The Most Important Stock To Watch This Month Is...

By: John Kosar of Street Authority

All major U.S. indices closed higher for the fourth consecutive week, this time led by the small-cap Russell 2000, which was up 1.2%. Year to date, however, the Russell has by far been the weakest, up just 0.9%. This puts the burden for continued broad market leadership squarely on the other traditional market leader -- technology.

The tech-heavy Nasdaq 100 has been up to the challenge so far, posting a 13.7% gain year to date, and is a major reason why the SP 500 is up 8.4% in 2014. But with small caps already weak, if and when technology stocks stop leading, the overall market is likely to run into some serious problems.

My own metric, which is based on ETF asset flows, shows that the largest inflow of sector-related investor assets last week was into defensive utilities and out of industrials. Accordingly, last week's strongest sector was utilities, up 2%, with industrials the only sector to finish the week in negative territory.

Be Aware Of September Seasonal Weakness

As we move into September, a good place to begin this week's report is with monthly seasonality. The chart shows that September is the seasonally weakest month of the year in the SP 500 since 1957. On average, it closed 0.68% lower for the month and posted a negative monthly close 54% of the time.

This is one of several good reasons to pay particularly close attention to your stock market investments this month, and to have a defensive plan already in place in case this 56-year seasonal pattern emerges again this year.

We should also note the historical tendency for a strong fourth-quarter rebound, so even if the market does correct this month, we should be looking for near-term weakness to potentially provide better intermediate-term buying opportunities. Continue reading "The Most Important Stock To Watch This Month Is..."

Major Bearish Trend Change Overseas May Spell Trouble for U.S. Market

By: John Kosar of Street Authority

All major U.S. indices closed higher for the third consecutive week, led by the Dow Jones Industrial Average, which was up 2%. Year to date, by far the strongest major index has been the tech-heavy Nasdaq 100 (NDX), which is up 12.8%. This leadership by technology has been a key catalyst in the 2014 broad market advance, helping the SP 500 post a 7.6% gain despite a weak small cap sector. This strength in tech must continue to keep the broader market headed higher.

From a sector standpoint, last week's advance was led by financials, industrials and consumer discretionary, but all sectors of the SP 500 ended in positive territory.

Key Indices Held Major Support Levels in August

Many key indices, including the SP 500, Dow Jones Industrial Average and PHLX Semiconductor Index, have rebounded nicely from major support levels that were tested during the first week of August, and finished last week at or near their 2014 highs.

The SPDR Dow Jones Industrial Average (NYSE: DIA), which I first mentioned as a potential buying opportunity in the May 12 Market Outlook, closed out last week 3.7% above its Aug. 7 test of its 200-day moving average, a widely watched major trend proxy, and less than 1% below its July 17 all-time high of $171.32.

Although I remain cautiously positive on DIA heading into this week, I am still apprehensive about its more intermediate-term sustainability due to frothy investor sentiment, weak August-to-September seasonality, and major overhead resistance in the market-leading Nasdaq 100. Continue reading "Major Bearish Trend Change Overseas May Spell Trouble for U.S. Market"

Charts Point To Another 5%-7% Advance Before A Correction

By: John Kosar of Street Authority

All major U.S. indices were higher last week, led by the previously downtrodden Nasdaq 100 (+2.5%) and Russell 2000 (+2.1%). Both of these market-leading indices must continue to outperform the broad market SP 500 if last week's strength is going to become the next leg higher within the larger 2013 stock market advance. The major indices are now all in positive territory for 2014 except for the small-cap Russell 2000, which ended last week down 3.2% for the year.

From a sector standpoint, my own asset flow-based metric shows the largest inflow of investor assets over the past week went into consumer discretionary, which led all sectors with a 2.1% gain. The utilities sector had the biggest outflow of investor assets and, as would be expected, was the only sector to lose ground for the week.

Is Technology Leading the Blue-Chip Stocks Higher?
Beginning in the April 21 Market Outlook, and again in several subsequent issues, I have been discussing overhead resistance at 3,617 on the Nasdaq 100 and stating that a rise above this level was necessary to indicate that this market-leading technology index's larger November 2012 advance was resuming.

After negotiating this level for the past month, 3,617 was significantly broken to the upside last week. This clears the way for more near-term strength and a potential 2% rise to retest the 3,738 early March high.

More recently, in the May 12 and May 19 Market Outlooks, I identified an emerging pattern in the SPDR Dow Jones Industrial Average (NYSE:DIA), commonly known as the "Diamonds." The formation was a triangle, indicating investor indecision, and I said, "For the bullish implications of the pattern to remain valid, the lower boundary at $163 must contain DIA on the downside this week while it rises back above $165.51 -- and stays there." Continue reading "Charts Point To Another 5%-7% Advance Before A Correction"