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Stock Market Technicals For Week of January 28, 2019

Weekly analysis of major stock indexes, large cap stocks and popular ETFs. The report includes quantitative results and charts. If you are not a subscriber click here for more information.

This report includes charts that may reference target levels determined by technical analysis and/or quantitatively. No chart updates are provided if changes occur that affect the levels or conditions on specific charts. All charts in this report are for informational purposes only. See the disclaimer for more information.

Summary

  • Stock indexes took a breather after a four-week rally
  • Bullish technical conditions have appeared on charts
  • Quantitative analysis points to bullish bias for next week

Recap (January 22, 2019 – January 25, 2019) The S&P 500 fell 0.22%, Dow Jones Industrial Average gained 0.12%, NASDAQ added 0.11% and the Russell 2000 rose 0.02%. The 10-year Note yield fell three basis points to 2.75%.

Last week we wrote:

…while the rebound has been impressive so far, this is not the time to increase risk but remain cautious with a small long bias.

The stock market rebound may continue since it is fueled by speculation that the Fed will end balance sheet reduction. This is interpreted as bullish condition for stocks. The market recovered from earlier losses during the week on this news.

It appears that there is an attractor around 2741 in S&P 500 where the 40-week moving average and the down trend-line shown meet. This is a target level that may be reached provided news favors such move. According to PAL OB/OS indicator, the S&P 500 is no longer overbought and volatility, as measured by the weekly ATR(3), is falling. These facts support the bull case and the market may rebound higher provided there are no negative surprises from earnings reports.

The 252-day signal-to-noise ratio is in negative territory but rising. It is still possible to have another reversal towards recent lows since double bottoms in this indicator have occurred before, as shown on the chart with the red circles. But for now it appears that this indicator may first go flat before another correction begins.

The conclusion is that a continuation of the rebound has higher probability at this point but another reversal to the downside may follow after that. Note that this conclusion is based on a mix of technical signals and subjective prior probabilities and can be updated at any time if relevant new information becomes available.

Quant analysis of weekly directional bias of Dow Jones Industrial Average

Note that the directional bias may lag or even lead price action due to changes in short-term market dynamics. The directional bias is calculated with DLPAL LS software.

The results indicate bullish weekly bias as of the close of January 25, 2019.

There are 21 stocks with positive directional bias and 9 stocks with negative. The ratio of positive to total is 0.70. A ratio above 0.70 normally indicates strong positive bias and a ratio below 0.50 usually indicates strong negative bias.

Note that the directional bias above at times may lag or even lead price action due to changes in short-term market dynamics. The directional bias is calculated with DLPAL LS software.

Overbought/Oversold Dow Stocks in weekly timeframe

Overbought conditions occur when value of PAL OB/OS indicator is greater than 90 and oversold when the value of the indicator is less than 10. 

There are 12 overbought stocks and one oversold stock in the weekly timeframe.

Longs

NKE could rise towards 83.

CSCO appears to have enough momentum to reach near 48.

UNH often remains overbought for several weeks and could rise near 278.

HD has potential to rise towards 183.

Short

IBM may face profit taking after a rally last week.

MCD could test support around 180.

Overbought/Oversold ETFs in weekly timeframe

Overbought conditions occur when value of PAL OB/OS indicator is greater than 90 and oversold when the value of the indicator is less than 10. 

Overbought/oversold conditions based on our list of 37 popular ETFs (only overbought > 93 are shown. No oversold ETFs)

Long

IYR could test resistance around 82.

IWM may try to break above 150 while eyeing 155.

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Disclaimer:  No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.

Charting program: Amibroker

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