OVERVIEW: The confirmed market uptrend is still in place with the major indices finishing just off of all-time high closing levels. However, we are seeing some stealth damage being done across several sectors, especially to companies who failed to deliver optimal quarterly earnings results. While there have been a few rewards for those who decided to gamble taking full positions in front of earnings, far more traders have seen their stocks endure severe gap downs that have eaten into their equity. It is hard enough to endure adverse events that come out of the blue that occasionally take our stocks far below our stop levels so we so no sense in knowingly putting your hard earned equity in harms way in terms of earnings gambles. Although we have to respect the current uptrend it by no means dictates that we blindly throw money in harms way. We are starting to see some distribution days stack up recently in the individual indices and we will be closely watching their trading behavior early next week. The indices have not been hit with a notable correction in quite a while. Some outside influences such as failure to make progress on the tax cut plan next week or any other unforeseen geopolitical event can possibly spur some sudden selling. That said, we are heading into some possible positive year end seasonality that may keep any major selling at bay in the near term. We don’t make wild predictions here at TTP, but we do monitor the markets continually seeing it from both sides, which in turn helps us be prepared when, not if, the markets shift their character. With that, lets take a look at the index charts.
SPY- The S&P 500 continues to be in the best technical shape of the four indices we cover on a weekly basis, at least from a distribution standpoint. The index racked up only its second such day this week over the last 20 trading sessions. We narrowly give Thursdays sell-off a pass based on the index finishing right near its highs for the day, down only 0.38%, despite the gap down. A look at the daily chart below shows the S&P has not challenged its 50 day EMA since late August. A second look as we back out to a weekly chart shows the index printing a bearish, indecisive doji candle chalking up a distribution week in the process. In a nutshell the prevailing trend is up but our antenna is raised a bit.
NASDAQ- Trading here was nearly a carbon copy of the S&P 500 for the week. The difference here is that the Nasdaq has accumulated five distribution days over the last 20 sessions which always raises some cautionary flags here at TTP. The index was tagged with two of those five days this week alone. By our measure, we can’t look past Thursdays session as we did with the S&P due to the index finishing down over 0.50%. On a weekly basis, the index printed the same bearish candle as the S&P also chalking up a week of distribution.
IWM- The apparent constructive pullback in The Russell 2000 turned a bit more tenuous as the index has now compiled four distribution days in only the last 13 sessions. The index wrestled with support around its 50 day EMA for the majority of the week before virtually settling right on the line upon Fridays close. We will be watching this closely next week to see if the index could gain support near this important line. A rotation back into small caps next week, with technology taking a back seat would not surprise us. However, we remain slightly concerned here as well.
QQQ- The Nasdaq 100 pulled back late in the week from an all-time high set on Wednesday. The index has gained some steam the last two weeks fueled primarily by some solid earnings from highly weighted names in the index. This recent push helped mask very disappointing volume by the index on its early October breakout. This index also sits with four distribution days over the last month of trading. A continued move higher buy this index may be dependent on much wider participation by other index names.