After a rough 2 ½ year fight with cancer, Mr. Seifert passed away on December 7, 2019. We will miss him big time! The following is an excerpt from this week’s ‘Weekly Market Letter’ from Market Edge (www.marketedge.com).
Trade Deal Energizes Bulls
| The stock market continued its melt up into record territory this week on the prospects of improved global economic growth after last week’s US-China trade agreement. Investors ignored an impeachment vote by the House and the major averages extended their weekly win streak to three. The NASDAQ rode an eight-day win streak into the weekend and record highs were recorded by the DJIA, NYSE, S&P 500, NASDAQ 100 and NASDAQ. The small cap Russell 2000 hit a new 52-week high. The rally was broad based with every sector closing positive led by gains in Communication Services (XLC), Healthcare (XLV), Energy (XLE) and Technology (XLK). Industrials (XLI) lagged on weakness in Boeing (BA) and FedEx (FDX). Economic data was mostly better than expected with strength evident in Industrial Production, Retail Sales and Housing Starts, supporting higher prices. Crude oil and copper prices ticked up on hopes for stronger demand and weakness in the US Dollar. Despite the market being overbought, next week is the ‘official’ start to the Santa rally and since 1993 the S&P 500 has gone up about 80% of the time the last week of December. For the period, the DJIA tacked on 319.71 points (+1.1%) and settled at 28455.09. The S&P 500 closed higher for a fourth straight week adding 52.43 points (+1.7%) ending at 3221.22. The NASDAQ outperformed and jumped 190.08 points (+2.2%) finishing at 8924.96, while the small cap Russell 2000 also finished higher for a fourth consecutive week rising 33.92 points (+2.1%) and closed at 1671.90.
Market Outlook:The technical condition of the market improved last week, and the underlying trend remained bullish. Momentum, as measured by the 14-day RSI, is positive and the underlying technical indicators are bullish but point to an overbought condition for the market. Some signs of negative divergence are beginning to show up on the charts but are not indicating an imminent pullback yet. The S&P Short Range Oscillator (sposcillator.com) finished Friday at +5.1%, which historically has led to some profit taking. In addition, the S&P 500 closed +8.9% above its 50-day moving average on Friday. The last time the index was that stretched was in January of 2018 before a -10% drop. While not a sell signal, investors may want to hold off on new buys until we see a better buying opportunity. Internal breadth remains strong with the NYSE Advance/Decline line at a new high with 14-sessions in a row showing strong accumulation. The NASDAQ Advance/Decline line hit its highest reading since October 2018 showing broad participation in the tech heavy index’s current rally. The number of new 52-week highs on both the NYSE and NASDAQ also showed expansion during the week, which bodes well for the market going forward. Finally, I need to mention Investor Sentiment. The Market Edge Sentiment Index has been accurate at signaling short term tops and bottoms when the components reach extremes and this week the Index hit a negative -6. Every component except one is currently bearish indicating that investors are way too bullish and complacent. It’s tough to find a Bear on the street, and when everyone’s on one side of the trade, it pays to step back and reduce one’s exposure. Cyclical Trend Index (CTI): The underlying premise of the CTI is that the market, as measured by the Dow Jones Industrial Average (DJIA), tends to move in cycles that often resemble sine waves. There are five identifiable cycles, each with different time durations at work in the market at all times. Presently the CTI is Negative at -3, unchanged from the previous week. The counts for Cycles A, C and D are bullish while the counts for Cycles B and E are bearish. Momentum Index (MI): The market’s momentum is measured by comparing the strength or weakness of several broad market indexes to the DJIA. Readings of -4 and lower are regarded as bearish since it is an indication that a majority of the broader based market indexes are weaker than the DJIA on a percentage basis. Conversely, readings of +4 or higher are regarded as bullish. The Momentum Index is Positive at +8, up three notches from the previous week. Breadth was positive at the NYSE as the Advance/Decline line added 3663 units while the number of new 52-week highs out did the new lows on all five days. Breadth was also positive at the NASDAQ as the A/D line gained 2266 units while the number of new highs beat the new lows on each day. Finally, the percentage of stocks above their 50-day moving average increased to 74.0% vs. 71.1% the previous week, while those above their 200-day moving average rose to 70.6% vs. 67.7%. Readings above 70.0% denote an overbought condition, while below 20% is bullish. Sentiment Index (SI): Measuring the market’s Bullish or Bearish sentiment is important when attempting to determine the market’s future direction. Market Edge tracks thirteen technical indicators listed below that measure excessive bullish or bearish sentiment conditions prevalent in the market. In addition, we track money flows into and out of Equity Funds and ETFs which as of 12/18/19 shows outflows of $32.2 billion. That’s the largest outflow from equities since the week ending 12/21/18. Currently, the Sentiment Index is Negative at -6, down four notches from the previous week. Market Posture :Based on the status of the Market Edge, market timing models, the ‘Market Posture’ is Neutral as of the week ending 11/22/2019 (DJIA – 27875.62). For a closer look at the technical indicators and studies that make up the market timing models, check out the tables located below. Industry Group Rankings : What’s Hot (75) – What’s Not (16). Of the 91 Industry Groups that we track, 75 are rated as either Strong or Improving while 16 are regarded as Weak or Deteriorating. The previous week’s totals were 65-26. The following are the strongest and weakest groups for the period ending 12/19/19. Strongest: Advertising, Internet-Financial, Healthcare Products and Medical/Bio Technology. Weakest: Household Products (Non-Durable), Home Construction, Building Materials and Real Estate Investments. To review all of the Industry Group Rankings, click on the Industries tab. ETF Center: The top performing ETF categories for the week ending 12/19/2019 were: Blend-Small Cap (+2.72%), Sector-Internet (+2.71%), Sector-Alternative Energy (+2.55%), Sector-Energy (+2.27%) and Commodity-Base Metals (+2.18%). The weakest categories were: Shorts (-2.44%), Bond-Government Long Term (-1.52%) and Sector-Real Estate (-0.50%). To review all the categories in the Market Edge universe, click on the ETFs tab. Calendar of Technical Events:
**The above listed technical events occurred for the DIA on the date indicated. DIA is the ETF for the Dow Jones Industrial Average (DJIA).
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