MARKET GAUGE: Confirmed Uptrend
*Weekly Sector Watch highlights several industry groups that have experienced a measurable change in strength or weakness relative to other groups over the last 3-6 week period.
SECTORS EXHIBITING RECENT STRENGTH: Oil/Gas (Integrated), Oil/Gas (Refining/Marketing), Transportation (Ship), Transportation (Rail), Steel (Specialty Alloys), Metals (Proc./Fabrication), Retail (Specialty), Software (Medical)
SECTORS EXHIBITING RECENT WEAKNESS: Computer (Networking), Transportation (Airline), Finance (Specialty Services), Finance (Mortgage Related), Finance (Foreign Banks), Telecom (Wireless), Retail (Department Stores).
OVERVIEW: As you can see from our market gauge the indices have regained sufficient strength to lose their “under pressure” designation and resume the confirmed uptrend that was initiated on 4/10 with a follow through day that registered on the heels of the 4/4 initial rally attempt. The S&P 500 and Russell 2000 have posted six straight days of gains something they haven’t achieved since early February. Many more stocks have been breaking out of solid bases and others have had positive reactions to solid earnings reports which is a reversal of what we had been seeing when many traders were taking advantage of the good news to trim their positions in stocks. Another positive sign is a lack of new distribution days registered by the indices, in fact, we have to go back seven trading sessions to find the last day of net selling by institutions. While the markets have been able to rally and pull away from their 50 day moving averages, there are some hurdles ahead so let’s take a look at where we stand with the indices that we track hear heading into next week.
SPY- The S&P 500 has trailed tech stocks and small caps but has been trying to play catch up this week by registering six straight days of gains. Most importantly, the ETF we use to track the progress of the index, has finally been able to take out the most recent level in a series of lower highs and remount its 50 day moving average. Going forward the next line in the sand rest near the $280 level, or 2800 on the index itself, and this area may present a larger hurdle for the index. This is the area where heavy selling began with a series of gap downs in price back in late January and early February that put the market into correction territory and may provide heavy overhead resistance for the index, but let’s not get too far ahead of ourselves. At some point this recent advance will be met with a pullback and what the bulls need to see is the 50 day moving average line act as an area support for the index. Although we have not seen any recent distribution days the index still sits with six day in the current count but with time and any further rally we could see days drop off the count in a hurry. I will remind clients again that while we need to monitor the indices for changes in character, either positive or negative, rely on the action of leading stocks in the market and the action of the stocks in your portfolio, as this will be the true barometer for your trading.
NASDAQ- The Nasdaq Composite, which has been in better technical shape than the S&P 500 recently, has moved strongly above its 50 day moving average while also clearing the April high the was set after the rally confirmation on 4/10. The index looks much better from a distribution perspective as it is now left with only two days in the current count. The 4/24 distribution day (marked in pink in the volume pane) was removed due to a rally of 6 plus percent from the lows set on that day. This is one way distribution days can be removed from the current count with the other being simply time. Looking ahead, the index may meet its next key challenge, not at its old highs, but at big round number resistance at the 7500 level. Until then, we would like to see any pullback contained at the 50 day moving average line.
QQQ- The Nasdaq 100, not surprisingly, is looking very much like the composite except that we see a couple more days of distribution in this picture. However like the composite, it too erases the distribution day from 4/24 based on the big rally that followed. Additionally, some of the older distribution days will start to come off the count late next week due to time. The next line of possible resistance lies below the old highs near $171.00. Index heavy weights Amazon and Netflix are close to breaking out to new highs and if they can breakout successfully the index may challenge its old highs near $175.00 soon.
IWM- The Russell 2000 continues to be the leader in the clubhouse and after six straight days of gains is less than 1% away from all-time high territory. The recent rally has run price right into those old highs so it will be interesting to see if the index needs a breather before mounting that resistance, or if this becomes a tough area for the index to overcome.
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