S&P 500 Slides For Sixth Straight Week

CNBC has revised their Option Action show which is aired every weekday night at 5:30. They have really beefed up the Friday show to the point that we think it is one of the best option oriented shows on the air. Check it out.

The following is an excerpt from this week’s ‘Weekly Market Letter’ from Market Edge (www.marketedge.com).

CNBC has revised their Friday Option Action show which is aired weekly at 5:30. The show has been beefed up to the point that we think it is one of the best option oriented shows on the air. Check it out.

One of the most volatile trading periods since the start of the pandemic left the major averages with marginal losses this week as investors weathered 3-5% daily swings in the different indexes. The major averages nudged higher to start the week after the previous Friday’s dive as market participants waited for the FOMC Announcement on Wednesday. The Federal Reserve bumped interest rates up 0.50-point, as expected, but Fed Chair Powell surprised the market by implying that a 0.75-point hike wasn’t on the table going forward and laid out the Fed’s plan to navigate a soft landing for the economy. Powell calmed jittery investors that feared the Fed would move too aggressively to rein in inflation, and the different indexes rallied about +3%, closing at the highs of the day. The ‘relief rally’ was short-lived however, as the gains faded on Thursday as traders doubted the Fed’s ability to maneuver a soft landing amid supply chain issues from China’s lockdown and the ongoing war in Ukraine. Yields nudged higher with the rate on the 10-year T-Bill peaking at 3.129% on Friday and the CME Group FedWatch was projecting a 78.6% probability of a 0.75-point rate hike at the June FOMC Meeting. The DJIA dropped 1063.09 points (-3.12%) on Thursday and the NASDAQ tanked -4.99%. Crude oil prices were higher after the EU agreed to phase out Russian oil and gas and the June crude contract ended the week at $110.62 a barrel. The Energy (XLE) sector surged +10.34% on the week. Communication Services (XLC), Utilities (XLU) and Financials (XLF) also outperformed. The worst performing sectors were REITs (XLRE), Consumer Discretionary (XLY), Consumer Staples (XLP) and Technology (XLK). The US Dollar index traded at its highest level in 20 years on increasing yields. A solid jobs report on Friday kept downward pressure on equities but the major averages were able to come off the early lows by the close.  The S&P 500 and NASDAQ limped into the weekend carrying a five-week losing streak, the longest losing streak since 2019, while the DJIA was down for a sixth straight week.

For the period, the DJIA fell 78.03 points (-0.2%) and settled at 32899.37. The S&P 500 shed 8.59 points (-.2%) and closed at 4123.34. The NASDAQ dropped 189.98 points (-1.5%) finishing at 12144.66. The small cap Russell 2000 gave up 24.54 points (-1.3%), finishing at 1839.56.

Market Outlook: The technical condition of the market deteriorated again this week as the major averages traded down and extended their weekly losing streaks. The technical indicators for the different indexes are negative with MACD, a short-term trend gauge, in bearish territory and Momentum, as measured by the 14-day RSI, negative. The major averages are all trading below their 200 and 50-day moving averages (MA), confirming the downtrend. While the DJIA and DJ Transportation Index have so far been able to hold above their February lows, the S&P 500 broke that support and came within a few points of putting in a new 52-week low. The NASDAQ and Russell 2000 both put in new 52-week lows this week. On a positive note, secondary indexes the DJ Transportation Index and the Philadelphia Semiconductor Index (SOX) showed positive divergence finishing the period with small gains and several technical indicators were moving into neutral ground. This week’s selloff saw the NASDAQ retrace more than 38.2% of the rally off the March 2020 low to Novembers high. That level was roughly 12545 and coincided with the low of March 2021. Often when a stock or index breaks that Fibonnaci retracement level it goes on to retrace 50% of the total move. That would target 11450 for the NASDAQ and could mark a bottom for the selloff. That break of support probably implies that the DJIA and S&P 500 will both retrace that 38.2% retracement level before buyers step in. If the S&P 500 retraces 38.2% of the March 2020 low to January high, it would take the index to 3800-3820 which works out to a 21% correction from the previous high. The DJIA finds its 38.2% retracement at 29765-29800 and represents a 19% selloff from the January high. Traders will be looking for a capitulation bottom at those levels. Underlying breadth remains weak with the NYSE and NASDAQ Advance/Decline lines, leading indicators of market direction, continuing to lose ground and putting in their lowest numbers of the year showing broad based distribution. The number of stocks making new 52-week lows outnumber new highs by a wide margin, matching some of the high totals of the year. Investor sentiment remains overly bearish, especially after Thursday’s reversal. Although there was an uptick in bullishness this week by both retail investors and hedge funds, both remain near historically low levels. In addition, the numbers are gathered the previous weekend and will mostly likely show another downturn next week after this week’s market action.

The different indexes finished the period oversold by several measures with the Market Edge/S&P Short Range Oscillator (SRO) going into the weekend at -4.56%. When the number closes in on -5%, it has historically led to buyers reentering the market. The MarketEdge/S&P Short Range Oscillator (SRO) is often talked about on the financial news networks.  One popular investment personality often mentions it in his nightly show and in his monthly investors club meeting yesterday, he talked about how he has relied on it since 1998 and declared, “It is the touchstone that I care about.”

Did you know that the Official SRO is available only from MarketEdge?  You can be part of the exclusive group that gets this information directly from the source each and every market day by signing up at www.sposcillator.com or for a limited time you can add it to your existing MarketEdge subscription by contacting support@marketedge.com.

A chart of these indicators can be found by going to the Market Edge Home page and clicking on Market Recap, which is on the right-hand side of the page just below the Second Opinion Status numbers.

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.

Currently, the CTI is Positive at +7, down two notches from the previous week. Cycles B, C, D and E are bullish, while Cycle A is Bearish. The CTI is projected to remain in a Bullish configuration until June.

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 Neutral at -2, up a notch from the previous week. Breadth was negative at the NYSE as the Advance/Decline line fell 1350 units while the number of new 52-week lows exceeded the number of new highs on all five sessions. Breadth was also negative at the NASDAQ as the A/D line lost 2303 units while the number of new lows out did the new highs on each day. Finally, the percentage of stocks above their 50-day moving average fell to 24.8% vs. 31.3% the previous week, while those above their 200-day moving average dropped to 26.4% vs. 31.7%. 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. The Sentiment Index is Positive at +6, up a notch from the previous week. In addition, we track money flows into and out of Equity Funds and ETFs which as of 5/04/22 shows outflows of $2.3 billion.

Market Posture: Based on the status of the Market Edge, market timing models, the ëMarket Postureí is Neutral as of the week ending 4/29/2022 (DJIA – 32977.21).

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