NEW YORK (TheStreet) – Although a week ago the five major equity averages were on the cusp of confirming negative weekly chart profiles, the Nasdaq Composite index will likely close Friday week above its five-week modified moving average at 4368 with overbought 12x3x3 weekly slow stochastics, and so the “black hole” bear market can't yet be confirmed.
That doesn't mean that new highs will soon be set, but rather that the markets must wait until at least one of the “black swans” in our flock turns against the continued bullish sentiment among traders and investors. The potential black swans include negative events in Iraq, Israel, Ukraine or somewhere else.
Economic data remain mixed as growth in the U.S. has been weak at best. Some analysts opined this week that the Federal Reserve under Janet Yellen may keep the 0% federal-funds rate well into 2015. My opinion remains that quantitative easing will end in October, followed by a first rate rise hike in the first half of 2015.
Negative divergences remain with the Dow Jones Industrial Average and Russell 2000 still showing negative weekly chart profiles.
The S&P 500 and Dow Transports are still showing declining 12x3x3 weekly slow stochastic readings despite likely Friday closes above their five-week modified moving averages.
That continues to make the Nasdaq the key index to track as shown in the weekly chart below.
Courtesy of MetaStock Xenith
The weekly chart for the Nasdaq remains positive but overbought with its five-week modified moving average projected to rise from 4368 to 4386 with its 12x3x3 weekly slow stochastic declining to 82.03 from 84.60 still above the overbought watermark of 80.
Last week, I showed this historical pattern for the Nasdaq. A table including data for all five major averages is shown in that post.
Shown from left to right is the “Dec. 21, 2013 closes”, the “year-to-date gain or loss”, the “closes on Aug. 14”, the “five-week modified moving averages”, the “12x3x3 weekly slow Stochastic” (a measure of momentum).
Next are two value levels, a pivot (considered a magnet) and two risky levels. The letters represent the time for these key levels, (W – weekly), (M – monthly), (Q – quarterly), (S – Semiannual) and (A – Annual).
Since Aug. 7, the S&P 500 and the Dow Transports have moved back above their five-week modified moving averages, and the Nasdaq closed on Thursday just above its monthly risky level, which is now shown as a pivot.
Dow Jones Industrial Average (16714) Semiannual and annual value levels are 16310 and 14835 with a monthly risky level at 16871, the July 17 all-time intraday high at 17151.56, and quarterly and semiannual risky levels at 17753 and 18552 (not shown). The weekly chart is negative with its five-week MMA at 16762.
S&P 500 (1955.2) Semiannual and annual value levels are 1789.3 and 1539.1 with a monthly risky level at 1970.2, the July 24 all-time intraday high at 1991.39, and quarterly and semiannual risky levels at 2052.3 and 2080.3 (not shown). The weekly chart shifts to neutral given a weekly closed above its five-week MMA at 1946.1.
Nasdaq (4453) Semiannual and annual value levels are 3972 and 3471 with a monthly pivot at 4450, the July 3 multiyear intraday high at 4485.93 and quarterly and semiannual risky levels at 4569 and 4642. The weekly chart is positive but overbought with its five-week MMA at 4368.
Dow Transportation Average (8264) Semiannual and annual value levels are 7423 and 6249 with a quarterly pivot at 8256, monthly and semiannual risky levels at 8292 and 8447 and the July 23 all-time intraday high at 8515.04. The weekly chart shifts to neutral given a weekly closed above its five-week MMA at 8174.
Russell 2000 (143.34) Annual value levels are 966.72 and 879.39 with a semiannual pivot at 1139.81, a monthly risky level at 1156.01, the July 1 all-time intraday high at 1213.55, and semiannual risky level at 1285.37. The weekly chart is negative with its five-week MMA at 1146.72.
Remember, if my black swan scenario pans out, stocks could be lower for a long time. Also remember that scientists studying outer space don’t know what’s on the other side of a black hole.
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.