S&P 500 Faces Do or Die Situation

NEW YORK ( TheStreet) -- As Pat Benatar once sang: "It's a do or die situation. We will be invincible." In my judgment, the S&P 500 is not invincible but is vulnerable unless today's close is above my semiannual risky level at 1566.9 and the October 2007 intraday high at 1576.09.

This could be the market's do or die situation.

As the song goes, "What are we waiting for? Won't anybody help us? What are we waiting for?" By now QE3 and QE4 should have had the S&P 500 above the 1566.9/1576.09 barriers. If not today, then the overvalued fundamentals and the overbought technicals could take over to show the downside risk.

As a warning the SPDR S&P 500 ETF Trust ( SPY) tested its semiannual risky level at $156.59 on Thursday.

The stock market is operating under a reconfirmed Dow Theory Buy Signal with new closing highs for both Dow Industrials and Dow Transports set on Thursday at 14,539.14 and 6281.24 respectively. My concern about these series of signals is that the Dow 30 is underpinned by just 15 buy-rated stocks.

An even bigger warning comes from the underpinnings of the Dow Transportation Average, where there are no buy-rated stocks, eight hold-rated stocks, 11 sell-rated stocks and one strong sell-rated stock.

Here are the themes I focused on this week:

On March 11, I wrote Downgrading Two of Four 'Too Big to Fail' Banks, and investors and traders ignored this warning. Of the 24 bank stocks in the PHLX KBW Banking Index ( BKX), only five have buy ratings and 19 have hold ratings. JPMorgan ( JPM) and Wells Fargo ( WFC) were downgraded to hold from buy.

On Tuesday, FDIC Data Shows Stressed Community Banks I profiled 24 community banks that had overexposures to CRE loans in Q3 2012, and in Q4 2012, only one alleviated this condition. The ValuEngine source of data had one error that I am correcting today. Sterling Bank ( STSA) incorrectly showed a "1-Engine" rating, when it should have had a "4-Engine" buy rating. STSA has gained 3.7% over the last twelve months. One data point from our third party vendor had a negative sign instead of a positive sign. We fixed the error and now five of the 24 community banks are rated buy, 19 are rated hold.

Wednesday, Discount Retailers Continue to Lag Despite Recovery updated my profiles for nine buy rated retailers in the retail-wholesale sector. Eight of the nine lag the market peaking between March and October 2012.

My Thursday post, Apple Wins the Search for Value, explained how I came to the conclusion that Apple is the best value play in today's stock market, and concluded that a breakout for the S&P 500 requires leadership from Apple.

All week long the stock market has been trading higher under the cloud of a ValuEngine Valuation Warning and this morning 66.9% of all stocks are overvalued, a new high for this measure so far this year. We also show that 15 of 16 sectors are overvalued, 14 by double-digit percentages.

The major equity averages are even more overbought technically with 12x3x3 weekly slow stochastic readings at: 94.65 for the Dow Industrials, up from 93.16 last week; 93.88 for the S&P 500, up from 92.59 last week; 90.63 on NASDAQ, up from 88.95 last week; 95.33 on Dow Transports, up from 93.94 last week; and 93.55 on the Russell 2000, up from 92.49 last week. Readings above 80.00 are overbought.

Here is my weekly review of the key levels for U.S. capital markets:

The yield on the 10-year treasury note (2.033): My annual and semiannual value levels are 2.476% and 3.063% with my annual pivot at 1.981% and monthly risky level at 1.796%.

Comex Gold ($1592.3): The December 2011 low is $1523.9 with my annual pivot at $1599.9 as gold has become oversold on its weekly chart. Semiannual, monthly, quarterly and annual risky levels remain at $1719.2, $1737.6, $1802.9 and $1852.1.

Nymex Crude Oil ($93.55): The 200-week SMA is $86.83 with the five-week MMA at $93.10, and a close above this level shifts the weekly chart profile to neutral from negative. My quarterly pivot is $95.84 with monthly and annual risky levels at $98.23 and $115.23.

The euro vs. the dollar (1.3058): The weekly chart profile is negative with the five-week MMA and 200-week SMA at 1.3154 and 1.3523. My semiannual value level is 1.2797 with monthly and annual pivots at 1.3249 and 1.3257 and quarterly pivot at 1.3334.

The Dow Industrial Average (14,539.14): Monthly, quarterly and annual value levels are 13,949, 13,668 and 12,696, with my semiannual pivot at 14,323, and weekly risky level at 14,604.

The S&P 500 (1563.23): Monthly, quarterly and annual value levels are 1528.6, 1431.1 and 1348.3 with weekly and semiannual risky levels at 1567.1 and 1566.9, and the October 2007 intraday high at 1576.09.

The NASDAQ (3258.93): Monthly, quarterly and annual value levels are 3197, 3071 and 2806 with a weekly pivot at 3245 and semiannual risky level at 3583.

The Dow Transportation Average (6281.24): Monthly and annual value levels are 5522 and 5469 with annual and semiannual pivots at 5925 and 5955, and this week's risky level at 6315.

The Russell 2000 (953.07): Monthly, annual value levels are 901.68, 860.25 and 809.54 with weekly and semiannual risky levels at 955.21 and 965.51.

My scenario is getting long in the tooth as strength has been shy of my semiannual risky levels at 1566.9 S&P 500 and 965.51 Russell 2000. The key level to hold on weakness is the semiannual pivot at 14,323 on Dow Industrials.

My prediction: The stock market will peak today or early next week unless today's close on the S&P 500 is above its October 2007 all-time high at 1576.09, in a "do or die situation."

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.