NASDAQ Leads Market Higher
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The following is an excerpt from this week’s ‘Weekly Market Letter’ from Market Edge (www.marketedge.com).
| The major averages side-stepped the melt-down of hedge fund Archegos as the week started as a forced margin call and liquidation rattled investors. The different indexes opened sharply lower but managed to end the session mixed as the damage was limited to a small number of investment banks. Prices firmed in the holiday shortened week after President Biden announced his $2.25 trillion jobs and infrastructure package and the different indexes were able to close the week higher across the board. A rebound in big cap tech shares and semiconductors gave a boost to the NASDAQ which gapped higher on Thursday and closed back above it 50-day moving average (MA). Strong earnings and forecast from Micron Technologies (MU) helped lift the Philadelphia Semiconductor Index +4.3% for the period. The S&P 500 rallied past the 4000 mark on the same day to settle at a new record high. Every sector finished the period in the green with Technology (XLK) jumping +4.71%, followed by strength in REITs (XLRE), Consumer Discretionary (XLY), Energy (XLE), Materials (XLB), Industrials (XLI) and Communication Services (XLC) all up more than +2%. Crude oil prices traded on both sides of $60 a barrel before jumping +3.68% to $61.34 as the week ended after OPEC agreed to boost output on rising demand from reopening economies. A weaker than expected jobs report on Thursday eased yields ahead of the long weekend and the major averages were able to shake off inflation fears as the DJIA and S&P 500 closed higher for a second straight week, while the NASDAQ and Russell 2000 stopped a two-week skid.
For the period, the DJIA added 80.33 points (+0.2%) and closed at 33153.21. The S&P 500 gained 45.33 points (+1.1%) and settled at 4019.87. The NASDAQ jumped 341.39 points (+2.6%) to close at 13480.11, while the small cap Russell 2000 picked up 32.42 points (+1.5%) finishing at 2253.90. Market Outlook:The technical condition of the market improved during the week as the DJIA, S&P 500 and DJ Transportation Index punched new record highs and the NASDAQ and Russell 2000 were able to trade back above their respective 50-day moving average (MA). The technical indicators for the different indexes moved back into positive territory and momentum, as measured by the 14-day RSI is bullish. Negative divergence that had been slipping into the charts looks to have moved to a more neutral condition which could help the NASDAQ and Russell 2000 outperform over the near term. Internal breadth remains positive. The NYSE Advance/Decline line, a leading indicator of market direction, came within 1,000 units of hitting a new high and new 52-week highs showed some expansion as the week ended. Investor sentiment is still showing conflicting signals as the National Association of Active Investment Mangers (NAAIM) cut exposure to 52% this week, but according to the American Association of Individual Investors (AAII), bullish retail investors outnumber bearish investors 2:1. In addition, FINRA Customer Margin Balance hit a record high of $813,680,000, while short interest at the NYSE jumped +2.8% mid-March, and the NASDAQ short interest spiked +5.6%! Finally, this week’s rebound in technology shares could see the NASDAQ flirt with its old high before prices back off. While the rotation into cyclical sectors is ongoing, the 10% correction in technology over the last few weeks represents a buying opportunity after support levels were successfully tested over the last few weeks. 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 +8, unchanged from the previous week. Cycles B, C and E are bullish, while Cycles A and D are bearish. The CTI is projected to remain in Bullish Territory into April. 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 two notches from the previous week. Breadth was positive at the NYSE as the Advance/Decline line added 1997 units while the number of new 52-week highs out did the new lows on all four sessions. Breadth was also positive at the NASDAQ as the A/D line gained 1971 units while the number of new highs beat the new lows on three days. Finally, the percentage of stocks above their 50-day moving average rose to 60.3% vs. 56.4% the previous week, while those above their 200-day moving average eased to 86.2% vs. 84.8%. 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 3/31/21 shows inflows of $2.6 billion. That marks an eighth consecutive week of inflows. Currently, the Sentiment Index is Negative at -2, up a notch from the previous week. Market Posture: Based on the status of the Market Edge, market timing models, the ‘Market Posture’ is Bullish as of the week ending 11/13/2020 (DJIA – 29479.81). For a closer look at the technical indicators and studies that make up the market timing models, check out the tables located below. |
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| Market Timing Models | Current Reading | Prior Week | Connotation | |||||||||||||
| Cyclical Trend Index (CTI): | 8 | 8 | Positive | |||||||||||||
| Momentum Index: | -2 | -4 | Neutral | |||||||||||||
| Sentiment Index: | -2 | -3 | Negative | |||||||||||||
| Strength Index – DJIA (DIA): | 69.0 | 55.2 | Positive | |||||||||||||
| Strength Index – NASDAQ 100 (QQQ): | 54.2 | 49.0 | Positive | |||||||||||||
| Strength Index – S&P 100 (OEX): | 63.4 | 51.6 | Positive | |||||||||||||
| Dow Jones Industrial Average (DJIA): | 33153.21 | 33072.88 | 0.2% | |||||||||||||
| S&P 500 Index: | , | 4019.87 | 3974.54 | 1.1% | ||||||||||||
| NASDAQ Composite Index: | 13480.11 | 13138.72 | 2.6% | |||||||||||||
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