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 (Application) Software (Infrastructure), Internet (Content), Electronics (Misc. Products) Electronics (Wholesale), Electronics (Parts), Medical (Long Term Care), Medical (Biotech), Medical (Products), Medical (Research Equip/Services), Leisure (Products), Leisure (Services), Media (Diversified).
SECTORS EXHIBITING RECENT WEAKNESS: Energy (Solar), Energy (Coal), Oil/Gas (Refining/Marketing), Oil/Gas (Drilling), Oil/Gas (Machine/Equip), Oil/Gas(Integrated), Oil/Gas (Field Services), Mining (Metals/Ores), Banks (Super Regional), Steel (Producers), Steel (Specialty Alloys), Transportation (Ship), Transportation (Truck), Financial (Investment Banks/Brokers), Electronic (Semiconductor Fabless).
OVERVIEW: A look at the recent sector strength above shows not much has changed since last week, and not coincidentally, the indices also traded pretty much unchanged for the week. Financials, particularly the large money center banks, have shown some vigor lately, but are still looking up at the market leaders and have a long way to go to right the ship. On the flip side, medical related issues and software stocks continue to dominate the top of the leaderboard, along with internet related issues. Fridays option expiration mirrored the activity for the week as most major indices traded flat, with the exception of the small cap Russell 2000, which finished with a modest 0.41% loss after racking up three straight positive sessions previously. Markets have endured a lot of political crosswinds recently, and when you add that we are heading into the heart of earnings season, trading could be tough to navigate in the days and weeks ahead. The indices head into next week at interesting chart levels, so let’s take a closer look.
SPY- The ETF we used to track the S&P 500 made an attempt early in the week to push thru that stubborn $280 level, which also marks the 78.6% Fibonacci retracement level of the February correction low, but couldn’t quite seal the deal and closed the week at $279.86. The passage of time is slowly helping the distribution picture here and next week will see two additional days removed from the rolling 25 session count. Things appear to be improving for the index recently as over the last 16 sessions it has only seen two days of institutional selling. It also remains in an uptrend that it has carved out since the April rally confirmation and again sits above the 50 day EMA. With the monthly option expiration behind us, let’s see if the index can convincingly push through resistance and attack the old highs near $286. While earnings are generally projected to come in very well, we will be watching traders reactions to these earnings as a possible clue as to where we may be headed.
NASDAQ- The Nasdaq Composite sits with five distribution days on the books, but has also righted the ship more recently in this regard, and it too will see two days of selling removed from the books next week. After making new highs on Tuesday, the index has failed to follow thru and instead has printed some narrow range consolidation days just above the breakout level. For now, there is nothing magical about this level as the index is still in a strong four month trend and riding well above the 50 day EMA. We will be watching for any move back down below the breakout level to hold trend and 50 day support.
QQQ- As for the Nasdaq 100, we have drawn in a nice up trending channel the index has carved out over the last four months which has the index is looking well from this perspective. The Q’s have six distribution days on the books, but like the others we lose two days from the current count next week due to time. Fridays options inflated volume does count as a distribution day as the microscopic loss of .02% does not qualify.
IWM- The Russell 2000 had us mildly concerned last week at this time, but some mid-week strength in the index helped alleviate some of that. The four month uptrend has now formed an ascending triangle formation near recent highs and we could see resolution to this pattern in the coming days. Despite the high distribution count of seven days over the last 21 sessions the solid uptrend remains in tact, and a break to new highs will alleviate our mild concerns and have us feeling much better about the small caps.
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