S&P 500 Weekly Update: Backing And Filling… Or Worse?

Last week we got the anticipated bounce in a stock market downtrend. We are giving back some of those gains to start the week, but the key question is:  What will happen next?

From what I see, I expect range-bound consolidation this week between 1884-1933 with big support at 1872 on the S&P 500 Index (SPX). Of course, there is a chance of going higher towards 1940-1950, however I will curb my expectations beyond that at least as of now.

Most sectors, from a very short term perspective came into the week overbought or nearing overbought levels. So some back and filling is expected.

We had a huge move from 1810 to 1933 or so. Crude Oil is trying to hold on to the gains from last week but struggling and looking lethargic. Watch for signs of decoupling from the stock market indices to cue an overall change in the character of the market (no signs yet).

Gold has held support near 1190 and bounced but best scenario might be some consolidation with a chance of higher prices. Bonds are something investors should be watching out for as safe heaven trades are catching a bid. That said, we will take it one step at a time. And as of now, the longer term picture for stocks is still pointing down. Not a whole lot has changed from that perspective despite some constructive action – the potential for the downside resumption cannot be ruled out.

Here’s the updated chart of $SPX.

spy chart technical price support levels for week ending february 26

Economic reports this week:

  • S&P Cash-Shiller, Consumer Confidence, Existing Home Sales, Richmond Fed Manufacturing Index came out on Tuesday
  • PMI Services Flash, New Home Sales, EIA Petroleum Status Report on Wednesday
  • Durable Goods Orders, Jobless Claims on Thursday
  • GDP, Personal Income Outlays, Consumer Sentiment on Friday

Additionally there are quite a few Federal Reserve representatives talking during the course of the week.

BREADTH INDICATORS:

From a Bread Indicator standpoint, here are a few charts/indicators to keep an eye on.

SECTOR PERFORMANCE: CANDLESTICK GLANCE:

From sector performance standpoint, most of the sectors have their RSI over median but only just bit. I would certainly not call that bullish but just constructive. None of them are either overbought or oversold. $XLU and $XLP are still the top performing stock market sectors overall.

stock market sectors relative strength index charts february

The Relative Rotation Graph (RRG) chart showing the leaders and the laggards among the 9 sectors.

relative rotation graph stock market sector for week february 26

$CPCE – CBOE Options Equity Put/Call Ratio:

The CBOE Options Equity Only Put/Call Ratio saw another spike to 0.87 last week. Some fear setting in may be near the clear resistance zones but still a lot of complacency on both sides of the stock market. Of course, the Volatility Index (VIX) shows no fear yet although still elevated at over 20. With some consolidation next week, see if this spikes a bit more.

put call ratio stock market indicator fear rising february

NAIIM Exposure Index Reading – 41.05: 

The NAAIM Exposure Index represents the average exposure to US stocks and stock market indices.

While the NAIIM Exposure Index reading has moved to 41.05, no real edge here.  Still pays to be careful.

$NYMO (McClellan Oscillator): 

The McClellan Oscillator took the stock market from mid-line to overbought in just a week. $NYMO did get over 60 mid week (last week) and ended the week at 51.25. A bit overbought but no edge here.

nymo mcclellan oscillator chart overbought february 21

 

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Stock Market Update: The Roller Coaster Ride Continues

Last week saw another week of selling in the stock market – fast controlled selling. But it gave way to another sharp oversold rally on Thursday after the S&P 500 undercut its lows. And the price action on Friday looked quite similar to January 20th although there were some positive divergences emerging over the very short term.

All bounces thus far have ended at either the 38.2% Fibonacci retracement or the 50% retracement on shorter timeframe charts (hourly etc.).

The path of least resistance is still down as all of the stock market indices are still below their 50 and 200 day moving averages and pointing downwards. Investor sentiment is very poor but nothing extreme. And there still is a lot of complacency on either side of the tape. As well, volatility continues to be elevated.

In my humble opinion, we have not seen the capitulation low type move yet so be careful.  That said, this move higher may have some legs so it’s important to use discipline when trading this tape.

Economic reports this week include:

  • Housing Starts, PPI-FD, Industrial Production and FOMC Minutes on Wednesday
  • Jobless Claims, Phily Fed Business Outlook Surevey, Leading Indicators and EIA Petroleum Status Report on Thursday
  • Consumer Price Index on Friday.

Additionally there are quite a few Federal Reserve representatives talking throughout the week.

Market Breadth Indicators:

From a market breadth indicator standpoint, the following are worth keeping an eye on.

Sector Performance: Candlestick glance:

From sector performance standpoint, none of the sectors are oversold. Financials ($XLF) and Cyclicals ($XLY) entered the week near oversold but most sectors have worked that off this week. Most of them are still in a serious downtrend while Utilities ($XLU) seems to have worked off its overbought condition.

stock market sector etfs relative strength charts february

The Relative Rotation Graph (RRG) chart showing the leaders and the laggards among the 9 sectors heading into this week.

relative rotation graph sector leaders stock market february 15

$CPCE – CBOE Options Equity Put/Call Ratio:

The CBOE Options Equity Only Put/Call Ratio spiked twice last week before easing off on Friday. It hit 0.96 which shows some fear but nothing indicating a capitulation type low. Anything over 1.00 or more importantly 1.10 signals extreme fear where there are more number of puts than calls. It finished the week at 0.71. The rally continues but investors are still on alert.

cpce put call ratio stock market bullish chart february 15

NAIIM Exposure Index Reading – 42.25: 

The NAAIM Exposure Index is a great investor sentiment indicator and represents the average exposure to US Equity markets. The green line shows the close of the S&P 500 Total Return Index on the survey date. The blue line depicts a two-week moving average of the NAAIM managers’ responses. As shown below, a week ago, the Index number had fallen back to the lower range towards 22.41. Last week it increased to 32.87 but still low enough for the mean reversion type move in the stock market indices to continue (which we are seeing this week).

naaim investor sentiment survey bearish february

AAII Bulls:

The AAII investor sentiment survey ending 2/10 suggests that the AAII Bulls were down 8.3 or 19.2%. It is probably matching or near the lows from July last year. This is a positive for the bulls over the short term and could support a mean reversion move.

aaii investor sentiment survey bulls bears february

$NYMO (McClellan Oscillator): 

The McClellan Oscillator (NYMO) finished the week at -4.70, almost flattish towards the zero line. This was neither overbought nor oversold but the move Thursday and Friday offered momentum into this week.

mcclellan oscillator nymo stock market indicator bullish chart february 16

S&P 500 Index – $SPX:

The S&P 500 closed the week at 1864.78. Last week I outlined a couple of scenarios on Stocktwits and Twitter.

  1. $SPX moves higher, the next target is right above to the declining 8 SMA at around 1869.93 or overshoot to 1872 and fall lower to retest 1850-1848 before resuming higher towards 1900+.
  2. From Friday’s close, retest 1850-1848 zone or even 1840 zone and then move higher towards declining 8 SMA at around 1870, consolidate a bit and move higher towards 1884 and with a small chance to 1900-1905.

A move towards 1900 will get many uncommitted shorts to cover and new longs to emerge and just above that level is a potential spot where a new leg lower could begin. We are still in a long term downtrend and possibly in a bear market with price below key moving averages. Some skepticism may breed higher prices and mean reversion. And a move to the 1920-1940 zone is not ruled out either. Keep an open mind, but stay disciplined.

Thanks for reading.

 

Twitter: @sssvenky

The author has a position in S&P 500 related securities. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

 

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Stock Market Update: Can The Bounce In Stocks Continue?

Are we out of the woods yet? The answer to this question is pretty simple: No.  However, the action at the end of last week and the month of January was constructive for the stock market.

That said, it’s been a rough start to this week and not a whole lot has changed from the past few weeks on a macro basis – feel free to read some of my previous stock market updates (here is last week’s blog post).

After a lot of back and forth price action within a 40-50 handle range on the S&P 500, it took a negative interest rate decision from Bank of Japan to kick of the rally on Friday and expand the range higher. The rally was on higher volume (even if you take out the last few minutes of re-balancing) with positive breadth expansion. A 90% up day where stocks, bonds, US Dollar, gold, oil and everything on earth was up before oil gave some gains – odd action there.

The entire day on Friday, bonds ($TLT) got a bid and a reason why Utilities $XLU were up too. With that said, the S&P 500 ETF ($SPY) regained its 21 day simple moving average and finished over it (before giving it back early this week). While the action was constructive on a weekly basis for stocks, it is important to remain cautious. As always a confirmation of prices ABOVE Friday’s closing price would be ideal.

Bottoms are not formed in a day so the back and forth price action isn’t uncommon as the indices have to form a base before rallying higher. The market may even want to undercut the current lows (if need be) – although that would only be bullish with some sort of technical indicators for the setup (i.e. a divergence).  There are a lot of ifs and buts right now, so consider this to be just a short term bounce within a much larger downtrend that could continue for some weeks ahead. Stay disciplined and watch your price levels and indicators to manage risk.

If last week was the most anticipated week with respect to earnings report, this week has some big name stocks reporting. $GOOGL blew the doors off but gave back some of those gains.  Other earnings reports this week include $GILD, $CMG, $XOM, $COP, $DECK, $YHOO, $UPS, $GM $LNKD.

There is no dearth for economic reports next week. Some of the important ones coming up are ADP Employment Report, PMI Services Index, ISM Non-Mfg Index, GDP and many more. Of course, the other one that everyone watches is the EIA Petroleum report that has been of great significance with Oil prices.

Breadth indicators:

From a stock market breadth indicator standpoint, here are a some things to watch.

Sector Performance – Releative Strength Glance:

From a sector performance standpoint, most of the sectors have moved higher out of the oversold levels from an Relative Strength Index (RSI) standpoint. Many of them have a bullish posture from RSI standpoint. Mentioned last week that Financials ($XLF) has been a laggard along with Materials ($XLB) and financials got a nice bid and look interesting going into the upcoming week. Many setups there plus in the Oil space.

stock market sectors relative strength index rsi charts january 29

The Relative Rotation Graph (RRG) chart showing the leaders and the laggards among the 9 stock market sectors.

rrg chart relative rotation stock market sectors january 29

NAIIM Exposure Index Reading – 42.25: 

The NAAIM Exposure Index represents the average exposure to US Equity markets. The green line shows the close of the S&P 500 Total Return Index on the survey date. The blue line depicts a two-week moving average of the NAAIM managers’ responses. Last week’s Index number has risen to 42.25. Still not a whole lot of participants.

naaim investor sentiment survey bulls bears chart january

$CPCE – CBOE Options Equity Put/Call Ratio:

The Equity Only Put/Call Ratio is around 0.58 and near another zone where complacency can set in but the good thing is that both the 10 and 21 MAs are sloping lower and normally bodes well for higher prices in stocks. But I do want to caution about any possible complacency.

put call ratio chart week ending january 29

$NYMO (McClellan Oscillator): 

It’s amazing when you look at how oversold the McClellan Oscillator was just a week or so ago and meandering below for the early part of last week. And 2 days especially with Friday’s move, $NYMO is at or near overbought levels. Of course, it can go much higher before being overbought but something to keep an eye on going into next week. $NYSI has made a bullish cross in the mean time.

nymo mcclellan oscillator chart overbought january 29

 

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