Stock Market Analysis for the week ending 6/7/2013 results in a cautiously bullish outlook.
After two mild down weeks - although these weeks contained harrowing down days – an analysis of the weekly chart is indicating a potential bottom hammer candlestick formation.
Even though a hammer candlestick is indicative of a bottoming out in stock prices, the weekly stochastic is indicating more selling to come. In addition, a hammer candlestick formation requires a higher close before a strong conclusion of a bottom can be established. So we need another week of trading before a bottom can be firmly claimed.
The MACD on the weekly chart is also looking weak. So the caution light is certainly on with a Weekly Down conclusion from this weeks stock market analysis.
Daily Stock Market Analysis – Up:
Several sharp drops in mid-weak trading drove prices down to a little under the 17,000 level on the Wilshire 5000.
The level at approximately 16,800 provided support from the April//May highs of earlier this year.
Investors drove prices sharply higher from this level on Thursday. On Friday investors were pleased with the jobs report and drove prices higher again to finish the day at the highs of the downward sloping flag.
A downward sloping flag formation is certainly expected in this type of market.
A break out above the upper trendline could provide the momentum to send prices to nearly the 18,000 level on the Wilshire 5000. This would create a new high for the market and provide increased fuel for the bulls.
The stochastic on the daily chart is certainly supporting a move higher. The daily MACD could move even become more stronger in the week ahead.
Market Risk Level:
The risk level in the market is currently high but not yet indicating a significant pullback.
The percent of stocks in a point & figure bullish mode would need to drop approximately 4% to indicate a pullback. The percent of bullish stocks on the NASDAQ is nowhere near a pullback. In fact the NASDAQ bullish percent isn’t even yet above the 70% level that typically indicates high risk.
The caution light is current on with this weeks Weekly Down/Daily Up stock market analysis. This is that classic potential turning point in the market and you should be ready as the market firms in either direction.
There is evidence that the weekly chart is turning down but it is not yet conclusive enough to justify completely change investing strategies. The MACD has not yet confirmed the downward moving stochastic line.
The daily chart has strong evidence that a fairly significant up-move may develop. The stochastic line is getting sronger but this move has not yet been confirmed by the MACD.
Suggested Profitable Investing Strategy:
The best strategy appears to be to review holdings for stocks that are becoming weaker vs. the market and their peers. These stocks would be prime candidates for profit taking. Outright sales of these stocks might be in order if these holdings have not participated on the recent rally since May.
If the market weakens further and we move into a Down/Down environment then investigation and review of Contra ETFs would be justified.