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Handling a Whipsaw Stock Market

Stocks began 2014 with 86.4% of all stocks overvalued and with 61.2% overvalued by 20% or more. Today, 79.3% of all stocks are overvalued with 40.9% overvalued by 20% or more. All sixteen sectors remain overvalued with 15 overvalued by more than 11%, nine by more than 20% and two by more than 30%.

The major equity averages have mixed weekly chart profiles. Dow Industrials has a negative weekly chart with a close today below its five-week modified moving average at 16,090. The S&P 500 has a negative weekly chart with a close today below its five-week MMA at 1807.4. The Nasdaq will continue to have a positive but overbought weekly chart with a close today above its five-week MMA at 4107.

[Read: Super Bowl Savvy Savings]

Dow Transports shifts to a negative weekly chart with a close below its five-week MMA at 7280, otherwise it's neutral with its 12x3x3 weekly stochastics likely to fall below 80.00 this week or next. The weekly chart for the Russell 2000 is similar to the Transports with its five-week MMA at 1143.72.

To confirm cycle highs, we need to have all five of the major averages end the week below their five-week MMAs with their 12x3x3 weekly slow stochastics declining below 20.00 on a scale of 00.00 to 100.00. This is unlikely to occur for the Nasdaq and the Russell 2000 this week.

The Dow Industrial Average: (15,849) began the year at 16,577 just below its all-time intraday high at 16,588 set on Dec. 31. The Dow is the only one of the five major averages not to set a new high in January trading down to a low of 15,709 on Jan. 29. In its trip lower the Dow is below my semiannual pivot at 16,245 with annual value levels at 14,835 and 13,467 and quarterly and semiannual risky levels at 16,761 and 16,860.

The S&P 500: (1794.2) began the year at 1848.36 and eked out a new all-time intraday high at 1850.8 on Jan. 15. Failure to hold my monthly pivot at 1847.0 was a warning and the index fell to a January low at 1770.45 on Jan. 29. This low was above my semiannual value level at 1764.4 and Thursday's rally was a return to my semiannual pivot at 1797.3. Below these pivots are annual value levels at 1539.1 and 1442.1, and above is my quarterly risky level at 1896.0.

The Nasdaq: (4123) began the year at 4177 and set a new multiyear intraday high at 4246 on Jan. 22. The high was below my quarterly risky level at 4274. The January low was 4045 on Jan. 29 was above my semiannual value levels at 3930 and 3920. My annual value levels lag at 3471 and 2595.

The Dow Transportation: (7302) began the year at 7401 and set a new all-time intraday high at 7591 on Jan. 23. The January low was 7155 set on Jan.27 between may quarterly value level at 7086 and my semiannual pivot at 7245. The move back above 7245 is below my second semiannual pivot at 7376. My annual value levels lag at 6249 and 5935.

Russell 2000: (1139.36) began the year at 1163.64 and set a new all-time intraday high at 1182.04 on Jan. 22. Failure to hold my quarterly pivot at 1180.35 provided a warning. The January low was 1119.80 set on Jan. 29, which was below my semiannual pivots at 1130.79 and 1133.29. My annual value levels lag at 966.72 and 879.39.

At the time of publication the author held no positions in any of the stocks mentioned.

Follow @Suttmeier

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff

Richard Suttmeier is the chief market strategist at ValuEngine.com. He has been a professional in the U.S. Capital Markets since 1972, transferring his engineering skills to the trading and investment world.

Suttmeier has an engineering degree from Georgia Tech and a Master of Science degree from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. He became the first long bond trader for Bache in 1978, and formed the Government Bond Department at LF Rothschild in 1981, helping establish that firm as a primary dealer in 1986. This experience gives him the insights to be an expert on monetary policy, which he features in his newsletters, and market commentary.

Suttmeier's industry licenses include, Series 7 and Registered Principal (Series 24). He has been the Chief Market Strategist for ValuEngine.com since 2008 and often appears on financial TV.

Click here for details on Suttmeier's "Buy and Trade" investment strategy.

Richard Suttmeier can be reached at RSuttmeier@Gmail.com
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