Over the last eight days, the stock market has been hit very hard as the S&P 500 is down 5.85% and the Nasdaq 100 has lost 6.23 %. That eliminated the chances of a month-ending rally as the selling spread last week to even the strongest market-leading stocks and ETFs. The earnings from a few of the tech giants did not help as traders were very difficult to please even when earnings met estimates. Some lowered their guidance and as a result, some stocks were downgraded.
The bullish sentiment, according to the American Association of Individual Investors (AAII) has continued to decline. It peaked at 49% on August 2nd and came in at 29.3% last week after a September 27th low of 27.8%. The bearish % rose to 43.2% which was the highest reading since May 11th. For many years a bullish % reading in the low 20% often coincided with a correction lows.
Earnings likely received more attention because of the bond market. Yields had wide swings as volatility stayed high with yields closing lower for the week. The chart of the 10-Year T-Note yield shows a potential top formation but likely needs a drop below 4.532% to confirm. There is additional support at 4.361%.
The MACD and MACD His peaked in early October and have formed lower highs (see arrows). Both turned negative at the end of the week and a decline below the prior lows would be even more negative. The weekly MACDs are still positive but have turned lower.
Even though the Nasdaq 100 ($NDX) was up 0.50% on Friday, in reaction to the strong earnings from Amazon
AMZN
(AMZN) and Intel
INTC
(INTC), it was still a rough week with $NDX down 2.6%. The Dow Jones Transportation Stocks were hit the hardest as it dropped 6.2%. There was a 2.5% decline in the S&P 500 and the iShares Russell 2000.
The Dow Jones Industrial Average was 2.1% lower while the SPFR Gold Trust (GLD
GLD
) rose 1.4%. The Dow Jones Utility Average also was higher for the week up 0.7%. It was another negative week for the market internals as on the NYSE there were 827 advancing issues and 2171 declining. The advancing/declining volume ratio was not as negative on either the NYSE or the Nasdaq Composite but the ratio of New Lows to New Highs was more negative.
Even though the month is not over yet the Spyder Trust (SPY
PY
SPY
) is already down 3.9% as of Friday’s close and trading below the June low at $416.79. SPY had lows of $403.74 and $403.78 in April and May with the February low at $380.20, line a. This support is 7.4% below Friday’s close.
The monthly S&P 500 Advance/Decline line looks ready to close the month below its WMA after it made a new high in June, line b. The new high did indicate that SPY will surpass the prior all-time high at $479.98. A similar signal was generated in January 2019 as was a Zweig Breadth Thrust (ZBT) buy signal when the SPY was at $261.79.
The recent technical damage and the downtrends in the weekly A/D lines are now in conflict with the bullish track record of the March ZBT buy signal along with the new projected high from the S&P 500 A/D line analysis. However, a drop in the monthly S&P 500 A/D line below the support at line c, would be more negative.
In the last months of 2018, a similar analysis did not indicate a new bear market had begun which turned out to be correct. So at this stage, I have not changed my long-term bullish view on the stock market but I will be watching any rally between now and the end of year very closely.
The selling last week spread to all sectors even those with positive relative performance. So far in 2023 only XLK
XLK
and XLC
XLC
have positive YTD performance of 8.3% and 32.4%. I have included two columns that show how each of the sector ETFs has performed versus the S&P 500 over 6 Months and on a YTD basis. This is another way of monitoring relative performance (RS) for ETFs or stocks.
A column for the 2023 yearly pivot values has also been included. These levels are based on the price ranges from 2022 and often provide a unique reading of support and resistance. Those that closed last week above their yearly pivots are highlighted in green and include XLK, XLC, XLE
XLE
, and XLI
XLI
. These are therefore positive based on the yearly pivot analysis.
Typically, I compare the monthly closing price to the yearly pivots as it also lets me look at where the monthly ETFs closed relative to the new monthly pivots. Therefore the second part of this article will be released after the close on Tuesday, October 31st.
For those who may be close to selling in panic, that is not advised. Last week both the QQQ
QQQ
and SPY dropped between 3-4% below their 20-day EMAs as well as exceeded the daily starc- bands.
In addition, just 11% of the QQQ stocks are now above their 10-day MAs. This typically leads to a 2-3% rally in the next week or two. Therefore selling on the next lower opening could be a mistake so watch for rallies back to the 20-day EMAs.
Read the full article here