Volatile Week Ends Mixed

Market Letter (Weekly)

December 06, 2019

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Volatile Week Ends Mixed
Market rebounds on strong jobs report.

Weak manufacturing data combined with tough talk on trade from President Trump sent stocks spiraling to start the week. The DJIA tumbled 725-points (-2.5%), wiping out all of Novembers gains, before the major averages bounced back on positive trade signals out of China and a strong jobs report. Energy (XLE) was the strongest sector after fresh cuts in production from OPEC sent crude oil prices higher. Consumer Staples (XLP), Healthcare (XLV) and Financials (XLF) also outperformed. Industrials (XLI), Technology (XLK) and Consumer Discretionary (XLY) lagged the broader market. Friday's spike in share prices had the S&P 500 and NASDAQ flirting with new highs, while the small cap Russell 2000 hit a new 52-week high, but the broader market finished the week mixed.

For the period, the DJIA gave up 36.35 points (-0.1%) and settled at 28015.06. The S&P 500 added 4.93 points (+0.2%) ending at 3145.91. The NASDAQ eased 8.94 points (+0.1%) finishing at 8656.53, while the small cap Russell 2000 outperformed rising 9.34 points (+0.6%) and closed at 1624.50.

Market Outlook:The technical condition of the market was little changed last week, and the underlying trend is bullish. The technical indicators finished the period in neutral to bullish ground and momentum remained positive while the market was able to work off its overbought condition. In addition, the DJ Transportation Index, which had been showing negative divergence, was able to trade back above its 50-day moving average on Friday, which is a plus for the market going forward, but closed the week down -1.4%. Internal breadth was mixed with the indicators deteriorating early in the week but reversing as the week ended. With Friday's surge the NYSE and NASDAQ Advance/Decline lines, leading indicators of market direction, were nearly flat for the period, while the number of new 52-week highs expanded as the week ended showing broader leadership in the market. While VIX shot up to 18 intraday on Tuesday's selloff, it finished the week at 13.62 showing traders were comfortable with the markets volatility and rebound.

Trade headlines continue to add to volatility and are dominating market direction. With the December 15 deadline for a new round of tariffs on China goods right around the corner, expect volatility to continue this week. Finally, the December FOMC Meeting gets underway on Tuesday, but the CME Group FedWatch expects less than a 1% chance that the Federal Reserve moves on interest rates. That should keep investors buying the dips as we head into a seasonally strong period for equities. Look for continued outperformance in small caps as a barometer for the rally's strength.

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, down two notches 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 cycles are expected to stay negative through December.

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, unchanged from the previous week. Breadth was mixed at the NYSE as the Advance/Decline line shed 62 units while the number of new 52-week highs out did the new lows on four of the five days. Breadth was also mixed at the NASDAQ as the A/D line lost 184 units while the number of new highs beat the new lows on four days. Finally, the percentage of stocks above their 50-day moving average slipped to 64.6% vs. 69.2% the previous week, while those above their 200-day moving average eased to 63.7% vs. 66.0%. 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 12/04/19 shows inflows of $5.0 billion. Currently, the Sentiment Index is Neutral at +0, up two notches from the previous week.

Market Posture:Based on the status of the Market Edge, market timing models, the ‘Market Posture’ is Neutral as of the week ending 11/22/2019 (DJIA – 27875.62). 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 (59) – What’s Not (32). Of the 91 Industry Groups that we track, 59 are rated as either Strong or Improving while 32 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 12/05/19. Strongest: Healthcare Products, Retail-Drug Based, Advertising and Steel. Weakest: Coal, Household Products (Non-Durable), Pipelines and Gas Companies. To review all of the Industry Group Rankings, click on the Industries tab. ETF Center: The top performing ETF categories for the week ending 12/05/2019 were: Commodity-Energy (+3.19%), Commodity-Blend (+1.40%), Shorts (+0.79%) and International-Emerging (+0.56%). The weakest categories were: Sector-Industrials (-1.96%), Sector-Technology (-1.77%), Sector-Internet (-1.39%), Growth-Mid Cap (-1.18%) and Sector-Consumer Discretionary (-1.16%). To review all the categories in the Market Edge universe, click on the ETFs tab.

Calendar of Technical Events:

Date  EventConnotation
12/06/2019  Price gap upBullish
12/02/2019  MACD ST turned bearishBearish
12/02/2019  Up/Down slope turned downBearish
11/27/2019  Stock reached new 52 week high of 281.91Bullish
11/15/2019  Relative Strength turned bearishBearish
11/07/2019  Point & Figure Double Top breakoutBullish
10/25/2019  21 day SMA slope turned upBullish
10/25/2019  MACD LT turned bullishBullish
10/21/2019  10 day SMA cross above 21 day SMABullish
10/11/2019  50 day SMA slope turned upBullish
09/20/2019  21 day SMA cross above 50 day SMABullish

**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: 25743 - Support - The 10/03/2019 low
DJIA: 28174 - Resistance - The 11/27/2019 high
DJIA: 27264 - 50-day simple moving average
DJIA: 26524 - 200-day simple moving average

S&P 500: 2855 - Support - the 10/03/2019 low
S&P 500: 3154 - Resistance - 11/27/2019 high
S&P 500: 3042 - 50-day simple moving average
S&P 500: 2935 - 200-day simple moving average

NASDAQ: 7700 - Support - the 10/03/2019 low
NASDAQ: 8705 - Resistance - the 11/27/2019 high
NASDAQ: 9299 - 50-day simple moving average
NASDAQ: 8009 - 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   -1   Negative
Momentum Index:     5   5   Positive
Sentiment Index:   0   -2   Neutral
Strength Index - DJIA (DIA):     67.0   71.4   Positive
Strength Index - NASDAQ 100 (QQQ):     63.7   69.5   Positive
Strength Index - S&P 100 (OEX):     64.2   73.0   Positive
Dow Jones Industrial Average (DJIA):   28015.06 28051.41   -0.1%
S&P 500 Index: , 3145.91   3140.98   0.2%
NASDAQ Composite Index:   8656.53 8665.47   -0.1%
 **Connotation is Positive or Negative Divergence from the DJIA          
Momentum Index Components   Current Reading Prior Week Connotation
**Dow Jones Industrial Averages (DJIA):   28015.06 28051.41  
**DJ Transportation Average   10708.54 10857.57 Negative
**S&P 500 Index 3145.91 3140.98 Positive
**NYSE Composite Index 13588.29 13545.21 Positive
**NYSE Advance-Decline Line 463771 462974 Positive
**10 Day MA Advance-Decline Line 1.21 1.09 Positive
**NDX 100 Index 8397.37 8403.68 Positive
**NASDAQ Composite Index 8656.53 8665.47 Positive
**DJ Utilities Index 855.04 851.72 Negative
**Russell 2000     1633.84   1624.50 Positive
Trin (5 Day Average) 0.91 1.01 Neutral
NYSE Weekly New Highs-New Lows  286-66 272-170 Negative
Zweig Breadth Indicator 0.75 0.35 Positive
McClellan Oscillator -31 20 Neutral
McClellan Summation Index 2348 2622 Positive
Unchanged Issue Index 0.03 0.04 Negative
Sentiment Index Components Current Reading Prior Week Connotation
Fear-Greed Index(5 Day Avg) 70.40 72.00 Neutral
Shares Sold Short NYSE - Monthly (000) 16799814 16839030  
NYSE Short Interest Ratio----(NYSE Only) 5.2 4.8 Bullish
Shares Sold Short NASDAQ  - Monthly (000) 8223360 8255893  
NASDAQ Short Interest Ratio 4.5 5.3 Bullish
AAII Bull-Bear Ratio 1.1 1.1 Neutral
Put/Call Ratio (5 Day Avg.- All Equity Options) 1.08 1.02 Neutral
Dividend Yield Spread 0.40 0.45 Bullish
NAAIM Exposure Index 77.8 76.7 Neutral
Bullish Investment Advisors 54.8 58.2 Neutral
Bearish Investment Advisors 17.3 17.1 Bearish
Bullish - Bearish Investment Advisors Ratio 3.2 3.4 Bearish
VIX (CBOE Volatility Index) 13.62 12.62 Neutral

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Market Indicators

Market Posture Cyclical Trend Index
As of: 11/22/2019
As of: 12/06/2019

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Current Opinions
As of: 12/10/2019


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Market Recap - 12/10/2019

Index Close Day Change Day % Change YTD % Change
NASDAQ COMPOSITE 8616.18 -5.65 -0.07% 29.85%
DJ UTILITIES 852.58 0.8 0.09% 19.58%
DJ TRANSPORT 10629.87 -46.64 -0.44% 15.91%
DJ INDUSTRIALS 27881.72 -27.88 -0.1% 19.52%
NYSE COMPOSITE 13545.31 -9.76 -0.07% 19.09%
S & P 100 INDEX 1396.76 -1.58 -0.11% 25.39%
RUSSELL 2000 1631.71 2.09 0.13% 20.99%
S&P 500 3132.52 -3.44 -0.11% 24.95%
CBOE MKT VOLATILITY 15.68 -0.18 -1.13% -38.38%
AMEX COMPOSITE 2453.49 6.1 0.25% 7.03%
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