Weekly Market Prep For 1/8
MARKET GAUGE: Confirmed Uptrend
SECTORS EXHIBITING RECENT STRENGTH: Energy (solar), Energy (Drillers) Energy (Exploration/Product), Energy (Coal), Retail (Auto Parts), Retail (Discount/Variety), Mining (Metal/Ores), Retail (Shoes/Apparel), Energy (Field Services), Steel Producers.
SECTORS EXHIBITING RECENT WEAKNESS: Computer (Software), Healthcare (Medical Products), Semiconductors, Financial Services (Specialty), Banks (Small Regional).
OVERVIEW: The four major indices we cover here set new all-time closing highs this week. The Russell 2000 however, is still working through a five week basing pattern and has yet to flash a breakout on the charts.. The stock market remains in a confirmed uptrend and has had the ability to rise even in the face of less than stellar financial news at times. Traders that have initiated positions weeks and months ago have ridden the tide higher, but we are seeing fewer new successful breakouts, and some of the breakouts we have seen have exhibited weaker than ideal volume. Eventually we will see a general market pullback, and when that occurs it will be important to see how markets react to that event. Will we see constructive low volume down days, or will we see a set of distribution days that ultimately set off some warning flags for traders? Until then the trend is higher and index charts show little to no distribution at this point. I will remind you however, that markets are not obligated to send off a set of distribution signals before every decline, so as always keep position sizing responsible, honor your stop areas and take partial swing gains when your stocks offer them up. Now, let’s take a look at the charts.
SPY- The S&P 500 continues to trend higher recently breaking out of a small two week consolidation area around the 268.55 level. With this recent mini breakout, the index has now pulled further away form its 50 day exponential moving average, so a constructive pullback to that area of support would now be nearly 4%. It has now been over four months since the index has touched that line. Traders have been very spoiled for some time now, so it will be interesting to see the reaction to a possible pullback, which is inevitable at some point. The chart below shows only one day of distribution over the last 20 sessions, far below the four or five days it would take to set off some warning flags. But again, we have to stress that corrections can be swift and harsh and hit without the aide of prior distribution days.
COMP- The Nasdaq Composite soared 3.38% this weeks as it too set all-time highs. Over the last few months we have been pointing out the index’s propensity to quickly rebound at every sign of weakness since late summer. Recently however, there has been little in the way of selling pressure, only a acceleration of the prior trend. We spoke not too long ago of the possibility of some resistance when indices approach big round numbers, interestingly in this case we have seen little push back as the Nasdaq sliced right through the 7000 level. The chart currently paints a healthy picture as it shows only two recent days of distribution days over the last 20 plus sessions.
RUSSELL 2000- The small cap index has been the laggard of the group , relatively speaking. Although the index has not made it into new high territory along with its brethren, the chart does show a somewhat bullish ascending triangle as it approaches resistance near the 155 level. It will be interesting to see if the index breaks out and simply plays catch up with the other indices, fails at new highs which in turn initiates some corrective activity in the general markets, or is the beneficiary of some type of rotation away from large cap area. The index will open trading on Monday with three distribution days in the current count.
QQQ- The Nasdaq 100, after breaching its prior breakout level in late December, has climbed to new highs with four consecutive upward sessions and closed the week with gains of nearly 4%. It wasn’t too long ago that the index was showing some signs of weakness, but held an important area of trend line support in early December. Ever since, action has been fairly constructive and the index shows only two days of distribution on the books.
That’s all for now. Enjoy the rest of your weekend and stay safe!