Saturday, February 7, 2015

MTU Weekend Ed. - Range (2/6/15)

... draft in progress, subject to change ...

Stocks found their low during the first hour of February's first trading session. From its low of 1980.9, SP500 rose 91.5 index points to Friday's high in what appears to be an impulse wave (Chart 1). Friday's high of 2072.4 is 21.5 index points shy of a new all time high.

The pullback in SP500 late Friday is now retesting the January downward trend line (Chart 2). A new high and a new range is likely if the retest is successful as indicated by the green arrow. A continued pullback increases the likelihood of January's range being a potential expanding triangle or a zigzag with a downward flat connecting wave, as well as the likelihood of further declines. See the red arrow and the red labels for this bearish scenario.

Interestingly, the midcap SP400 index managed to achieve a new record high this past week (Chart 3), unconfirmed by other indexes. Note that the midcap index is  also retesting its January downward trend line.

Chart 4 and Chart 5 compare the Dow's performance in 2015 so far to its average historical tendency in the 5th year of a decade and in the 3rd year of the U.S. presidential cycle. While January was certainly not average, February appears to be on track so far. Dow's average historical tendency shows some upside potential towards mid-February.