: Friday's Close Will Determine if the Top Is in for Stocks: Suttmeier.

In my career I have always found it easier to call a market bottom than to call a market top. At a top it seems like momentum just won't stop as the bulls continue to buy weakness. At a bottom no one wants to buy, and that's when stocks are at their cheapest and the old-school dollar-cost averaging method is tossed out. Dollar-cost averaging is an important ingredient of my buy-and-trade strategy. The problem at a bottom is that investors neglected to book profits and raise cash at the prior top.

If the five major averages close unchanged from Thursday's strong closes the 12x3x3 weekly slow stochastic readings will be; 82.40 vs. 85.72 last week for the Dow Industrials, 80.38 vs. 83.76 last week for the S&P 500, 85.28 vs. 86.73 on the Nasdaq, 75.23 vs. 77.42 on Dow Transports, and 82.73 vs. 82.79 last week for the Russell 2000. All readings need to be declining below 80.00 to flag a momentum warning.

If all momentum readings were negative we would also need weekly closes below the five-week modified moving averages at 15,050 Dow Industrials, 1622.5 S&P 500, 3407 Nasdaq, 6296 Dow Transports, and 973.01 on the Russell 2000. These were tested during this week except on the Russell 2000.

When both the momentum condition and the moving average formations kick in the May 20/May 22 highs would be confirmed as cycle highs. I would give this another week to develop otherwise we will likely have new highs by the end of June. The bottom line is that the markets are poised for mid-year window dressing, or window undressing.

An important risk to consider longer term this year is the reversion to the mean which are the 200-day simple moving averages at 13,903 Dow Industrials, 1499.7 S&P 500, 3164 Nasdaq, 5636 Dow Transports and 887.36 Russell 2000. All major averages have crossed their 200-day SMA in every year of the new millennium except 2013 so far.
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