Why Are Industrials and Transports Lagging the S&P?

NEW YORK (TheStreet) - At the beginning of the year my proprietary analytics suggested 2014 would begin with choppy trading as my longer term value levels, pivots and risky levels seemed to be in a pattern that I described as a 'tangled bowl of spaghetti'.

When I wrote Stocks Begin 2014 With Inflating Bubbles, I mentioned that 2013 was the first year of the past 20 where the major equity averages did not test their 200-day simple moving averages with just two exceptions: the Nasdaq in 1999 and Dow Transports in 1997. There has not been two consecutive years where the 200-day SMAs were not tested over the last 20 years. My prediction for 2014 remains that the major equity averages will test their 200-day SMAs at some point in 2014 - even with new highs first.

A detailed technical analysis chart about these stocks follows these profiles. I also explain my number-crunching terms there.

As February comes to an end the Dow Jones Industrial Average (16272.65) could not even set a new high as its all-time intraday high was set on the last day of 2013 at 16588.25. The Dow traded below its 200-day SMA between Feb. 3 and Feb. 6 with a year-to-date intraday low at 15340.69 on Feb. 5. My semiannual pivot at 16,245 should continue to be a magnet. My annual value levels are 14,835 and 13,467 with quarterly and semiannual risky levels at 16,761 and 16,860. The 200-day SMA is 15,570 and the weekly chart is positive with the five-week modified moving average at 16,095. The drag on Dow stocks is exposures to emerging markets.

The S&P 500 (1854.29) set its all-time intraday high today and at 10:15 AM the high was 1865.50 with its quarterly risky level in sight at 1896.0. The S&P set its 2014 low at 1737.92 on Feb. 5 just below my semiannual pivot at 1764.4. My annual value levels ate 1539.1 and 1442.1 with semiannual pivots at 1764.4 and 1797.3 with a quarterly risky level at 1896.0. The 200-day SMA is 1726.1 and the weekly chart is positive with the five-week MMA at 1823.4.

The Nasdaq (4318.93) set its latest multiyear intraday high at 4324.59 as of 10:15 AM this morning staying above my quarterly pivot at 4274. The 2014 low at 3968.19 set on Feb. 5 stayed above my semiannual pivots at 3930 and 3920 and its 200-day SMA at 3813. During the week of the low the 12x3x3 weekly slow stochastic dipped below 80.00, but the weekly close was above its five-week MMA preventing the confirmation of a negative weekly chart. Today the weekly chart is positive but overbought with the five-week MMA at 4192. My annual value levels are 3471 and 3063. A risky level for March is projected at 4475 / 4500.

The Dow Transportation Average (7316.29) set a new all-time intraday high at 7591.43 on Jan.23 and since then has been a laggard. The 2014 low is 7009.98 set on Feb. 5. The 200-day SMA is 6784 and the weekly chart is neutral with the five-week MMA at 7291 with its 12x3x3 weekly slow stochastic declining below 80.0 at 55.48. After testing the low on Feb. 5 transports moved back up on the power of the pivots. My quarterly pivot is 7086 and my semiannual pivots at 7245 and 7376. The Feb. 24 high at 7414.53 was a failed test on my February risky level at 7412. Slower than expected economic growth translates to smaller loads on the rails and trucks causing transports to lag.

The Russell 2000 (1187.94) set its latest all-time intraday high at 1193.50 as of 10:15 AM this morning above my February risky level at 1189.18. The 2014 low at 1082.72 set on Feb. 5 was well above its 200-day SMA at now at 1076.28. The weekly chart is positive with its five-week MMA at 1153.55. The small cap index is well above my annual value levels at 966.72 and 879.39 and my semiannual and quarterly pivots became magnets pulling this index back above these levels at 1130.79, 1133.29 and 1180.35.


Crunching the Numbers with Richard Suttmeier

In Friday's table I also include data for the Nasdaq 100, the PHLX Semiconductor Index (SOX) and the Dow Utilities Average. Note that the SOX is the year-to-day leader with utilities close behind in second place.

In the column labeled YTD % Change I show the percent year-to-date gain or loss.

There are five columns with moving average titles: Five-Week Modified Moving Average, 21-Day Simple Moving Average, 50-Day Simple Moving Average, 200-Day Simple Moving Average and the 200-Week Simple Moving Average.

The column labeled 12x3x3 Weekly Slow Stochastics shows the pattern on each weekly chart with readings from Oversold, Rising, Overbought, Declining or Flat.

Interpretations: (stocks below a moving average listed in Red are below that moving average)

Five-Week Modified Moving Average (MMA) is one of two indicators that define whether or not a weekly chart profile is positive, neutral or negative. The other is the status of the 12x3x3 weekly slow stochastic.

A stock with a positive technical rating is above its five-week MMA with rising or overbought stochastics.

A stock with a negative technical rating is below its five-week MMA with declining or oversold stochastics.

A stock with a neutral technical rating has a profile that is not positive or negative.

The 200-Week Simple Moving Average (SMA) is considered a long-term technical support or resistance and as a "reversion to the mean" over a rolling three to five year horizon. (even Apple declined to its 200-week SMA in June 2013)

The 21-Day Simple Moving Average is a short-term technical support or resistance used by many hedge fund traders to adjust positions. A stock above its 21-day SMA will likely move higher over a rolling three to five day horizon and vice versa.

The 50-Day Simple Moving Average is also a technical support or resistance used by many strategists and commentators in financial TV.

The 200-Day Simple Moving Average is another technical support or resistance and I consider this level as a shorter-term "reversion to the mean" over a rolling six to 12 month horizon. (even Apple tested or crossed its 200-day SMA in nine of the last 10 years)

Value Levels, Pivots and Risky Levels are calculated based upon the last nine weekly closes (W), nine monthly closes (M), nine quarterly closes (Q), nine semiannual closes (S) and nine annual closes (A). I have one column for pivots, which is a magnet for the period shown. The columns to the left of the pivots are first and second value levels. The columns to the right of the pivots are first and second risky levels.

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.

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