The stock market has needed a strong weekly close in the past two weeks to signal a resumption of the rally from the October lows. Instead, the prior week’s selling carried over last week’s holiday-shortened trading week.
The higher-than-expected personal consumption expenditures report (PCE) along with the continued move higher in the 10 Year T-Note yields increased recession and inflationary fears. It was a rough week as Home Depot (HD) and Morningstar (MORN) disappointed on earnings as they dropped 6.7% and 28.8% respectively. NVIDIA
All of the markets were lower last week led by a 3.4% drop in the Dow Jones Transportation Average while the Nasdaq 100 Index and Dow Jones Industrial Average were both down over 3%.
The S&P 500 loss of 2.7% was just a bit worse than the 2.6% decline in the Dow Jones Utility Average but not as bad as the 2.9% drop in the iShares Russell 2000. With last week’s action the Dow Jones Industrial Average, Dow Jones Utility Average, and the SPDR Gold Shares are now lower on a year-to-date (YTD) basis.
It was a rough week also for the market internals as on the NYSE there were 2469 issues declining and just 776 advancing. The NYSE Composite closed just above its 20 week EMA at 15,451. The 38.2% support of the rally from October lows is at 15,091 with the December low at 14,886, line a. The 50% support is at 14,745 with the weekly starc- band a bit higher at 15,265.
The NYSE All Advance/Decline line has declined from the February 3rd high but is still well above the former downtrend, line a, and the rising WMA. They could be reached in the next few weeks so we need strong NYSE A/D numbers are needed to indicate that the correction is over. The daily NYSE All A/D line (not shown) is below its WMA and in a downtrend but above support from the October and late December lows.
The S&P 500 came close to the daily starc- band on Friday with the 38.2% Fibonacci support at 3926.57. The 50% support is at 3843.51 which is the key level to watch as corrections in an uptrend often drop between the 38.2% and 50% support levels. The declining 20 day EMA at 4051 is now the resistance level to watch.
The S&P 500 Advance/Decline line broke its uptrend, line a, from the December lows and is in a downtrend. The A/D is below its declining WMA and the downtrend from the recent highs. Any rebound is likely to fail at its WMA.
The Seasonal Trend analysis uses S&P 500 data going back to 1929 to identify the most common time periods for highs and lows. A low was made on December 19th which was three days before the mid-December low. A high was made on February 2nd as the S&P 500 moved above its daily starc+ band.
The Seasonal Trend analysis for the S&P 500 often forms a bottom at the start of March and rallies for 4-5 days before decline resumes. Longer term the daily seasonal trend typically bottoms at the end of March and then peaks in early May.
Many retail companies are reporting next week including Target
The weekly RS reached the resistance at line c in early February before turning lower. It is still above its WMA. The OBV was not strong on the recent rally and is just above its WMA. The daily indicators (not shown) are negative with the declining 20 day EMA at $68.98.
The bullish % declined last week from 34.1% to 21.6% according to the American Association of Individual Investors (AAII). This is typical of a pullback in a correction as sharp changes in sentiment are often seen during pauses in the major trend.
Based on last week’s action a rally is likely this week and it will be the strength or weakness of a rally that will determine whether the long or short side should be favored. Keep an eye on the US dollar as while the current analysis is positive a slightly pullback could boost stocks. There will be updates on Twitter.