Tapering Or Papering: Investing in Major Equities

NEW YORK (TheStreet) -- Friday's closes did not confirm the May 20/May 22 highs as cycle highs for the five major equity averages because weekly closes straddled their five-week modified moving averages at; 14,973 Dow industrials, 1613.8 S&P 500, 3397 Nasdaq, 6242 Dow transports and 971.81 Russell 2000. If this week closes are below these key levels the weekly chart profiles will be negative, confirming the May 20/May 22 highs as cycle highs.

Friday's closes provided inputs to my proprietary analytics resulting in new weekly, monthly, quarterly and semiannual value levels, pivot and risky levels that appear to be in sync for the five major equity averages.

The Dow Industrial Average (14,910): My quarterly value level is 14,288 with weekly and monthly risky levels at 15,210 and 15,437, which are below the May 22 all-time high at 15,542.40. My annual value level is 12,696 with a semiannual pivot at 14,724 and semiannual risky level at 16,490.

A way to trade the stocks in the Dow is via the SPDR Dow Jones Industrial ( DIA) ($148.55) ETF. My quarterly value level is $142.41 with weekly and monthly risky levels at $151.94 and $154.05. Note that the weekly chart profile is negative with Friday's close below the five-week modified moving average at $149.41 with the 12x3x3 weekly slow stochastic reading declining below 80.00 at 67.58.

Chart Courtesy of Thomson/Reuters

The S&P 500 (1606.28): My quarterly value level is 1525.6 with weekly and monthly risky levels at 1642.6 and 1669.0, which are below the May 22 all-time high at 1687.18. My annual value level is 1348.3 with a semiannual pivot at 1606.9 and semiannual risky level at 1743.5.

A way to trade the S&P 500 is via the SPDR S&P 500 ( SPY) ($160.42) ETF. My quarterly value level is $152.34 with weekly and monthly risky levels at $164.63 and $166.76. Note that the weekly chart profile is negative with Friday's close below the five-week modified moving average at $161.42 with the 12x3x3 weekly slow stochastic reading declining below 80.00 at 67.20.

Chart Courtesy of Thomson/Reuters

The Nasdaq (3403): My quarterly value level is 3284 with weekly and monthly risky levels at 3490 and 3510, which are below the May 22 multi-year high at 3532.04. My annual value level is 2806 with semiannual risky levels at 3668 and 3759.

A way to trade the Nasdaq is via the PowerShares QQQ ( QQQ) ($71.27). My annual value level is $60.27 with weekly, monthly and quarterly risky levels at $72.91, $72.91 and $73.00. The weekly and monthly levels are the same making it a formidable wall at $72.91 to $73.00. Note that the weekly chart profile is negative with Friday's close below the five-week modified moving average at $71.69 with the 12x3x3 weekly slow stochastic reading declining below 80.00 at 72.76.

Chart Courtesy of Thomson/Reuters

The Dow Transportation Average (6174): My annual and quarterly value levels are 5469 and 5348 with annual and semiannual pivots at 5925 and 6148 and weekly and monthly risky levels at 6386 and 6758 with the May 20 all-time high at 6568.41.

A way to trade transportation stocks is via the iShares Dow Jones Transportation Average ( IYT) ($109.89). My quarterly value level is $94.09 with annual and semiannual pivots at $106.22 and $110.40 and weekly and monthly risky levels at $114.07 and $120.79. Note that the weekly chart profile is negative with Friday's close below the five-week modified moving average at $111.33 with the 12x3x3 weekly slow stochastic reading declining below 80.00 at 64.62.

Chart Courtesy of Thomson/Reuters

Russell 2000 (977.48): My quarterly and annual value levels are 863.05, 860.25 and 809.54 with semiannual, weekly, monthly and semiannual risky levels at 993.99, 1007.25, 1030.75 and 1089.43 and the May 22 all time high at 1008.23.

Without confirming a market top for the major equity averages the June 24 lows should be supports at; 14,551.27 on Dow industrials, 1560.33 S&P 500, 3294.95 Nasdaq, 5952.18 Dow transports and 942.79 Russell 2000. I do not project new highs as risky levels block such a potential.

The bottom line is that the low ends of the trading ranges have been set on comments by Fed officials that QE papering will continue. The upside is limited to risky levels not new highs as the extent of continued papering has been anticipated. Tapering is thus a market consideration and this limits the upside potential. Remember that stocks are trading under a ValuEngine valuation warning and that the weekly chart profiles could turn negative this week.

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

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

Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.

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