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How the Major Indexes Measure Up

Here, I look at the measured targets for the major indexes – and I’ll show you why a pullback is likely in the next week.

The Market

Let’s step back and calculate measured targets for the major indexes.

I often calculate this for individual stocks, but we don’t discuss it much for the major indexes. (Note that this column was written before the half day of trading on Friday and does not include numbers from the day.)

On a near-term basis for the S&P 500, the summer and September swoons measure to the 3150-3200 area. We take the approximate high of 3025 and subtract the approximate low of 2850 (some might opt to use 2820) and we get 175. We add 175 to 3025 and we get 3200. Why do I use the couched 3150-3200? Because nothing is that perfect and there are various ways to count here.

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Nasdaq is even more uncertain than the S&P. If we take 8200 as the high and 7600 as the low, we get 600. If we add that to 8200 we get 8800.

Some might want to take the high of 8300 from August and the low of 7300 from May and opt to come up with 9300. I prefer to choose the area where the majority of trading took place. So there was not a lot of trading over 8200 or under 7600, which is why I choose these.

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If we step back and use the lows from last December, we get higher targets for everything. This is because of the larger net differential.

The Russell 2000, using the iShares Russell 2000 exchange-traded fund (IWM) - Get Free Report, would have a measured target around $170-$175, but as you can see there are now layers of resistance all the way up to that old high of $170.

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Here’s what struck me as I was going through the charts this week: how similar the IWM chart looks to 2014 to 2015. It spent most of the year 2014 in a range, similar to 2019. Then it didn’t have that prior resistance as it does now, but the breakout came in December, so the time of the year is similar. It then pulled back, shaking out weak holders, and off it went to a high of just over $120. (Here’s the math: A high of approximately $110 in 2014 minus the low around $100 gives you $10. Then $10 added to $110 gives you $120).

I am not trying to scare you by showing you the August 2015 plunge. But I just want to show how the pattern is somewhat similar.

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Now let’s look at IWM relative to the S&P, because it is bumping up against a two-year downtrend line. If it is to outperform in the coming weeks, as everyone seems to think it will this ratio is going to have to cross this line.

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Now let’s look at it from that 2014-2015 period. It did cross a similar line in mid- December 2014. It’s not a perfect match, but it does rhyme, doesn’t it?

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I found all of this interesting, the close short-term measured targets, the breakout in the Russell that then retraced some of the upside, and the time of the year – close to the end.

Also, this past week, notice the Daily Sentiment Index (DSI) for Nasdaq moved to 91 again on Wednesday and the Volatility Index slipped to 8. The S&P only made it to 89, but this is now the second trip up into this area, which generally means some sort of pullback is likely in the next week.

New Ideas

A while back I liked the chart of General Dynamics (GD) - Get Free Report and, quite frankly, it has done absolutely nothing for months. Yet I find myself drawn to it, as it has pulled back to the line. In this $180-$182 area, it looks interesting again.

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Today’s Indicator

The 10-day moving average of the put/call ratio has gone up, but continues to look like it is half way, so it’s in the middle of nowhere.

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Q&A/Reader’s Feedback

Helene welcomes your questions about Top Stocks and her charting strategy and techniques. Please send an email directly to Helene with your questions. However, please remember that TheStreet.com Top Stocks is not intended to provide personalized investment advice. Email Helene here.

The question is if Occidental Petroleum (OXY) - Get Free Report is a candidate for an oversold rally. It appears it can be. The stop under $38 is very clear. There is resistance all the way up, but that downtrend line is the big area, the place that has stopped it on every rally since the summer. If it got there, I’d sell some.

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Pfizer (PFE) - Get Free Report is a name I have liked over the last few months, most recently about three weeks ago on that pullback to $36-$37. There is a measured target around $41 and that gap fill comes in around there so that’s what I have my eyes on.

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Would I buy Bristol Myers (BMY) - Get Free Report here? That was the question, and my answer is no. You might recall this was a favorite of mine through most of the summer and fall, but it has run too far for me to want to buy more. There is a measured target back near the old high of about $62, but it hasn’t done enough work up here for me to think it can make a run up there anytime soon. I’d gladly be proven wrong, but it seems the risk/reward for buying it up here isn’t great.

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