Weekly Market Prep For 5/7
MARKET GAUGE: Uptrend Under Pressure
SECTORS EXHIBITING RECENT STRENGTH: Oil/Gas (Exploration/Production), Oil/Gas (Field Services), Oil/Gas(Refining/Marketing), Oil/Gas (Integrated), Transportation (Ship), Real Estate (Development Ops), Retail (Restaurants), Retail (Specialty), Mining (Gold/Silver).
SECTORS EXHIBITING RECENT WEAKNESS: Computer (Networking), Software (Gaming), Medical (Biotech), Internet (Content), Financial (Mortgage Related), Financial Services (Specialty), Transportation (Trucking), Telecom (Wireless), Electronic (Semiconductor Equipment), Software (Education).
OVERVIEW: The indices finally showed some signs of strength late in the week. A bullish reversal day on Thursday followed by a strong trend day on Friday has traders hopeful that the markets may be finally finding some footing, however, some work still needs to be done before the pressure eases on the recent uptrend. We mentioned here on a few occasions that in tracking distribution days we must keep things in context and Thursdays action was a prime example of this. The S&P 500 sold off hard to start the day easily piecing through its 200 day moving average. The sell-off was then met with some convicted buying as volume swelled to its highest level for the SPY ETF in nearly a month and although the index finished down just over 0.2% on a increase trade from its previous session, which technically qualifies as a distribution day, institutions were actually stepping in at this level and were net buyers of stock not sellers. As is often the case in the markets, the devil is usually in the details so be careful to take your market information in full context before coming to a quick conclusion. Again, we are not out of the woods yet in regards to the market regaining it confirmed uptrend designation so lets take a look at the four indices we track here to see where we are to start the new week.
SPY- Fridays rally that built upon Thursdays bullish reversal was nice to see but the index is still faced with a series of lower highs which we highlighted last week. The week ending rally ran up to the 50 day EMA but was halted there again as it has been on several previous occasions recently. The first step for the index would be to close convincingly above the 50 day EMA, it then needs to post a higher high over the $271 level that was set back on 4/18 before we can get overly bullish. Until then it will pay to be very diligent in looking for new leadership in particular sectors as well as individual stocks so that when and if the market starts to roll again you are ready to take advantage. The ETF has six distribution days on record over the last 16 sessions so some caution is still warranted.
NASDAQ- While the S&P 500, and the DOW for that matter, have clearly been the weakest links in the chain, the Nasdaq Composite is holding up slightly better. A quick peek at the SPY chart above will show the ETF either touching or trading through its 200 day moving average line on several occasions while the Nasdaq has yet to visit the area. Additionally, Fridays rally put the index back above the 50 day moving average while the S&P fell just shy. Finally, the Nasdaq shows only three days of distribution recently compared to the six posted by the S&P 500. Similarly, we would also like to see the index take out its prior high posted on 4/18 before getting too excited about the upside.
QQQ- The Nasdaq 100 chart is pretty much a carbon copy of the Nasdaq Composite except that this index has been hit with a couple more distribution days recently. The index was easily the clear winner this past week with an advance of 1.72% but heavily weighted Apple (AAPL) played a large part in the index performance with a gain of over 13% for the week, yet another example of context.
IWM- We have identified the weak link in the index chain now we visit what appears to be the strongest. The Russell 2000, like the Nasdaq Composite, was able to remount and close above its 50 day EMA on Friday and also shows only three distribution days in the current count. What is different here is that the index only sits 3% below the all-time highs set earlier in the year compared to 5.5% for the Nasdaq and just over 7% for the S&P 500. The small cap arena should be an area of focus for traders moving forward.
That’s all for now. See you later this weekend for the Weekend Portfolio Review. Have a great Saturday Evening!
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