The S&a;amp;P 500&a;rsquo;s almost-1% decline last Thursday seems to have caused a quick change in the outlook of some analysts. Several warned that stocks were now too expensive after the dramatic rally from the December lows. Others pointed to the fact the S&a;amp;P 500, after rebounding to its 200-day Simple Moving Average (SMA), failed to close above it.
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Even though the selling continued early Friday, dropping the Dow Industrials down near the 25,000 level, it closed at 25,106, up slightly for the week. In fact, as the table indicates, all of the major averages closed higher as the Dow Jones Utility Average led the way up 2.1%. The Nasdaq 100 gained 0.55%. All of the averages are still showing solid YTD gains.
&l;strong&g;But did these declines change any of the technical indicators? &l;/strong&g;As I mentioned last week (&l;a href=&q;https://www.forbes.com/sites/tomaspray/2019/02/03/trend-insights-from-the-monthly-charts/&q;&g;Catch The Trend With Monthly Charts&l;/a&g;), there were some significant technical signals in January, as the monthly S&a;amp;P 500 Advance/Decline line made a new all-time high.
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The &l;a href=&q;http://www.viperreport.com/ad-line-market-timing-stock-picking-trading/&q; target=&q;_blank&q;&g;advance/decline numbers&l;/a&g; were decidedly negative on Thursday, which caused all of the daily A/D lines to turn down slightly. The NYSE Composite reached the resistance from the November highs (line a) before it turned lower. The 20-day Exponential Moving Average (EMA) is at 12,125, which also corresponds to the mid-January high, and rising. There is further support in the 11,900-12,000 area.
The NYSE All A/D line has turned down slightly from its recent high as the key downtrend (line b) was overcome in late January. This was the resistance that was derived from the bearish divergence that formed at the September 21 high. As we discussed last week, a bearish divergence is when the A/D line makes a high followed by a lower high, while prices make a high followed by a higher high. The NYSE Stocks Only A/D Line has moved above the resistance (line c) but is still well below the September high.
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For the week, all of the A/D lines did move a bit higher. The Invesco QQQ Trust (QQQ) had a high last week of $171.37, with next weekly resistance (line a) at $172.85. The 20-week EMA has flattened out, and is now at $165.62. This represents good support.
The Nasdaq 100 A/D made a new high last week after previously overcoming its short term downtrend (line b). The WMA has turned upward, which is a positive sign, and there is now major support (line c). Invesco QQQ Trust&s;s weekly &l;a href=&q;http://www.viperreport.com/the-secret-to-trading-etfs-for-profit/&q; target=&q;_blank&q;&g;relative performance&l;/a&g; improved last week, suggesting that it is stronger than the S&a;amp;P 500.
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The Spyder Trust (SPY) closed slightly above its 200-day MA last Tuesday and Wednesday, before it corrected. The decline has so far held well above the 20-day EMA at $266.19. Looking at price targets above last week&a;rsquo;s high at $273.44, the daily starc+ band is at $277.82, and there is widely watched resistance at $280.
The daily S&a;amp;P 500 A/D line pulled back slightly last week, but is well above its steep uptrend (line b) and its sharply-rising WMA. There is more important A/D line support (line a), which was the resistance that was overcome in late January.
Many are already worried about what will happen to stocks in March, as the market learned that President Trump was no longer meeting President Xi. The US-China March trade deadline and Brexit already have the markets worried. Concerns over first quarter 2019 earnings also started to worry analysts last week, as the guidance turned negative.
Some may still be reacting to the disappointing price action in Amazon.com (AMZN) and Alphabet (GOOGL). They were down 2.3% and 1.4% respectively for the week, despite the fact that GOOGL beat earnings by $500 million. Neither has much debt, but it seems as though investors are now holding the big tech names to a higher standard.
There were a number of more dire headlines, as Deutsche Bank &l;a href=&q;https://www.marketwatch.com/story/this-cocktail-of-macro-risks-could-cause-downturn-that-rivals-global-financial-crisis-deutsche-bank-2019-02-07?dist=markets&q; target=&q;_blank&q;&g;&a;ldquo;warned of dark clouds gathering over the global economy&a;rdquo;&l;/a&g;. Then there is Morgan Stanley&a;rsquo;s Mike Wilson, who has been warning of an &l;a href=&q;https://www.cnbc.com/2018/11/26/morgan-stanley-strategist-who-predicted-sell-off-sees-dismal-2019.html&q; target=&q;_blank&q;&g;earnings recession&l;/a&g;.
Of course, this is in contrast to the seeming lack of any concern demonstrated by investors and traders in January, who were declaring it was time to &a;ldquo;buy, buy, buy!&a;rdquo;. I too would like to see a certain amount of concern, as too high bullishness or complacency often means trouble for stocks. However, this dramatic shift in media sentiment seems like an over-compensation.
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In last week&a;rsquo;s survey from the American Association of Individual Investors (AAII), the Bearish-% dropped to 22.8% while the Bullish-% rose to 39.9%. Even though the Bullish-% is not that high, historically the Bearish-% is quite low.
Turning to bonds, the rebound in yields was short lived, as the yield on the 10-Year T-Note closed at 2.632% after reaching the 2.800% level just a few weeks ago. The technical reading did indicate a failing rally, and the new Viper buy signals in the Utilities Sector Select (XLU) supported this view.
Crude oil was hit hard last week, as the April contract lost $2.46 for the week. Still at $53.09, it is holding above the four-week low at $51. The weekly &l;a href=&q;https://www.viperreport.com/how-to-use-volume-to-predict-stock-direction/&q; target=&q;_blank&q;&g;On Balance Volume&l;/a&g; has dropped below its WMA, but the Herrick Payoff Index (HPI) is still positive, indicating positive money flow into crude.
For economic data, next week we have the Consumer Price Index on Wednesday, with the Producer Price Index, Retail Sales, and Business Inventories on Thursday. On Friday, we get the Empire State Manufacturing Survey, Industrial Production, and Consumer Sentiment.
&l;strong&g;So is it time to jump on the bearish bandwagon? &l;/strong&g;The stock market&a;rsquo;s ability to absorb last week&a;rsquo;s selling and close higher indicates that the rally from the pre-Christmas lows is not over. There are no signs from the market internals that a top is in place.
A further wave of selling early this week would be a sign that there has been a loss of upside momentum. It is more likely in my opinion, based on the daily A/D lines, that a higher close early in the week will signal a significant move above last week&a;rsquo;s highs.
Clearly, it is not the time to be an aggressive buyer of market leading ETF&s;s, though some stocks still are just breaking out and have a much more favorable risk/reward profile.
In my&a;nbsp;&l;a href=&q;http://guides.viperreport.com/viper-etf/&q; target=&q;_blank&q;&g;Viper ETF Report&l;/a&g;&a;nbsp;and the&a;nbsp;&l;a href=&q;http://guides.viperreport.com/viper-hot-stocks/&q; target=&q;_blank&q;&g;Viper Hot Stocks Report&l;/a&g;, I&a;nbsp;update&a;nbsp;my stock market outlook twice each week with specific buy and sell advice. New subscribers receive six trading lessons for just $34.95 each per month.
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