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NASDAQ Posts Record High on Semiconductor Surge

Market Letter (Weekly)

May 24, 2024

The S&P 500 and NASDAQ were able to post new record highs this week as investors bid up semiconductors in anticipation of quarterly earnings from AI stalwart Nvidia (NVDA). The company didn't disappoint delivering blowout numbers that sent the stock up more than 12% on the week. Despite ongoing strength in the technology sector and NASDAQ, the broader market was pulled down by the weight of higher interest rates on better-than-expected economic data. Investors looking for the Federal Reserve to begin cutting interest rates were disappointed by the release of the FOMC Meeting Minutes that showed officials weren't in lockstep with rate cuts leading to an uptick in yields. In addition, several committee members commented that more patience was needed on the path to a 2% inflation target before adjusting policy. Several added they would be willing to raise rates if needed to tackle inflation. As the yield on the 10-year Treasury nudged back towards 4.50% on Thursday, investors were once again looking at rates 'higher for longer' and equities took a dive. The DJIA turned in its worst one-day drop since March 2023 sinking 605.78 points (-1.53%) aided by a -7.46% crash in shares of Boeing (BA). The drop snapped the Dow's five-week win streak, while the S&P 500 and NASDAQ finished higher for a fifth straight week, though just barely for the S&P 500. Only the Technology (XLK) and Communication Services (XLC) sectors, which punched new highs on strength in big cap tech shares, were able to post positive for the period, while rate sensitive sectors Energy (XLE), REITs (XLRE), Financial (XLF) and Consumer Discretionary (XLY) were the worst performers. Commodities backed off recent highs as higher rates also led to weakness in gold, silver, copper and crude oil prices, as well as Bitcoin. Oil dipped as low as $76.23 a barrel before inventories showed a bigger than expected buildup, closing the period at $77.72. Coming back from the long holiday weekend the DJIA will try to right the ship with the focus on Friday's PCE report, the Fed's preferred inflation measure, for indications that the plateau in inflation is softening.

 

For the period, the DJIA lost 934.00 points (-2.3%) and settled at 39069.59. The S&P 500 picked up 1.45 point (+0.0%) and closed at 5304.72. The NASDAQ jumped 234.82 points (+1.4%) finishing at 16920.79, while the small cap Russell 2000 slipped 26.05 points (-1.2%) and settled at 2069.67.

 

Market Outlook: The technical condition of the market finished mixed last week as the DJIA and S&P 500 were hit with a round of profit taking after a month of gains, while the NASDAQ rode strength in semiconductors to a new all-time high. The technical indicators for the different indexes are mixed with the DJIA seeing a bearish cross in short-term trend gauge MACD, while Momentum was stalled in neutral ground. MACD for the S&P 500 and NASDAQ remained bullish with Momentum, as measured by the 14-day RSI, positive for both. The different indexes were able to resolve their overbought condition that has been in place for several weeks with the Market Edge/S&P Short Range Oscillator (SRO) flat going into the weekend. The technical condition for the Philadelphia Semiconductor Index (SOX) remains bullish as it closed at a new all-time high on Friday led by a jump in Qualcomm (QCOM). The small cap Russell 2000, which is more sensitive to higher rates, was able to find support and bounce off its 50-day MA on Thursday which could be a sign that we saw a near-term bottom. The DJ Transportation Index remains the thorn in the market's side as higher fuel costs and shipping troubles around the Mideast continue to dog the movement of goods. Traders will be keeping an eye on 14800 for the DJ Transports as an important support level extending back to November. 

 

Underlying breadth was mostly positive, but the NYSE Advance/Decline line saw some slippage after hitting a new high the previous week. The NASDAQ A/D line showed most stocks were under accumulation. New 52-week highs on both the NYSE and NASDAQ outnumbered the new lows for a third consecutive week, though new lows expanded. 

 

Finally, the Market Edge Investor Sentiment Index hit its most extreme bullish level in several years. This reading becomes a contrarian indicator when it reaches extreme levels as it indicates everyone is on the same side of the trade, which is a negative. According to the American Association of Individual Investors (AAII), bullish retail investors hit their highest percentage since the first week of April and outnumber the bears almost 2:1. The Percentage of Bullish Investment Advisors was just shy of its April number, which marked the most bullish this group had been in three years. In addition, the National Association of Active Investment Managers (NAAIM) Exposure Index is fully invested in equities at 94.5%.  

 

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, unchanged from the previous week. Cycles B, D and E are bullish, while Cycles A and C are bearish. It was determined that the low the week ending 4/19 was a cyclical low leading to a reset of Cycle B which will keep the CTI in a Bullish posture through June. 

 

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 Positive at +8, up two notches from the previous week. Breadth was mixed at the NYSE as the Advance/Decline line lost 1952 units while the number of new 52-week highs exceeded the number of new lows on five sessions. Breadth was positive at the NASDAQ as the A/D line added 3352 units while the number of new highs out did the new lows on four days. Finally, the percentage of stocks above their 50-day moving average dropped to 51.7% vs. 66.4% the previous week, while those above their 200-day moving average fell to 64.4% vs. 70.3% the prior week. 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. The Sentiment Index is Negative at -8, down 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 05/03/2024 (DJIA - 38675.68). 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 (54) What's Not (37). Of the 91 Industry Groups that we track, 54 are rated as either Strong or Improving while 37 are regarded as Weak or Deteriorating. The previous week's totals were 50-41. The following are the strongest and weakest groups for the period ending 05/23/24. Strongest: Aluminum, Heavy Construction, Metals Non-Ferrous and Marine Transportation. Weakest: Trucking, Retailers-Drug Based, Insurance-Life and Retailers-Specialty. 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 05/23/24 were: Shorts (+3.22%) Specialty Technology (+1.28%), Sector-Alternative Energy (+1.00%), Commodity-Base Metals (+0.67%) and Commodity-Blend (+0.18%). The weakest categories were: Sector-Internet (-3.78%), Specialty Real Estate (-3.56%), Blend-Small Cap (-3.25%), Specialty Financial (-2.99%) and Specialty Retail (-2.99%). To review all the ETF categories in the Market Edge universe, click on the ETF Center tab.

 

By David L. Blake, CMT

 

Market Timing Models Current Reading Prior Week Connotation
Cyclical Trend Index (CTI): 8   8   Positive
Momentum Index: 8   8   Positive
Sentiment Index: -8   -7   Negative
Strength Index - DJIA (DIA): 51.8   51.2   Positive
Strength Index - NASDAQ 100 (QQQ): 49.5   47.2   Negative
Strength Index - S&P 100 (OEX): 50.0   46.9   Positive
           
Dow Jones Industrial Average (DJIA): 39069.59   40003.59   -2.3%
S&P 500 Index: 5304.72   5303.27   0.0%
NASDAQ Composite Index: 16920.79   16685.97   1.4%
           
*Connotation is Positive or Negative Divergence from the DJIA
Momentum Index Components Current Reading Prior Week Connotation
*Dow Jones Industrial Averages (DJIA): 39069.59 40003.59    
*DJ Transportation Average 15082.94 15501.43   Negative
*S&P 500 Index 5304.72 5303.27   Positive
*NYSE Composite Index 18110.60 18388.26   Positive
*NYSE Advance - Decline Line 536502 538454   Positive
*10 Day MA Advance - Decline Line 1.02 1.41   Positive
*NDX 100 Index 18808.35 18546.23   Positive
*NASDAQ Composite Index 16920.79 16685.97   Positive
*DJ Utilities Index 926.11 951.42   Positive
*Russell 2000 2069.67 2095.72   Positive
Trin - 5 Day Average 1.03 1.00   Neutral
NYSE Weekly New Highs - Lows  464-54 405-72   Positive
Zweig Breadth Indicator 0.73 0.54   Positive
McClellan Oscillator 57 -100   Neutral
McClellan Summation Index 2859 2953   Positive
Unchanged Issue Index 0.03 0.03   Negative
                 
Sentiment Index Components Current Reading Prior Week Connotation
Fear-Greed Index - 5 Day Average 61.00 54.20   Neutral
Shares Sold Short NYSE - Monthly (000) 16364279 16219605   Bullish
NYSE Short Interest Ratio - NYSE Only 2.3 2.3   Neutral
Shares Sold Short NASDAQ  - Monthly (000) 13656017 13302333   Bullish
NASDAQ Short Interest Ratio 2.7 2.7   Neutral
AAII Bull-Bear Ratio 1.8 1.8   Bearish
Put/Call Ratio - 5 Day Avg All Equity Options 0.95 0.94   Bearish
Dividend Yield Spread -2.18 -2.11   Bearish
NAAIM Exposure Index 94.5 89.3   Bearish
Bullish Investment Advisors 59.4 56.5   Bearish
Bearish Investment Advisors 17.2 17.7   Bearish
Bullish - Bearish Investment Advisors Ratio 3.5 3.2   Bearish
VIX - CBOE Volatility Index 11.93 11.99   Bearish

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Market Recap - 05/29/2024

Index Close Day Change Day % Change YTD % Change
NASDAQ COMPOSITE 16920.58 -99.3 -0.58% 12.72%
DJ UTILITIES 911.03 -10.43 -1.13% 3.33%
DJ TRANSPORT 14781.56 -213.56 -1.42% -7.03%
DJ INDUSTRIALS 38441.54 -411.32 -1.06% 2%
NYSE COMPOSITE 17794.89 -212.12 -1.18% 5.59%
S & P 100 INDEX 2529.54 -13.73 -0.54% 13.12%
RUSSELL 2000 2036.19 -30.66 -1.48% 0.45%
S&P 500 5266.95 -39.09 -0.74% 10.42%
CBOE MKT VOLATILITY 14.28 1.36 10.53% 14.7%
AMEX COMPOSITE 4898.26 -80.55 -1.62% 6.62%
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