Avoid the Growling Small Cap Bear -- Trade These ETFs

NEW YORK (TheStreet) -- When 2014 began, I described my value levels, pivots and risky levels as a "tangled bowl of spaghetti." Now at mid-May that description remains valid.

One of my predictions was that the five major equity averages would test their 200-day simple moving averages at some point during the year. The Dow Industrial Average (DIA) traded as low as 15,430 on Feb. 5, which was below its 200-day SMA. The S&P 500 (SPY) stayed above its 200-day so far this year. The Nasdaq (QQQ) stayed just above its 200-day at its year-to-date low at 3,946, set on April 15. The Dow Transportation Average (IYT) stayed well above its 200-day SMA year to date. The Russell 2000 (IWM) has been trading back and forth around its 200-day SMA since April 14 with that average now at 1,116.48.

At the beginning of the year we showed that the lowest semiannual value levels are 3,930 and 3,920 on the Nasdaq, which held at its April 15 low. The highest semiannual risky level is 16,860 on Dow Industrials, which has not yet been tested either despite a new all-time high this week.

Today we "crunch the numbers" for the five major averages to judge the potential outcome of the bull vs. bear debate. Check out the charts on page 2 before you make buy and sell decisions.


The Dow Industrial Average (16447) set an all-time intraday high at 16,735.51 on May 13, but is down 0.8% year to date. The Dow ended Thursday below its 21-day simple moving average at 16,517 on a negative daily chart. The weekly chart is positive, with its five-week modified moving average at 16,386. Semiannual and semiannual value levels are 16,245 and 14,835, respectively, with a quarterly pivot at 16,462 and weekly and semiannual risky levels at 16,715 and 16,860, respectively.

The S&P 500 (1870.85) set an all-time intraday high at 1,902.17 on May 13, and is up just 1.2% year to date. The S&P ended Thursday below its 21-day SMA at 1,877.7 on a negative daily chart. The weekly chart is positive, with its five-week MMA at 1,862.8. Quarterly and semiannual value levels are 1,853.5 and 1,764.4, respectively, with weekly and monthly risky levels at 1,885.8 and 2,006.7, respectively.

The Nasdaq  (4069.29) set a multiyear intraday high at 4,371.71 on March 7, as the momentum stock bubble began to pop. This index is down 2.6% year to date. The Nasdaq is below its 21-day and 50-day SMAs at 4,105 and 4,169, respectively, with the 200-day SMA at 4,000. The weekly chart is negative, with its five-week MMA at 4,109. Quarterly and semiannual value levels are 4,039 and 3,920, respectively, with a monthly risky level at 4,581.

The Dow Transportation Average (7781.32) set an all-time intraday high at 7,918.92 on May 13, and is up 5.1% year to date. Transports is above all key moving averages in the first table. The weekly chart is positive but overbought, with its five-week MMA at 7,614. Quarterly and semiannual value levels are 7,407 and 7,245, respectively, with a monthly risky level at 8,461.

Russell 2000 (1095.99) set an all-time intraday high at 1,212.82 on March 4, and is down 5.8% year to date. The small cap index is below all three key daily moving averages. The weekly chart is negative, with its five-week MMA at 1,127.25. Annual value levels are 966.72 and 879.39, with a weekly pivot at 1,088.49 and semiannual and quarterly risky levels at 1,133.29 and 1,169.22, respectively.

Check out the charts on page 2.

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Crunching the Numbers with Richard Suttmeier: Moving Averages & Stochastics

This table provides the technical status for the stocks profiled in today's report.

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 are listed in red.

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)


Crunching the Numbers with Richard Suttmeier: Earnings & Where to Buy and Sell

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.

Investors who wish to buy a stock should use a good-until-canceled GTC limit order to buy weakness to a value level. Investors who want to sell a stock should use a GTC limit order to sell strength to a risky level.

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

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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