DJIA and S&P 500 Down for Fourth Straight Week

Market Letter (Weekly)

September 25, 2020

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DJIA and S&P 500 Down for Fourth Straight Week
NASDAQ snaps skid on strength in tech.

Investors continued to fret over increasing coronavirus cases and a lack of progress on a stimulus package to shore up the economy and extend unemployment benefits this week. US equities followed global markets sharply lower on Monday as several countries debated closing certain public facilities to curtail the spread of covid-19. The DJIA tumbled 924-points (-3.3%) at the open with reopening stocks some of the biggest losers. The losses were cut in half by the close, but the Dow finished below its 50-day moving average for the first time since April. The major averages were back on a roller coaster ride after that as investors weighed testimony before Congress from Fed Chair Jerome Powell, who called for another stimulus package, with mostly better than expected economic data. August Housing numbers showed a sharp increase as low mortgage rates sent home sales to a 14-year high. Selling midweek sent the small cap Russell 2000 below its 200-day moving average, but the market was able to find firmer footing going into the weekend. Technology (XLK), Utilities (XLU) and Consumer Discretionary (XLY) outperformed, bringing the market off its lows, while Energy (XLE) was the weakest sector down 8.73% on slowing economic growth concerns and weak demand. Materials (XLB) and Financials (XLF) lagged the broader market with both down more than -4.2%. Crude oil prices slid below $40 a barrel as the US Dollar (UUP) jumped to its highest mark since mid-July. Gold prices fell -5%, with the SPDR Gold ETF (GLD) down more than -10% from its August peak. The different indexes nudged higher for a second straight day on Friday but the Dow and S&P 500 finished lower for a fourth consecutive week. That is the longest weekly losing streak for the DJIA since August 2019. The NASDAQ was able to snap its three-week losing streak on a rebound in big cap tech shares after a +2.26% surge on Friday.

For the period, the DJIA dropped 483.46 points (-1.7%) and closed at 27173.96. The S&P 500 fell 21.09 points (-0.6%) and settled at 3298.46. The NASDAQ gained 120.28 points (+1.1%) to 10913.56, while the small cap Russell 2000 tumbled 61.87 points (-4.0%) and finished at 1474.91.

Market Outlook:The technical condition of the market was mixed last week as the major averages were able to bounce off key support levels before finishing mostly lower. The DJIA and S&P 500 were able to find support and bounce off their respective 100-day moving average possibly marking a bottom for this correction. The different index's went into Friday oversold by several measures with the S&P Short Range Oscillator (SRO) at its lowest mark since the March selloff and stochastics falling into single digits. Despite Friday's sharp gains the DJIA, S&P 500 and NASDAQ ran into resistance at their respective 50-day moving average (MA) and will need to close back above that level before we know a bottom could be in. The DJ Transportation Index and Philly Semiconductor Index however, are both now positioned above their 50-day moving average (MA), which bodes well for the market going forward. The small cap Russell 2000 however, underperformed offsetting some of the positive connotation of the strength in the transports and semi's. Strength in the small caps will be needed before another leg up can be sustained. Another plus is that the Industrial (XLI) and Consumer Discretionary (XLY) sectors finished the period above the 50-day MA with Technology (XLK) perched on its 50-day MA. The technical indicators are negative and momentum, as measured by the 14-day RSI, is bearish to neutral.

Internal breadth was negative despite the market's mixed finish. The NYSE and NASDAQ Advance/Decline lines, leading indicators of market direction, were at their lowest levels in a month and new 52-week lows outpaced the new highs during the week. The VIX however, managed to hold below 30 despite steep intraday selloffs, which is a positive, and may be signaling that traders believe the correction has run its course. Investor sentiment is neutral having been reigned in after four weeks of losses.

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.

Presently the CTI is Positive at +7, down a notch from the previous week. Cycles B, D and E are bullish, while Cycles A and C are bearish. The CTI is projected to stay positive during September.

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 +4, up a notch from the previous week. Breadth was negative at the NYSE as the Advance/Decline line lost 2960 units while the number of new 52-week lows out did the new highs on three of the five days. Breadth was also negative at the NASDAQ as the A/D line dropped 3480 units while the number of new lows beat the new highs on each day. Finally, the percentage of stocks above their 50-day moving average dropped to 20.8% vs. 47.6% the previous week, while those above their 200-day moving average fell to 43.9% vs. 50.7%. 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 9/23/20 shows outflows of $14.9 billion. Currently, the Sentiment Index is Neutral at +1, unchanged 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 5/29/2020 (DJIA – 25383.11). 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 (33) – What’s Not (58). Of the 91 Industry Groups that we track, 33 are rated as either Strong or Improving while 58 are regarded as Weak or Deteriorating. The previous week’s totals were 49-42. The following are the strongest and weakest groups for the period ending 9/24/20. Strongest: Casinos, Other Recreation, Coal and Home Furnishings/Appliances. Weakest: Oilfield-Integrated Majors, Retailers-Drug-Based, Oil-Secondary and Savings & Loans. To review all of the Industry Group rankings, click on the Industries tab. ETF Center: The top performing ETF categories for the week ending 9/24/20 were: Shorts (+8.22%) and Bond-Government Long Term (+0.72%). The weakest categories were: Blend-Small Cap (-8.09%), Sector-Energy (-7.52%), Sector-Financial (-7.24%), Sector-Basic Materials (-6.88%) and Commodity-Precious Metals (-6.76%).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).

Numbers To Watch:


”Dr. Market Edge Says"
Dr. Market Edge has been involved in the stock market for over thirty years. He publishes informative articles every month that provide insight into the workings of the market and features of the Market Edge website. These articles are part of the Market Edge Education Institute located on the Market Edge ‘Home Page’. There are currently thirty-one articles ranging from how to interpret various chart formations to the proper placement of stop loss orders. Check them out today.

Market Timing Models   Current Reading Prior Week Connotation
Cyclical Trend Index (CTI):     7   8   Positive
Momentum Index:     4   3   Positive
Sentiment Index:   1   1   Neutral
Strength Index - DJIA (DIA):     17.2   44.8   Negative
Strength Index - NASDAQ 100 (QQQ):     24.5   41.0   Negative
Strength Index - S&P 100 (OEX):     18.1   40.5   Negative
Dow Jones Industrial Average (DJIA):   27173.96 27657.42   -1.7%
S&P 500 Index: , 3298.46   3319.47   -0.6%
NASDAQ Composite Index:   10913.56 10793.28   1.1%
 **Connotation is Positive or Negative Divergence from the DJIA          
Momentum Index Components   Current Reading Prior Week Connotation
**Dow Jones Industrial Averages (DJIA):   27173.96 27657.42  
**DJ Transportation Average   11270.00 11431.92 Positive
**S&P 500 Index 3298.46 3319.47 Positive
**NYSE Composite Index 12485.38 12833.57 Negative
**NYSE Advance-Decline Line 479423 482383 Positive
**10 Day MA Advance-Decline Line 0.89 0.95 Negative
**NDX 100 Index 11151.13 10936.98 Positive
**NASDAQ Composite Index 10913.56 10793.28 Positive
**DJ Utilities Index 805.00 797.95 Negative
**Russell 2000     1474.91   1536.78 Positive
Trin (5 Day Average) 1.07 0.96 Neutral
NYSE Weekly New Highs-New Lows  206-51 105-51 Positive
Zweig Breadth Indicator 0.72 0.34 Positive
McClellan Oscillator 114 75 Negative
McClellan Summation Index 1009 1886 Positive
Unchanged Issue Index 0.03 0.03 Negative
Sentiment Index Components Current Reading Prior Week Connotation
Fear-Greed Index(5 Day Avg) 49.80 57.00 Neutral
Shares Sold Short NYSE - Monthly (000) 14217537 14175182  
NYSE Short Interest Ratio----(NYSE Only) 2.9 2.7 Bullish
Shares Sold Short NASDAQ  - Monthly (000) 9477940 9412414  
NASDAQ Short Interest Ratio 2.5 2.5 Bullish
AAII Bull-Bear Ratio 0.5 0.8 Bullish
Put/Call Ratio (5 Day Avg.- All Equity Options) 0.98 0.90 Bearish
Dividend Yield Spread 0.57 -0.45 Bullish
NAAIM Exposure Index 55.3 59.3 Neutral
Bullish Investment Advisors 51.5 54.8 Neutral
Bearish Investment Advisors 19.4 18.3 Bearish
Bullish - Bearish Investment Advisors Ratio 2.7 3.0 Neutral
VIX (CBOE Volatility Index) 26.38 25.83 Neutral

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Market Indicators

Market Posture Cyclical Trend Index
As of: 05/29/2020
As of: 09/25/2020
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Market Recap - 09/25/2020

Index Close Day Change Day % Change YTD % Change
NASDAQ COMPOSITE 10913.56 241.29 2.26% 21.63%
DJ UTILITIES 808.13 12.2 1.53% -8.08%
DJ TRANSPORT 11270 152.52 1.37% 3.38%
DJ INDUSTRIALS 27173.96 358.52 1.34% -4.78%
NYSE COMPOSITE 12485.38 119.83 0.97% -10.26%
S & P 100 INDEX 1529 24.5 1.63% 6.02%
RUSSELL 2000 1474.91 23.09 1.59% -10.9%
S&P 500 3298.46 51.87 1.6% 2.09%
CBOE MKT VOLATILITY 26.38 -2.13 -7.47% 91.43%
AMEX COMPOSITE 1931.01 0.3 0.02% -24.35%
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