Virus Weakens Equities

Market Letter (Weekly)

February 21, 2020

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Virus Weakens Equities
Investors shift to safe havens.

Global markets couldn't shake Coronavirus concerns this week and US equities staggered into the weekend, snapping a two-week win streak. Investors rushed into safe haven investments sending interest sensitive sectors REITs (XLRE) and Utilities (XLU) higher along with gold and the US Dollar. Yields worked lower and the 30-year Treasury hit an all-time low of 1.89% intraday on Friday. The 3-month/10-year T-Bill remained inverted and the CME Group FedWatch projected a better than 60% chance of a rate cut at the June FOMC Meeting. Economic manufacturing data topped estimates, but the February Markits Service PMI fell into contraction for the first time since 2013 on Friday increasing calls from investors for more accomodative moves from the Federal Resesrve to offset any slowdown from the Coronavirus spillover. The release of the FOMC Meeting minutes on Wednesday kept investor sentiment positive as Fed Chief Jerome Powell affirmed that the US economy was chugging moderately along sent the S&P 500 and NASDAQ to new record highs, but despite a rate cut on Thursday by China's People's Bank to limit effects of the virus, the major averages traded lower as investors were reluctant to hold equities over the weekend.

For the period, the DJIA tumbled 405.67 points (-1.4%) and settled at 28992.41. The S&P 500 fell 42.41 points (-1.3%) to finish at 3337.75. The NASDAQ gave up 154.59 points (-1.6%) and finished at 9576.59, while the small cap Russell 2000 eased 8.97 points (-0.5%) and closed at 1678.61. The DJ Transportation Index bucked the trend and gained +0.24%.

Market Outlook:The technical condition of the market deteriorated last week as the major averages were held in check by the Coronavirus. The technical indicators slipped back into neutral ground with the MACD Short-term crossing into bearish territory for some of the different indexes. Despite weakness in the broader market, positive divergence was seen in the outperformance of the DJ Transportation Index and small cap Russell 2000. While the stock market finished last week in an overbought condition, back and forth trading helped relieve that, but stochastics on the NASDAQ remained well above 80. Breadth was mixed, with the NYSE Advance/Decline hitting a new high on Wednesday, but losing ground for the week. New 52-week highs on the NYSE and NASDAQ continued to outpace the new lows. Finally, keep an eye on longer term trend lines and support areas on the charts that could help the major averages find support if selling picks up. They represent prices that could stop the bleeding and make for good entry points.

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, unchanged from the previous week. The counts for Cycles A, B, C and D are bullish while the count for Cycle E is bearish. The CTI is projected to stay positive 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 Positive at +11, up four notches from the previous week. Breadth was mixed at the NYSE as the Advance/Decline line lost 785 units while the number of new 52-week highs out did the new lows on all four days. Breadth was also mixed at the NASDAQ as the A/D line slid 578 units while the number of new highs beat the new lows on each day. Finally, the percentage of stocks above their 50-day moving average fell to 54.3% vs. 56.6% the previous week, while those above their 200-day moving average eased to 66.3% vs. 66.7%. 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 2/19/20 shows inflows of $2 billion. Currently, the Sentiment Index is Neutral at +0, 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 2/14/2020 (DJIA – 29398.08). 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 (44) – What’s Not (47). Of the 91 Industry Groups that we track, 44 are rated as either Strong or Improving while 47 are regarded as Weak or Deteriorating. The previous week’s totals were 40-51. The following are the strongest and weakest groups for the period ending 2/20/20. Strongest: Semiconductors & Related, Internet-Retail, Automobile Manufacturing and Advertising. Weakest: Steel, Food, Oilfield-Integrated Majors and Aluminum. To review all of the Industry Group Rankings, click on the Industries tab. ETF Center: The top performing ETF categories for the week ending 2/20/20 were: Sector-Alternative Energy (+6.92%), Commodity-Precious Metals (+2.59%), Commodity-Energy (+2.28%), Commodity-Blend (+1.35%) and Bond-Government Long Term (+1.16%). The weakest categories were: International-Emerging Markets (-4.64%), Commodity-Base Metals (-0.84%) and International-Developed (-0.64%). 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   7   Positive
Momentum Index:     11   7   Positive
Sentiment Index:   0   -1   Neutral
Strength Index - DJIA (DIA):     36.7   50.0   Negative
Strength Index - NASDAQ 100 (QQQ):     52.0   50.0   Positive
Strength Index - S&P 100 (OEX):     44.3   44.3   Negative
Dow Jones Industrial Average (DJIA):   28992.41 29398.08   -1.4%
S&P 500 Index: , 3337.75   3380.16   -1.3%
NASDAQ Composite Index:   9576.59 9731.18   -1.6%
 **Connotation is Positive or Negative Divergence from the DJIA          
Momentum Index Components   Current Reading Prior Week Connotation
**Dow Jones Industrial Averages (DJIA):   28992.41 29398.08  
**DJ Transportation Average   10908.94 10862.92 Positive
**S&P 500 Index 3337.75 3380.16 Positive
**NYSE Composite Index 13975.78 14097.34 Positive
**NYSE Advance-Decline Line 475282 476067 Positive
**10 Day MA Advance-Decline Line 1.05 1.42 Positive
**NDX 100 Index 9446.69 9623.58 Positive
**NASDAQ Composite Index 9576.59 9731.18 Positive
**DJ Utilities Index 948.74 955.35 Positive
**Russell 2000     1678.61   1687.58 Positive
Trin (5 Day Average) 1.11 1.16 Neutral
NYSE Weekly New Highs-New Lows  669-162 408-183 Positive
Zweig Breadth Indicator 0.30 0.52 Negative
McClellan Oscillator 60 -16 Neutral
McClellan Summation Index 2904 2994 Positive
Unchanged Issue Index 0.02 0.03 Negative
Sentiment Index Components Current Reading Prior Week Connotation
Fear-Greed Index(5 Day Avg) 53.20 57.20 Neutral
Shares Sold Short NYSE - Monthly (000) 16266520 16484226  
NYSE Short Interest Ratio----(NYSE Only) 5.6 4.7 Bullish
Shares Sold Short NASDAQ  - Monthly (000) 9077259 9260193  
NASDAQ Short Interest Ratio 3.6 4.8 Bearish
AAII Bull-Bear Ratio 1.4 1.6 Neutral
Put/Call Ratio (5 Day Avg.- All Equity Options) 0.89 0.85 Bearish
Dividend Yield Spread 0.17 0.16 Bullish
NAAIM Exposure Index 87.9 86.1 Neutral
Bullish Investment Advisors 54.7 52.9 Neutral
Bearish Investment Advisors 18.9 19.2 Bearish
Bullish - Bearish Investment Advisors Ratio 2.9 2.8 Neutral
VIX (CBOE Volatility Index) 17.08 13.68 Neutral

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Market Indicators

Market Posture Cyclical Trend Index
As of: 02/14/2020
As of: 02/14/2020

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Market Recap - 02/25/2020

Index Close Day Change Day % Change YTD % Change
NASDAQ COMPOSITE 8965.61 -255.6 -2.77% null%
DJ UTILITIES 915.77 -20.14 -2.15% null%
DJ TRANSPORT 10061.46 -448.4 -4.27% null%
DJ INDUSTRIALS 27081.36 -879.4 -3.15% null%
NYSE COMPOSITE 13143.73 -390.3 -2.88% null%
S & P 100 INDEX 1398.12 -42.2 -2.93% null%
RUSSELL 2000 1571.9 -56.2 -3.45% null%
S&P 500 3128.21 -97.68 -3.03% null%
CBOE MKT VOLATILITY 27.85 2.82 11.27% null%
AMEX COMPOSITE 2301.17 -60.02 -2.54% null%
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