Story

Record Rally Rolls On

Market Letter (Weekly)

January 17, 2020
MARKET LETTER

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Record Rally Rolls On
NASDAQ weekly win streak hits six.

Better than expected Q4 earnings from Money Center banks helped to kick off a rally this week that saw the major averages turn in their best weekly percentage move since early September. The DJIA rode a five-day win streak into the weekend on a broad-based move that left only the Energy (XLE) sector in the dust. Economic data was mixed leaving interest rates little changed, while gold prices firmed. Utilities (XLU) and REITs (XLRE) were the top performing sectors followed by Technology (XLK), Materials (XLB) and Communication Services (XLC). Gains in big cap technology names and the FANG stocks outpaced the broader market. The signing of a 'Phase 1' trade deal between the US and China, coupled with the Federal Reserve's $50 billion intervention in the overnight repo market, another form of quantitative easing, also fueled the market's rally. The major averages closed out the week at record highs with the Dow a chip shot from 30,000 as investors looked forward to a slew of earnings reports in the coming weeks. For the period, the DJIA jumped 524.33 points (+1.8%) led by Pfizer (PFE), Visa (V), Cisco Systems (CSCO) and Goldman Sachs (GS) and settled at 29348.10. The S&P 500 gained 64.27 points (+2.0%) ending at 3329.62. The NASDAQ traded higher for a sixth consecutive week adding 210.08 points (+2.3%), finishing at 9388.94. The small cap Russell 2000 outperformed and snapped a three-week losing streak surging 42.00 points (+2.5%) and closed at 1699.64.

Market Outlook:The technical condition of the market remained bullish this week and every minor dip continues to be bought. The DJIA, S&P 500, NYSE, NASDAQ, NASDAQ 100 and DJ Utility Index all recorded new record highs. Erasing what had been viewed as negative divergence was the outperformance of the DJ Transportation Index and small cap Russell 2000 which hit new 52-week highs but remained just below their record highs from September 2018. The technical indicators are bullish, momentum is strong, but as has been the case, the different indexes finished the period overbought by several measures. Internal breadth is positive and the NYSE Advance/Decline line, a leading indicator of market direction, punched new highs throughout. There was also big improvement in the NASDAQ Advance/Decline line which had lagged, showing more participation in the NASDAQ's run. New 52-week highs on the NYSE and NASDAQ continued to expand which is also bullish for the rally. Sentiment however, continues to show that investors are too bullish and complacent.

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 Negative at -3, unchanged from the previous week. The counts for Cycles A, C and D are bullish while the counts for Cycles B and E are bearish. The CTI is expected to remain in negative ground until the second week of February.

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 +5, up two notches from the previous week. Breadth was positive at the NYSE as the Advance/Decline line added 3260 units while the number of new 52-week highs out did the new lows on all five days. Breadth was also positive at the NASDAQ as the A/D line gained 2628 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 jumped to 76.6% vs. 68.3% the previous week, while those above their 200-day moving average increased to 74.6% vs. 70.5%. 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 1/15/20 shows outflows of $1.1 billion. Currently, the Sentiment Index is Negative at -5, unchanged from the previous week.

Market Posture:Based on the status of the Market Edge, market timing models, the ‘Market Posture’ is Bearish as of the week ending 1/03/2020 (DJIA – 28634.88). 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 (62) – What’s Not (29). Of the 91 Industry Groups that we track, 62 are rated as either Strong or Improving while 29 are regarded as Weak or Deteriorating. The previous week’s totals were 61-30. The following are the strongest and weakest groups for the period ending 1/16/20. Strongest: Semiconductors & Related, Advertising, Pharmaceuticals and Health Care Products. Weakest: Aluminum, Telephone Systems, Heavy Construction and Household Products (Non-Durable). To review all of the Industry Group Rankings, click on the Industries tab. ETF Center: The top performing ETF categories for the week ending 1/16/20 were: Blend-Small Cap (+4.50%), Sector-Alternative Energy (+4.41%), Growth-Small Cap (+3.04%), Sector-Utilities (+2.89%) and Sector-Technology (+2.55%). The weakest categories were: Shorts (-2.81%), Commodity-Energy (-1.95%), Commodity-Blend (-1.04%), Sector-Energy (-0.92%) and Commodity-Agriculture (-0.73%). To review all the categories in the Market Edge universe, click on the ETFs tab.

Calendar of Technical Events:

Date  EventConnotation
01/17/2020  Stock reached new 52 week high of 293.61Bullish
01/09/2020  MACD ST turned bullishBullish
01/02/2020  Price gap upBullish
12/17/2019  10 day SMA cross above 21 day SMABullish
12/12/2019  Point & Figure Double Top breakoutBullish
12/12/2019  Up/Down slope turned upBullish
11/15/2019  Relative Strength turned bearishBearish
10/25/2019  21 day SMA slope turned upBullish
10/25/2019  MACD LT turned bullishBullish

**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:

DJIA: 27325 - Support - The 12/03/2019 low
DJIA: 29373 - Resistance - The 01/17/2020 high
DJIA: 28239 - 50-day simple moving average
DJIA: 26909 - 200-day simple moving average

S&P 500: 3070 - Support - the 12/03/2019 low
S&P 500: 3329 - Resistance - 01/17/2020 high
S&P 500: 3177 - 50-day simple moving average
S&P 500: 2994 - 200-day simple moving average

NASDAQ: 8435 - Support - the 12/03/2019 low
NASDAQ: 9393 - Resistance - the 01/17/2020 high
NASDAQ: 8794 - 50-day simple moving average
NASDAQ: 8198 - 200-day simple moving average

”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):     -3   -3   Negative
Momentum Index:     5   3   Positive
Sentiment Index:   -5   -5   Negative
Strength Index - DJIA (DIA):     43.3   53.3   Negative
Strength Index - NASDAQ 100 (QQQ):     51.0   58.2   Positive
Strength Index - S&P 100 (OEX):     41.2   47.4   Negative
             
Dow Jones Industrial Average (DJIA):   29348.10 28823.77   1.8%
S&P 500 Index: , 3329.62   3265.35   2.0%
NASDAQ Composite Index:   9388.94 9178.86   2.3%
                   
 **Connotation is Positive or Negative Divergence from the DJIA          
Momentum Index Components   Current Reading Prior Week Connotation
**Dow Jones Industrial Averages (DJIA):   29348.10 28823.77  
**DJ Transportation Average   11278.85 10973.88 Negative
**S&P 500 Index 3329.62 3265.35 Positive
**NYSE Composite Index 14183.20 13957.97 Negative
**NYSE Advance-Decline Line 475024 471834 Positive
**10 Day MA Advance-Decline Line 1.29 1.09 Positive
**NDX 100 Index 9173.73 8966.64 Positive
**NASDAQ Composite Index 9388.94 9178.86 Positive
**DJ Utilities Index 908.30 874.10 Positive
**Russell 2000     1699.64   1657.64 Negative
Trin (5 Day Average) 1.00 1.14 Neutral
NYSE Weekly New Highs-New Lows  472-35 366-31 Positive
Zweig Breadth Indicator 0.51 0.47 Neutral
McClellan Oscillator -51 16 Neutral
McClellan Summation Index 3939 3715 Positive
Unchanged Issue Index 0.03 0.03 Negative
                   
Sentiment Index Components Current Reading Prior Week Connotation
Fear-Greed Index(5 Day Avg) 88.40 92.00 Bearish
Shares Sold Short NYSE - Monthly (000) 16543812 16367530  
NYSE Short Interest Ratio----(NYSE Only) 5.6 4.8 Bullish
Shares Sold Short NASDAQ  - Monthly (000) 9238838 9085303  
NASDAQ Short Interest Ratio 3.8 4.5 Bullish
AAII Bull-Bear Ratio 1.5 1.1 Bearish
Put/Call Ratio (5 Day Avg.- All Equity Options) 0.84 0.86 Bearish
Dividend Yield Spread 0.39 0.39 Bullish
NAAIM Exposure Index 89.5 94.2 Neutral
Bullish Investment Advisors 55.3 55.1 Bearish
Bearish Investment Advisors 17.1 17.8 Bearish
Bullish - Bearish Investment Advisors Ratio 3.2 3.1 Bearish
VIX (CBOE Volatility Index) 12.10 12.56 Bearish

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Market Indicators

Market Posture Cyclical Trend Index
Bearish
-3
As of: 01/03/2020
As of: 01/10/2020

Second Opinion Performance

Second Opinion Status

3254

Current Opinions
As of: 01/17/2020

87%

Long Accuracy
As of: 01/17/2020

46%

Avoid Accuracy
As of: 01/17/2020
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Market Recap - 01/17/2020

Index Close Day Change Day % Change YTD % Change
NASDAQ COMPOSITE 9388.94 31.81 0.34% 4.64%
DJ UTILITIES 908.3 7.88 0.88% 3.31%
DJ TRANSPORT 11278.85 -26.12 -0.23% 3.46%
DJ INDUSTRIALS 29348.1 50.46 0.17% 2.83%
NYSE COMPOSITE 14183.2 41.42 0.29% 1.94%
S & P 100 INDEX 1489.62 6.11 0.41% 3.29%
RUSSELL 2000 1699.64 -5.58 -0.33% 2.67%
S&P 500 3329.62 12.81 0.39% 3.05%
CBOE MKT VOLATILITY 12.08 -0.24 -1.95% -12.33%
AMEX COMPOSITE 2622.09 -4.82 -0.18% 2.72%
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