MARKET GAUGE- Confirmed Uptrend
*Weekly Sector Watch highlights several industry groups that have had a measurable change in strength or weakness relative to other groups over the last 3-6 week period.
SECTORS EXHIBITING RECENT STRENGHT- Energy (Solar), Oil/Gas (Field Services), Oil/Gas (US Exploration/Production), Oil/Gas (Refining/Marketing), Oil/Gas (Drilling), Transportation (Ship), Software (Security), Medical (Products), Metals (Mining/Ores), Real Estate (Development).
SECTORS EXHIBITING RECENT WEAKNESS- Software (Gaming), Retail (Consumer Electronics), Semiconductor (Manufacturing), Semiconductor (Equipment/Materials), Semiconductor (Fabless), Computer (Networking), Leisure (Lodging).
OVERVIEW: An early week rally in the indices turned somewhat sour late in the week and the late week selling pushed three of the four major indices we track here back below their key 50 day moving averages. Although we are still in a confirmed uptrend, it won’t take too much more heavy selling pressure to put our Market Gauge in “Uptrend Under Pressure” mode, but we’ll take things one day at a time. In an interesting development this week the financial sector, which had been unable to gain any traction lately despite some stellar earnings and a rising interest rate environment, bucked the trend late in the week with some nice gains. While it was nice to see the group pick up some steam, I’m not sure at this point how much of a positive effect this will be for the markets. The rising interest rate environment, while a plus for the sector, has now pushed the 10 year treasury note within an eyelash of a four year high and it remains to be seen how the market will react should bond yields continue to rise. Here is a look at the 7-10 year Treasury Bond Fund ETF where the heavy selling on Thursday and Friday put pressure on stock prices. Remember, bond prices down, yields up.
Keep in mind, confirmed uptrends are not fool proof crystal balls into the future. They merely tell us that it is time to start putting money back to work on the long side and this should be done slowly and methodically until the indices carve out a longer term trend and start to make new highs, it is at his point you can get more aggressive. The prior confirmed uptrend that was signaled in early February ultimately failed in late March. So, we will continue to monitor the indices here to help guide our trading, but remember that the action of your individual stocks is your ultimate barometer. With that, let’s take our weekly look at the indices.
SPY- The poor finish to the week put the ETF back below the 50 day EMA chalking up two fresh distribution days in the process bringing our total up to three since the 4/10 follow thru day. Note that the index itself currently posts only one distribution day, but for our purposes we prefer to track the ETF. While we note the distribution, we have to try and assess the intensity of the selling as well. While Thursday and Friday volumes increased, trading was still below the 90 day average and Friday volume in particular was aided by monthly options expiration so we do take this into consideration and try to keep things in context. We would like to see the index reclaim the 50 day EMA next week but action could be a bit volatile. With earnings season in full gear and many big names reporting next week, earnings results may drive shorter term price action.
NASDAQ- The Nasdaq Composite also suffered the late week blues due in large part to heavy selling in semiconductor group. Heavily weighted Apple Inc. (AAPL) added to the pressure as the stock lost over 5% for the week. Semiconductor stocks have become a large part of the economy of the last many years, so this recent weakness is something to take note of. On the positive side, the index did escape a distribution day on Friday as volume receded from Thursdays level. This leaves the index with only one such day since the 4/10 follow thru day so the index is looking good from this prospective.
QQQ- The Nasdaq 100 suffered the most damage on Friday losing 1.58% and closing back below its 50 day EMA. Volume was heavy here relative to the other indices coming in just above the 90 day average but again we must account for the monthly options expiration. The index did chalk up a distribution day again on Friday bringing the total to three over the last 20-25 day period. Remember, occasional distribution days are normal but 5-7 days over 4-5 week period will definitely put us on caution. Some big earnings are on deck this week from the likes of Facebook (FB), Amazon,(AMZN), and Alphabet (GOOG) so expect some fireworks.
IWM- The Russell 2000 continues to lead the pack of the four indices we cover here. It was the only index to maintain and close above its 50 day EMA this week and added just over 1% in the process. Traders should take note of the relative outperformance and focus on these small cap names should the market stay in confirmed uptrend mode. The index did pick up a distribution day on Friday which is only the second since the 4/10 follow thru day in the markets. The index by far rests much closer to all-time high territory compared to its counterparts sitting just over 3% below the mid January high of $160.63.
That’s all for today. See you later this weekend for our weekly review of our open trades. Have a great Saturday!
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