It was another big week for the stock and bond markets but the stock market bears won out in the end there was a serious over 1% decline on Tuesday a drop of .7% on Wednesday and .7% on Thursday before the bulls got some relief with a 1.8% gain on Friday that game could have given the bears some pause as those who were short treasury note futures lost out as futures rose as yields declined further. P
The market faces another test this week with the CPI report on Wednesday. The stronger-than-expected jobs report last Friday many thought would be negative for the stock market but it wasn’t. The gain was pretty impressive as the advance-decline ratios were strongly positive in early trading and stayed that way through the close. On a weekly basis, it was much different as 1110 issues were advancing and 2042 declining.
The decline last Wednesday was due in part to disappointment during Fed chair Powell’s press conference when he would not commit to a pause in raising rates. This is still the focus of many investors though the current impasse over the debt ceiling is also becoming more of a problem.
For the week the SPDR Gold shares were the strongest up 1.4% followed by a point 7% gain in the Dow Jones Transportation Average. The Dow Jones Utility Average was also higher up 0.3% over double the gain of the Nasdaq 100 index.
On the downside, the Dow Jones Industrial Average led the way losing 1.2% while the S&P 500 lost 0.8% both were weaker for a change than the iShares Russell 2000 as it just dropped 0.4%. The broadly based NYSE Composite was down over 1% and weakened the technical outlook for the average stock. This makes the action over the next few weeks more important.
The NYSE composite closed just above its 20-week EMA at 15374 but below the May monthly pivot at 15,485. For the week the important support now is at 15,055 which was the week’s low. The weekly uptrend, line b, is now in the 14,813 area. A failure to see a stronger rally from the October lows is making the chart pattern, lines a and b, look a bit more negative. A close below the March low of 14,471 would be quite negative.
On the upside, a strong move above the February high at 16,222 is needed to resurrect the uptrend but it would have to be accompanied by strong market internals. The weekly NYSE All AD line closed back below its WMA which is not a sign of strength. A decline below the support at line d could precede a price break. Conversely, the resistance for the A/D line at line c needs to be overcome to support the bullish case.
The daily advance/decline line analysis also did deteriorate last week. The chart of the SPY
PY
SPY
The S&P 500 A/D line continues to act the best as it held above its recent lows and shows a narrower trading range, line a. I would be watching this for an up or a downside break from this range. On an upside breakout, we would need to see more improvement from the other A/D lines to support a further rally. The NYSE Stocks Only A/D line has key resistance at line b and closed the week below its exponential moving average (EMA). The NYSE All A/D line shows a similar formation with resistance at line c and important support at line d.
The Invesco QQQ
QQQ
The NASDAQ 100 A/D line peaked in early February and has formed lower highs, line C. This three-month negative or bearish divergence is becoming more of a concern. A violation of the A/D line support at line d, and the early March low would be a sign that the tally from the October lows is over. Both the weekly and daily relative performance (RS) are above their WMAs indicating QQQ is leading the SPY.
As I have discussed previously growth stocks led the market higher into 2000 while the bull market from 2003 to 2007 was led by value stocks (see chart). As the bear market ended in early 2009 growth stocks, like QQQ, dominated the market but that started to change in late 2021.
One of the ratios that I follow to determine whether growth or value stocks are going to perform the best is the ratio of the iShares Russell 1000 Growth (IWF
IWF
IWD
The ratio has been rising sharply since the start of the year as value stocks like the regional banks have been hit very hard. As the ratio was forming its low at the end of the year, the MACDs formed sharply higher lows and a strong bullish divergence. The MACD-His also diverged and turned positive in January.
The week the ratio overcame the resistance at line a and now appears to have completed a bottom formation that goes back to the previous May. The MACD is positive and rising. While the MACD-His has not yet made a new high it does not yet show a topping formation. Therefore in either a rising or falling stock market growth stocks are favored.
Last week I wondered whether the 4200 level in the S&P 500 would contain prices. So far they have as the S&P futures had a Monday high of 4206 and then declined to the 4065 area before rallying. It is not clear whether the record-breaking short position in the S&P or the treasury futures has declined but this week’s COT data should tell us more.
Yields did move lower last week and it could be Wednesday’s CPI report that will cause yields and the stock market to move either sharply higher or lower. The strong performance last Friday may have added additional pressure for those on the short side of these markets.
Over the next few weeks, a more cautious approach is warranted until the technical indicators give us a stronger signal. For new longs, I would continue to favor growth over value.
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