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Market Letter (Weekly)

August 23, 2019
MARKET LETTER

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Major averages stumble for fourth week

The bulls tried to fight back this week but an inverted yield curve, disappointing comments on monetary policy from Fed Chair Powell and new tariffs from China on US goods erased the week's gains on Friday. For the period, the DJIA traded lower for the fifth time in six weeks dropping 257.11 points (-1.0%) and closed at 25628.90. The S&P 500 lost 41.57 points (-1.4%) and settled at 2847.11. The NASDAQ tumbled 144.22 points (-1.8%) and finished at 7751.77, while the small cap Russell 2000 was down for the sixth time in seven weeks falling 34.15 points (-2.3%) and closed at 1459.49.

Market Outlook: The technical condition of the market deteriorated last week. The DJIA, S&P 500 and NASDAQ all flirted with their 50-day moving average (MA) during the period but stalled at that key resistance level and closed back below their 100-day MA. The technical indicators for the different indexes finished the week in bearish territory and momentum, as measured by the 14-day RSI, was negative. Breadth was weak with the Advance/Decline lines for the NYSE and NASDAQ moving lower, while new 52-week highs contracted.

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 -12, down six notches from the previous week. The counts for Cycles A, B, C, D and E are bearish. The CTI is projected to remain negative into 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 Negative at -4, down four notches from the previous week. Breadth was mixed at the NYSE as the Advance/Decline line lost 233 units while the number of new 52-week highs out did the new lows on four of the five sessions. Breadth was also mixed at the NASDAQ as the A/D line decreased 1189 units while the number of new highs beat the new lows on three days. Finally, the percentage of stocks above their 50-day moving average jumped to 37.9% vs. 26.5% the previous week, while those above their 200-day moving average rose to 49.2% vs. 41.8%. 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 13 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 ETFs which as of 8/21/19 shows outflows of $4.9 billion. Currently, the Sentiment Index is Neutral at +1, up a notch from the previous week.

Market Posture:Based on the status of the Market Edge, market timing models, the ‘Market Posture’ is now Bearish as of the week ending 8/02/2019 (DJIA – 26485.01). For a closer look at the technical indicators and studies that make up the market timing models, check out the 'Market Letter (Weekly)' located on the Market Edge home page. (www.marketedge.com)

Industry Group Rankings : What's Hot (25) – What’s Not (66). Of the 91 Industry Groups that we track, 25 are rated as either Strong or Improving while 66 are regarded as Weak or Deteriorating. The previous week’s totals were 39-52. The following are the strongest and weakest groups for the period ending 8/22/19. Strongest: Semiconductors & Related, Precious Metals, Toys and Home Construction. Weakest: Metals-Non Ferrous, Diversified Mining, Internet-Services and Coal. To review all the Industry Group rankings, click on the Industries tab.

ETF Center: The top performing ETF categories for the week ending 8/22/2019 were: Sector-Consumer Discretionary (+2.83%), Sector-Technology (+1.93%), Blend-Small Cap (+1.52%), Sector-Internet (+1.48%) and Sector-Industrial (+1.47%). The weakest categories were: Shorts (-1.69%), Bond-Government Long Term (-1.36%), Commodity-Base Metals (-0.81%), Commodity-Precious Metals (-0.81%) and Commodity-Agriculture (-0.72%). To review all the ETF categories in the Market Edge universe, click on the ETF Center tab.

Calendar of Technical Events:

Date  EventConnotation
08/22/2019  MACD ST turned bullishBullish
08/21/2019  50 day SMA slope turned upBullish
08/19/2019  Price gap upBullish
08/15/2019  Point & Figure Double Bottom breakoutBearish
08/15/2019  21 day SMA cross below 50 day SMABearish
08/07/2019  Up/Down slope turned downBearish
08/06/2019  Relative Strength turned bearishBearish
08/05/2019  MACD LT turned bearishBearish
08/02/2019  10 day SMA cross below 21 day SMABearish
08/01/2019  21 day SMA slope turned downBearish
07/16/2019  Stock reached new 52 week high of 273.99Bullish

**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: 24680 - Support - The 6/03/2019 low
DJIA: 27398 - Resistance - The 7/15/2019 high
DJIA: 26608 - 50-day simple moving average
DJIA: 25617 - 200-day simple moving average

S&P 500: 2728 - Support - the 6/03/2019 low
S&P 500: 3019 - Resistance - 7/24/2019 high
S&P 500: 2947 - 50-day simple moving average
S&P 500: 2802 - 200-day simple moving average

NASDAQ: 7292 - Support - the 6/03/2019 low
NASDAQ: 8321 - Resistance - the 7/24/2019 high
NASDAQ: 8051 - 50-day simple moving average
NASDAQ: 7592 - 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):     -12   -6   Negative
Momentum Index:     -4   0   Negative
Sentiment Index:   1   0   Neutral
Strength Index - DJIA (DIA):     1.0   1.0   Negative
Strength Index - NASDAQ 100 (QQQ):     5.9   14.7   Negative
Strength Index - S&P 100 (OEX):     8.2   13.4   Negative
             
Dow Jones Industrial Average (DJIA):   25628.90 25886.01   -1.0%
S&P 500 Index: , 2847.11   2888.68   -1.4%
NASDAQ Composite Index:   7751.77 7895.99   -1.8%
                   
 **Connotation is Positive or Negative Divergence from the DJIA          
Momentum Index Components   Current Reading Prior Week Connotation
**Dow Jones Industrial Averages (DJIA):   25628.90 25886.01  
**DJ Transportation Average   9739.74 9967.32 Negative
**S&P 500 Index 2847.11 2888.68 Positive
**NYSE Composite Index 12416.45 12580.41 Positive
**NYSE Advance-Decline Line 448076 448309 Negative
**10 Day MA Advance-Decline Line 0.99 0.97 Negative
**NDX 100 Index 7464.99 7604.11 Negative
**NASDAQ Composite Index 7751.77 7895.99 Negative
**DJ Utilities Index 832.03 831.22 Positive
**Russell 2000     1459.49   1493.64 Negative
Trin (5 Day Average) 1.26 1.82 Negative
NYSE Weekly New Highs-New Lows  373-440 363-398 Negative
Zweig Breadth Indicator 0.14 0.79 Negative
McClellan Oscillator 78 29 Neutral
McClellan Summation Index 1836 1768 Positive
Unchanged Issue Index 0.02 0.02 Negative
                   
Sentiment Index Components Current Reading Prior Week Connotation
Fear-Greed Index(5 Day Avg) 23.00 23.00 Bullish
Shares Sold Short NYSE - Monthly (000) 16160130 16064731  
NYSE Short Interest Ratio----(NYSE Only) 4.7 5.9 Bearish
Shares Sold Short NASDAQ  - Monthly (000) 8106304 8104486  
NASDAQ Short Interest Ratio 5.1 4.4 Bullish
AAII Bull-Bear Ratio 0.7 0.5 Bullish
Put/Call Ratio (5 Day Avg.- All Equity Options) 1.04 1.15 Neutral
Dividend Yield Spread 0.37 0.43 Bullish
NAAIM Exposure Index 70.2 58.1 Neutral
Bullish Investment Advisors 49.1 49.5 Neutral
Bearish Investment Advisors 17.9 18.1 Bearish
Bullish - Bearish Investment Advisors Ratio 2.7 2.7 Neutral
VIX (CBOE Volatility Index) 19.87 18.47 Neutral

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Market Indicators

Market Posture Cyclical Trend Index
Bearish
-6
As of: 08/02/2019
As of: 08/02/2019

Second Opinion Performance

Second Opinion Status

3329

Current Opinions
As of: 08/23/2019

54%

Long Accuracy
As of: 08/23/2019

85%

Avoid Accuracy
As of: 08/23/2019
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Market Recap - 08/23/2019

Index Close Day Change Day % Change YTD % Change
NASDAQ COMPOSITE 7751.77 -239.6 -3% 16.82%
DJ UTILITIES 832.03 -8.36 -0.99% 16.7%
DJ TRANSPORT 9739.74 -333.4 -3.31% 6.2%
DJ INDUSTRIALS 25628.9 -623.3 -2.37% 9.86%
NYSE COMPOSITE 12416 -272 -2.14% 9.16%
S & P 100 INDEX 1256.91 -34.4 -2.66% 12.84%
RUSSELL 2000 1459.49 -46.51 -3.09% 8.22%
S&P 500 2847.11 -75.84 -2.59% 13.57%
CBOE MKT VOLATILITY 19.87 3.19 19.12% -21.92%
AMEX COMPOSITE 2364.95 -39.57 -1.65% 3.17%
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