August 22, 2025

Investors were cautious leading up to Fed Chair Powell's Jackson Hole symposium speech during the week, but a dovish Powell kicked off a rally in equities on Friday that left the DJIA, S&P 500 and NYSE at new record highs. The different indexes struggled during the period as a rotation out of big cap technology, Mag 7 and AI-related stocks weighed on the NASDAQ which had fallen 522.67 points (-2.4%) from the prior week's close going into Friday but the tech heavy index nearly erased the deficit as the period ended. Yields had drifted marginally higher during the week but moved lower on Powell's remarks with the 10-year Treasury at 4.261% and the two-year T-Bill at 3.701%. The US Dollar was also lower after moving higher during the week. Crude oil prices nudged higher on geopolitical risks closing at $63.82, a three-week high. Only the Technology (XLK) and Communication Services (XLC) sectors ended the period lower as the rotation out of tech shares brought buyers into every other market group led by gains in Energy (XLE), REITs (XLRE), Materials (XLB) and Financial (XLF) up more than +2%. Friday's surge left the Dow Jones, S&P 500 and Russell 2000 higher for a third consecutive week, but the NASDAQ was unable to erase earlier losses. Next week, a slew of retail companies will be releasing Q2 earnings for a check on the strength of consumers, while chip maker Nvidia (NVDA) reports on Wednesday. That will be followed by another key inflation check on Friday in the July PCE. That, combined with seasonal weakness, could lead to some consolidation of Friday's rally over the next few weeks.

For the period, the DJIA gained 685.62 points (+1.5%) and settled at 45631.74. The S&P 500 tacked on 17.11 points (+0.3%) and closed at 6466.91. The NASDAQ lost 126.45 points (-0.6%) finishing at 21,496.53, while the small cap Russell 2000 jumped 75.27 points (+3.3%) and settled at 2361.95.

Market Outlook: The technical condition of the broader market improved during the week as the DJIA and NYSE followed the S&P 500 and NASDAQ in making new all-time highs as we saw a rotation out of tech shares. The equal-weight S&P 500 index was also able to post a new high which helps confirm a broadening in the market rally. However, the rotation out of tech shares weighed on the NASDAQ as it underperformed and finished lower. The technical indicators moved back into bullish ground with Momentum, as measured by the 14-day RSI, strengthening, but MACD, a short-term trend gauge, was mixed with the DJIA crossing into bullish ground while the NASDAQ was still in bearish ground. The major averages were overbought by several measures going into this week, but the back-and-forth trading allowed the market to work off some of that condition, which is a plus going forward. The weekly charts continue to confirm the bullish trend. The selloff in technology shares included semiconductors but the Philadelphia Semiconductor Index (SOX) was able to bounce off support at its 50-day moving average (MA) during the week before closing flat. The other secondary indexes, which technical analysts like to see leading the market higher and lower, outperformed. The DJ Transportation Index soared +3.1% and held support at its 50 and 200-day MA, while the small cap Russell 2000, a prime benefactor of lower rates, jumped +3.3%, hitting its highest mark since 12/24. Finally, the VIX closed at 14.22 on Friday, which is the low point for the volatility index going back to 12/24/2024 which implies that traders are looking for a continuation of the current rally with little fear of a pullback over the near-term.

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 +8, up 11 notches from the previous week. Cycles A, B, C and D are bullish, while Cycle E is bearish. The CTI was reset to a positive configuration after last weeks low in the Dow Jones of 43911 was held resetting cycles A and B.

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 Neutral at +0, down six notches from the previous week. Breadth was positive at the NYSE as the Advance/Decline line gained 2417 units while the number of new 52-week highs exceeded the number of new lows on all five sessions. Breadth was also positive at the NASDAQ as the A/D line added 1858 units while the number of new highs out did the new lows on three days. Finally, the percentage of stocks above their 50-day moving average fell to 61.4% vs. 67.5% the previous week, while those above their 200-day moving average eased to 60.9% vs. 61.6% the prior week. Readings above 70.0% denote an overbought condition, while below 20% is bullish. 

Underlying market breadth was positive this week and a new high in the NYSE Advance/Decline line, a leading indicator of market direction, is supportive of higher prices going forward. Despite contraction in the number of new highs during the week, the new highs were strong on Friday and the NYSE recorded 0 new lows, which last happened in February of 2021! Breadth on the NASDAQ was also positive despite the lower finish showing positive divergence.

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 -3 down two notches from the previous week. 

Investor Sentiment surveys are once again showing a divergence between the retail and professional Bulls. The American Association of Individual Investors (AAII) saw a small uptick in retail bulls, but they were below the historical average of 37.5%, and near the lowest percentage of retail bulls since the first week of May. The National Association of Active Investment Managers (NAAIM) Exposure Index shows hedge funds increased equity holdings and are fully invested at 98.2%, and above their Q2 average of 73.3%. The Percentage of Bullish Investment Advisors snapped a three-week trend of decreasing bulls rising to 50.9% from 46.3% the prior week. However, one big concern and a red flag is that FINRA reported this week another new record high in Margin accounts. July Margin debit balances reached $1.022.54 million which leaves the market susceptible to a steeper selloff if market participants are surprised by an unexpected event, due to margin calls.

Market Posture: Based on the status of the Market Edge, market timing models, the 'Market Posture' is Bullish as of the week ending 8/22/2025 (DJIA - 45631.74). 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 (14) - What's Not (16): The following are the strongest and weakest Industry Groups for the period ending 8/21/25. Strongest: Construction, Technology Hardware, Metals & Mining and Healthcare Services. Weakest: Paper & Forest Products, Chemicals, Integrated Oil & Gas and REITs. 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 8/21/25 were: Commodity-Agriculture (+2.52%), Specialty Health (+1.72%), Sector-Alternative Energy (+1.59%), Sector-Consumer Staples (+1.07%) and Commodity-Blend (+0.95%). The weakest categories were: Specialty Technology (-3.81%), Growth-Large Cap (-2.17%), Blend-Large Cap (-1.73%), Specialty Financial (-1.48%) and Commodity-Base Metals (-1.26%). To review all the ETF categories in the Market Edge universe, click on the ETF Center tab.

By David L. Blake, CMT