Dow Industrials, S&P 500 Set New Highs -- Here's How to Trade Them

The Dow Jones Industrial Average and S&P 500 are setting all-time highs, but that doesn't mean global stocks are in bull markets.
By Richard Suttmeier ,

Global stock markets are on the rise, led by all-time highs for the Dow Jones Industrial AverageI:DJI and the S&P 500 I:GSPC . The global investment theme seems to be to buy dollar-denominated assets in both "risk-on" and "risk-off" investment strategies.

Uncertainties surrounding Brexit have quieted for now, but the process by which the U.K. actually leaves the European Union has only just begun. There is a tangled web of assets and liabilities among the big banks in the U.S. and the banks in the U.K. and E.U. This will not show up in second-quarter earnings, though. 

Savers in countries where bond yields have gone negative are seeking dollar-denominated assets in both U.S. stocks and bonds. Buying brand-name stocks in the Dow Jones Industrial Average and the S&P 500 is in vogue. In particular demand are companies that pay a dividend higher than the yields available on U.S. Treasury securities.

Warning flags are still flying for "flight to safety" investments.

  • The yield on the U.S. Treasury 30-year bond plunged to an all-time low of 2.089% on July 11, below my third-quarter target of 2.150%, where investors should have reduced holdings. On Thursday, this yield rose to a test of my annual pivot of 2.265%. The 20+ Year Treasury Bond ETF (TLT) - Get Report , which is an exchange-traded fund backed by a basket of U.S. Treasury bonds with maturities of 20 years to 30 years, has a gain of 15.8% year to date vs. 5.9% for the S&P 500.
  • Comex gold traded to a multiyear high of $1,377.5 on July 6, still well shy of my 2016 target of $1,639.9, but a test of the downtrend going back to September 2011 was an opportunity to reduce holdings. Weakness this week tested my value level for this week of $1,323.9 on Thursday. The SPDR Gold Shares ETF (GLD) - Get Report , which is backed by gold bullion, has a gain of 25.5% year to date.
  • The Dow Utility Average traded to an all-time high of 723.83 on July 6, then traded as low as 702.75 on July 8 vs. my key level for July of 705.91. The Utilities Select Sector SPDR Fund (XLU) - Get Report , which is a basket of 29 utility stocks, has a gain of 19.8% year to date. My semiannual and monthly pivots are magnets at $50.05 and $51.79, respectively.

There are warning flags from the nine global equity indices that are tracked around the world.

  • All five U.S. major averages will have positive weekly charts given closes on Friday, July 15, above their key weekly moving averages of 17,933 for the Dow Jones Industrial Average, 2100.2 for the S&P 500, 4,886 for the Nasdaq CompositeI:IXIC , 7,708 for Dow transports and 1157.69 for the Russell 2000.
  • The Nikkei 225 remains in bear market territory with a positive weekly chart after a gain of 11% since June 24. Keep in mind that this benchmark index peaked at 38,957.44 in December 1989 and bottomed at 6,994.90 in October 2008, and that the 23.6% Fibonacci retracement of 14,528.91 has been a magnet since August 1992. The 38.2% retracement of 19,195.41 had been a magnet between the week of March 31, 2015 and the week of Dec. 31, 2015. This is a trading range, not a bull market.
  • The Shanghai Composite has not recovered from its crash of 2015. The index is up 15.8% from its January low, but 41% below its June 2015 high. Remember that the 2015 popped bubble is within the prior bubble that popped after the all-time high of 6,124.04 set in October 2007. This is a positive weekly chart, but not a bull market.
  • India's Nifty 50 has a positive but overbought weekly chart, and is 6.2% below its all-time high of 9,119.20, set on March 4, 2015.
  • The German DAX has a positive weekly chart, but it is in correction territory, 19% below its all-time high of 12,390.75, set on April 10, 2015. The DAX could easily fall back into bear market territory.

Here's this week's scorecard for the major global equity averages.

Here's the weekly chart for Japan's Nikkei 225.

Courtesy of MetaStock Xenith

The weekly chart for Japan's Nikkei 225 shifts to positive from negative with the index above its key weekly moving average of 15,988.80. Friday's close was above its 200-week simple moving average of 15,637.02. The weekly momentum reading ended the week at 28.15, up from 25.88 on July 8.

My monthly pivot is 15,169.74 in July, with a quarterly risky level of 19,815.54.

Here's the weekly chart for China's Shanghai Composite.

Courtesy of MetaStock Xenith

The weekly chart for the Shanghai Composite is positive, despite a decline of 13.7% year to date. It is in bear market territory, 41% below the June 12, 2015 high of 5,178.19.

This index is above its key weekly moving average of 2,945.70 and above its 200-week simple moving average of 2,686.87, an important support that has held since the week of Oct. 31, 2014, when the average was at 2,321.69. The weekly momentum reading ended the week at 51.80, up from 41.45 on July 8.

My monthly value level is 2,645.93 in July, with my semiannual risky level at 3,401.89.

Here's the weekly chart for India's Nifty 50.

Courtesy of MetaStock Xenith

The weekly chart remains positive but overbought, with the Nifty 50 above its key weekly moving average of 8,214.37. The 200-week simple moving average of 7,167.25 provides key support, which held during the week of March 4 when the average was 6,904.80.

The weekly momentum reading ended the week at 88.63, up from 85.80 on July 8, both well above the overbought threshold of 80.00.

My monthly value level is 7,657.76 in July, with upside potential to 8,681.13 through September.

Here's the weekly chart for Germany's Deutsche Boerse DAX.

Courtesy of MetaStock Xenith

The weekly chart for the German DAX has been upgraded to positive from negative, with the index above its key weekly moving average of 9,837.62. The DAX is above its 200-week simple moving average of 9,467.39. The weekly momentum reading is projected to end the week at 42.05, up from 38.68 on July 8.

My monthly value level is 9,382.34 in July, with upside potential to 10,593.63 through September.

Here's the weekly chart for the Dow Jones Industrial Average.

Courtesy of MetaStock Xenith

The weekly chart for the Dow 30 stays positive if the close on Friday, July 15, is above its key weekly moving average of 17,933.70. The 200-week simple moving average is a key support at 16,336.14. The weekly momentum reading is projected to end the week at 67.89, up from 55.79 on July 8.

My proprietary analytics shows a monthly value level of 17,277, with a quarterly pivot at 18,177 and semiannual risky level of 20,485. The downside risk is still to 14,592 by the end of 2016.

Here's the weekly chart for the S&P 500.

Courtesy of MetaStock Xenith

The weekly chart for the S&P 500 is positive, with the index above its key weekly its key weekly moving average of 2,100.20 and well above its 200-week simple moving average of 1,865.81. The weekly momentum reading is projected to end the week at 73.05, up from 62.56 on July 8.

My monthly value level for July is 2,013.2, with a quarterly pivot of 2,125.2, and with my semiannual risky level of 2,461.3. The downside risk is to 1,632.8 by the end of 2016.

Here's the weekly chart for the Nasdaq.

Courtesy of MetaStock Xenith

The weekly chart for the Nasdaq remains positive, with the index above its key weekly moving average of 4,885.96, and well above its 200-week simple moving average, which is a major support at 4,259.52. The weekly momentum reading is projected to end the week at 66.52, up from 55.96 on July 8.

My monthly value level is 4,628 in July, with my quarterly risky level at 5,214. The downside risk is to 4,248 by the end of 2016, with outside chance of upside potential to 5,826 by the end of the year.

Here's the weekly chart for the Dow Jones Transportation Average.

Courtesy of MetaStock Xenith

The weekly chart for transports remains positive, given a close on Friday above its key weekly moving average of 7,708.14. It is above its 200-week simple moving average, which is a major support at 7,435.76. The weekly momentum reading is projected to rise to 44.46 this week, up from 33.89 on July 8.

My monthly value level is 7,082 in July, with a quarterly pivot of 7,938 through September, and upside to 9,634 by the end of the year. An annual pivot is 7,569, with an annual value level of 6.926.

Here's the weekly chart for the Russell 2000.

Courtesy of MetaStock Xenith

The weekly chart for Russell 2000 remains positive, with the index above its key weekly moving average of 1,157.69 and above its 200-week simple moving average of 1,096.60, which held at the low of 1,085.88, set on June 27. The weekly momentum reading is projected to rise to 72.39 this week, up from 67.24 on July 8.

My proprietary analytics show downside risk to 1083.10 in July, with a pivot or magnet of 1,133.16 through September. The downside risk is to 1,042.61 and perhaps to 938.79 by the end of 2016. There is an outside potential to 1,441.92 by the end of the year.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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