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: Software (Medical), Software (Gaming), Electronic (Semiconductor Manufacturing), Electronic (Semiconductor Fabless), Internet (Content), Wholesale (Electronics), Electronics (Scientific/Measuring Equipment), Medical (Research/Equipment), Commercial Services (Healthcare), Medical (Long Term Care).
SECTORS EXHIBITING RECENT WEAKNESS: Telecom (Infrastructure), Energy (Solar), Retail (Discount/Variety), Retail (Major Discount), Retail/Wholesale (Auto Parts), Retail (Consumer Electronics), Transportation (Airlines), Beverages (Alcoholic).
OVERVIEW: The confirmed uptrend that began in early April continued to gain steam this week, even the Dow decided to join the party as it led all indices with a gain of 2.8% for the week. Last week we mentioned that a push out of a recent congestion zone between $270 and $275 for the SPY would start to paint a better picture for the S&P 500, and this week it deliver with a gain of 1.68%. Meanwhile the small caps continued their impressive breakout. We noted in last weeks write up that the successful retest of the breakout in the Russell 2000 gave us more confidence that the recent advance could continue, and indeed the index added 1.64% for the week good for an all-time weekly closing high. Although recent geo-political concerns were put to the background this week, there is still enough uncertainty in regards to tariffs and trade that should keep traders on their toes for a spike in volatility. Now, let’s take a look at the charts where the we find the distribution picture has brightened for the SPY, while the Nasdaq 100 struggled a bit to keep pace this week as it was rejected at all-time highs.
SPY- The S&P 500 ETF busted out of a recent congestion zone we have been watching for a while and finished the week nicely above that area closing at $278.19. However, the challenge doesn’t stop their for the ETF as it will quickly run into the next area of overhead resistance near the $280.00 level. This area represents a key level where the index gapped down as the February correction started to pick up steam. An ensuing advance that challenged this price area in March was quickly rejected sending prices back down to test the February lows. That double bottom pattern that has led to the current confirmed rally that began in April has made progress, but some bad memories await less than 1% from where we stand after Fridays close. We will be watching very closely as to how prices respond, if and when, this price area is approached. The distribution picture has improved here with the ETF losing two of those days recently due to time. We now sit with only four such days, compared to the six that we saw at the end of last week, over the last 25 sessions.
NASDAQ- The Nasdaq Composite’s recent major breakout above the 7500 level seemed to easily breeze past its all-time high of 7637 early in the week, but a brisk sell-off Thursday reminded traders that some work may need to be done to clear this area. However, the index responded quickly on Friday with a modest advance that did achieve a weekly all-time closing high. The index has picked up three fresh distribution days over the last two weeks despite the move higher, and this brings the total up to five days in just the last 18 sessions. A couple more days of institutional selling next week may start to raise some caution flags, but for now its tough to argue with new highs. A pullback to test the 7500 level, similar to the retest that Russell 2000 recently put in, is not out of the question.
QQQ- The Nasdaq 100, not surprisingly, has been running in lock step with the Composite and it also had some trouble this past week after it eclipsed its all-time high on Wednesday with a reversal on Thursday, but it too was able to notch an all-time weekly closing high. That said, the late week pullback put the index back into a support/resistance zone that has set up roughly between $175 and $171. Like the Nasdaq Composite, a pullback to the bottom of the box to test the $171 area is a possibility, and if so, we will be watching the corresponding volume levels. The index sits with four distribution days in the current count.
IWM- The one index we track here that is in clear air is the Russell 2000. The mid-May breakout was successfully tested later in the month and it has been clear sailing ever since. Although the trend is clearly higher, the index is now close to 5% above the 50 day EMA, so a consolidation in the near term is not out of the question. The index looks healthy showing only two distribution days over the last 25 sessions.
Join us at http://www.ttptrading.com for real-time stock and option trade alerts delivered right to your inbox from myself as well as Greg Krupinski of GK Trading for one low price. Members receive daily and weekly reviews of the indices and current open trades, as well as weekly videos highlighting several trading opportunities for the upcoming week and much more. See you there!