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Inflating Market Bubble Not Quite Ready to Pop

Stocks in this article: .INX DJT .DJI .IXIC ^RUT

NEW YORK (TheStreet) -- The major equity averages began 2014 with three down days, followed by a strong rebound on Tuesday. This resiliency simply means that the market's inflating bubbles are just not ready to pop. This is not surprising, as pivots from my proprietary analytics have kept volatility trendless.

The S&P 500 ended 2013 at 1848.36, up 29.6% for the year. It set a new all-time intraday high at 1849.44 on the last day of the year. The warning is that the S&P began 2014 below my monthly pivot at 1847. Given this dynamic, the market needs a positive reaction to Friday's employment data for December. A weekly close above 1847 would mean another round of new highs -- if we do not see them Wednesday or Thursday first.

The Dow Transportation Average has been a market stabilizer by staying between its longer-term pivots despite a negative divergence on its daily chart. Transports have stayed above their semiannual pivot at 7245 after slipping below their second semiannual pivot at 7376 and their monthly pivot at 7327. Transports ended 2013 at 7400.57, up 39.4% -- the best performer among the five major averages. The transportation average set its all-time intraday high at 7410.25 on the last day of the year.

The daily chart for the transportation average shows a declining 12x3x3 daily slow stochastic reading. But the transports average stayed above its 21-day simple moving average at 7243.41 on Monday and Tuesday. A close below the 21-day SMA would be a short-term negative, putting the focus on the 50-day SMA at 7175.12. A close below the 50-day SMA would indicate risk to the 200-day SMA, rising at 6580. Transports have been above the 50-day SMA since Oct. 10, 2013, and above their 200-day SMA since Dec. 10, 2012.

Courtesy of MetaStock / XENITH

The Dow Industrial Average, Nasdaq and Russell 2000 have not yet tested value levels or risky levels yet this year, as choppy trading continues.

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