SPDR S&P 500 ETF Trust (SPY), PowerShares QQQ Trust, Series 1 (ETF) (QQQ), SPDR Gold Trust (ETF) (GLD) – Market Outlook: Unique Indicator Signals More Gains May Be in Store

Page 1 of 2

Stocks have been strong heading into the Federal Reserve’s quarterly press conference. They are now back to levels reached in May, before speculation about tapering picked up. This week, we will learn which way they will go after the Fed details its plans.

Markets Should Transition From Rumor to News

Price action in the first two weeks of September has demonstrated that following popular Wall Street wisdom can be costly. Despite its reputation as a bearish month, stocks have done fairly well so far this September.

SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is up 3.47% since the end of August with most of that gain coming in the past week. SPY gained 1.98% last week, and the ETF gapped up Monday morning to a new all-time high.

Earnings have also reached new all-time highs with operating earnings per share (EPS) setting a new record in each of the last two quarters. Analysts expect earnings to reach another new high this quarter.

SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is not the only major index making new highs. PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) also made a new 52-week high before the open Monday. QQQ is still about 35% below its 2000 high, but is back to levels not seen since November 1999, before the Internet bubble pushed the index to unimaginable highs.

Higher prices and record earnings are bullish indicators for the stock market. In the past, both SPDR S&P 500 ETF Trust (NYSEARCA:SPY) and PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) have been higher 87% of the time six months after they reach new 52-week highs.

The stock market is overbought on a technical basis and vulnerable to a sell-off, but overbought markets can become more overbought. One indicator that shows when an overbought market is likely to continue higher is the DeMark Sequential, a popular indicator among market professionals. This indicator can be confusing and is difficult to understand. I am not providing a complete explanation of the Sequential here, but I will highlight its current position.

The chart below applies the Sequential to PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ). This indicator begins with a setup, shown as a rectangle in the chart below. A setup is completed when the price closes higher than it was four days prior for nine consecutive days. Once the setup is completed, the countdown begins and increases by one each day that the close is higher than it was two days prior. When the countdown reaches 13, a sell signal will be triggered on a lower close.

The DeMark Sequential is designed to spot potential turning points. The idea is that after an uptrend lasting more than a month (the nine-day setup period followed by the 13-day countdown requires at least 22 trading days and usually more), a reversal is probable. However, unlike most indicators, the Sequential can reset and complete a new setup before giving a sell signal.

A new setup was completed on Friday in PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ), indicating the price could continue higher.

QQQ Market Outlook Chart

The Sequential is not an infallible indicator, but it is very useful. This unique indicator is the only one I know of that resets and allows you to see when an overbought market is likely to become more overbought.

The Fed’s statement on Wednesday could change everything. However, odds favor continued gains in stocks and pullbacks should continue to be used as buying opportunities.

Goldman Says Gold Could Dip Below $1,000

SPDR Gold Trust (ETF) (NYSEARCA:GLD) fell 4.72% last week, and an analyst at Goldman Sachs Group, Inc. (NYSE:GS) said more declines are possible. For 2014, Goldman sees gold hitting $1,050 but believes that prices could overshoot to the downside, falling below $1,000. Gold at $1,050 would be equivalent to $105 on SPDR Gold Trust (ETF) (NYSEARCA:GLD) since each share of GLD represents the price of one-tenth of an ounce of gold.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Burger Kings: The 10 Most Expensive Burgers in the World

The 10 Most Ethnically Diverse Countries in the World

The 10 Most Exclusive Credit Cards in the World

The 10 Most Expensive Cruise Ships in the World

The 10 Fastest Supercomputers in the World

The 10 Best Countries for Doing Business 2015

6 Most Expensive Fruits In The World

10 Worst Airlines in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!