June 27, 2025

Investors fearing the worst after the US bombed Iran's nuclear facilities over the prior weekend got a surprise reaction from the stock market this week after the White House announced a tentative ceasefire that sent the major averages sharply higher. The de-escalation in the conflict was cheered by Wall Street and the rally in 'risk on' assets pushed the S&P 500, NASDAQ, NASDAQ 100 and Philadelphia Semiconductor Index (SOX) to new record highs. Also giving stocks a boost was testimony on Capitol Hill by Fed Chair Jerome Powell who made positive remarks on the economy and jobs market and hinted that rates would have already been lower except for the uncertainty of tariffs. The CME Group FedWatch was projecting an 85% probability of a September rate cut and yields moved even lower after President Trump said he would replace the sitting Chairman for a more dovish prospect at the end of Powell's term. The yield on the 10-year Treasury closed the week at 4.25% and the two-year T-Bill was at 3.7% as the week ended. Friday's PCE report, the Fed's preferred gauge of inflation, fell in line at +0.1% and +2.3% YoY pushing yields even lower and sending the S&P 500 to a new record high ahead of the weekend. Crude oil prices plunged during the period pulling the Energy (XLE) sector down -3.36% but almost every other market group participated in the rally with Communication Services (XLC), Technology (XLK), Consumer Discretionary (XLY) and Financial (XLF) at the top of the leader board. The DJIA and NASDAQ extended their weekly win streak to two and the S&P 500 snapped a two-week losing streak. Next week is a short week with the NYSE closed for the July 4 Holiday but investors will weigh in on the May Employment Report and updated manufacturing data

For the period, the DJIA added 1612.45 points (+3.8%) and settled at 43819.27. The S&P 500 added 205.23 points (+3.4%) and closed at 6173.07. The NASDAQ gained 826.05 points (+4.2%) finishing at 20273.46, while the small cap Russell 2000 tacked on 64.21 points (+3.0%) and settled at 2173.48.

Market Outlook: The technical condition of the market is strong and remained bullish. The technical indicators for the different indexes are back in positive ground but the major averages are getting close to an overbought condition over the near-term. MACD, a short-term trend gauge, crossed back into a bullish configuration for the different indexes during the period and Momentum, as measured by the 14-day RSI, is strong but pushing on 70, which represents an overbought condition. The ADXR gave a buy signal for the DJIA and S&P 500 with the DI+ crossing DI- and the ADX line rising signaling the trend is getting stronger. In addition, the VIX, or volatility index, fell to its lowest mark since February indicating traders are less concerned with a pull back over the near-term. Finally, the DJIA and Russell 2000 were able to close above their respective 200-day MA, while the NASDAQ saw a bullish golden cross where the 50-day MA crosses above the 200-day MA which bodes well for the market going forward.

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 +6, unchanged from the previous week. Cycles B, C and D are bullish, while Cycles A and E are bearish. The CTI was reset to a bullish configuration the week ending 4/18/25 but is projected to turn into a negative setting over the next few weeks.

Momentum Index (MI): The markets 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 +8, unchanged from the previous week. Breadth was positive at the NYSE as the Advance/Decline line gained 3194 units while the number of new 52-week highs exceeded the number of new lows on each session. Breadth was also positive at the NASDAQ as the A/D line added 3406 units while the number of new highs out did the new lows on all five days. Finally, the percentage of stocks above their 50-day moving average rose to 75.2% vs. 70.9% the previous week, while those above their 200-day moving average jumped to 51.4% vs. 44.9% the prior week. Readings above 70.0% denote an overbought condition, while below 20% is bullish. 

Underlying market breadth confirmed the bullish trend with the NYSE Advance/Decline line, a leading indicator of market direction, hitting several record highs during the period. The NASDAQ A/D line was at its highest level since February. New 52-week highs outdid the new lows on both the NYSE and NASDAQ for a seventh consecutive week and we saw expansion in the number of new highs which is another positive for the market going forward.

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 Negative at -1, up a notch from the previous week. 

The Mideast conflict weighed on Investor Sentiment, and we saw a mixed reaction from retail and the professionals. The American Association of Individual Investors (AAII) saw retail bulls tick higher but remain below the historical average of 37.5% for a 20th time over the last 21 weeks. The National Association of Active Investment Managers (NAAIM) Exposure Index saw hedge funds cut stock holdings from 94.1% to 81.4% taking a wait and see attitude. That's their lowest percentage since mid-May.

Market Posture: Based on the status of the Market Edge, market timing models, the Market Posture is Bullish as of the week ending 5/02/2025 (DJIA - 41317.43). 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 (16) - What's Not (14): The following are the strongest and weakest Industry Groups for the period ending 6/26/25. Strongest: Technology Hardware, Industrial Goods, Integrated Oil & Gas and Metals & Mining. Weakest: Paper & Forest Products, Food, Beverage, & Tobacco, Infrastructure and Conglomerates. To review all the Industry Group rankings in the Market Edge universe, click on the Industry Group tab.

ETF Center: The top performing ETF categories for the week ending 6/26/25 were: Specialty Financial (+5.12%), Specialty Technology (+4.67%), Sector-Alternative Energy (+3.57%), Blend-Small Cap (+3.30%) and Growth-Large Cap (+3.15%). The weakest categories were: Commodity-Energy (-9.70%), Sector-Energy (-5.36%), Commodity-Blend (-4.49%), Shorts (-3.50%) and Commodity-Agriculture (-2.42%). To review all the ETF categories in the Market Edge universe, click on the ETF Center tab.

By David L. Blake, CMT