Last week's record run stalled to start the week as investors fretted that last week's better than expected jobs report may have dampened the call for future rate cuts. Fed Chair Jerome Powell squelched those worries on Wednesday while signaling the Federal Reserve intended to cut rates at the July FOMC meeting. The major averages rallied as Powell fanned the flames and the DJIA, S&P 500, NASDAQ and NASDAQ 100 hit new all-time highs during the week. Leading the charge was Energy (XLE) after crude oil prices rebounded on a drop in inventory and concerns of supply disruption in the Middle East. Consumer Discretionary (XLY), Technology (XLK), Communication Services (XLC) and Industrials (XLI) also outperformed. Materials (XLB) and Healthcare (XLV) were the weakest sectors, the latter on selling in biotech and big Pharmaceuticals. The iShares NASDAQ Biotechnology ETF (IBB) slipped -3.6% during the week. Investors also took note that longer term yields ticked up, narrowing the 3-month/10-year inverted yield curve. That pairing has historically been a forebearer of recessions when inverted. Gold finished higher for a ninth consecutive week hitting a six-year year high as the U.S. dollar weakened. The major averages closed the week on a high note with investors anxiously looking ahead to next week's start to Q2 earnings.

For the period, the DJIA picked up 409.91 points (+1.5%) and closed at 27332.03. The S&P 500 added 23.36 points (+0.8%) and settled at 3013.77. The NASDAQ gained 82.35 points (+1.0%) finishing at 8244.14, while the small cap Russell 2000 snapped a five-week win streak slipping 5.62 points (-0.4%) and closed at 1570.00.

Market Outlook: The technical condition of the market improved during the week and the major averages continued to post new highs. The technical indicators for the different indexes remain bullish and momentum, as measured by the 14-day RSI, is strong. The market is overbought by several measures however, and some consolidation could be in store before the next move up. Breadth was positive and the NYSE Advance/Decline, a leading indicator of market direction, finished the week at another new high. New 52-week highs on the NYSE and NASDAQ also continue to show modest expansion. As mentioned last week, the number of stocks in the Market Edge universe at, or within one percent, of a new 52-week high has risen from +5.82% on 5/31/2019 to +18% confirming that the rally is becoming broader based.

Although a melt up in the market is still possible, it needs to include participation by the small caps and transportation stocks. The DJ Transportation Index surged +2.5% on Friday which completed a bullish reverse Head & Shoulders pattern that points to a run to the old highs, but remains -8% off its old high. The Russell 2000 finished the week -9.8% off its old high and that negative divergence could be signaling that the broader market has come too far, too fast.

Q2 earnings roll out next week and estimates have been sinking steadily over the last few weeks. It's unlikely that companies will miss lowered estimates but as happened in the first quarter, those that miss will be punished. Some hedging ahead of earnings might be wise. The target for the DJIA is 27528 with a secondary target of 27851. For the S&P 500, 3048 could be followed by 3085. The NASDAQ looks on track to hit 8320 with a secondary goal of 8450.

Market Posture:Based on the status of the Market Edge, market timing models, the ‘Market Posture’ is Bullish as of the week ending 4/18/2019 (DJIA – 26559.54).

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 Positive at +2, unchanged from the previous week. The counts for Cycles A and B are bullish while the counts for Cycles C, D and E are bearish. The cycles remain extended however, and the CTI is projected to change to a negative reading over the next few weeks.

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 Neutral at +3, down two notches from the previous week. Breadth was positive at the NYSE as the Advance/Decline line gained 1027 units while the number of new 52-week highs out did the new lows on all five sessions. Breadth was mixed at the NASDAQ as the A/D line lost 274 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 fell to 68.8% vs. 71.8% the previous week, while those above their 200-day moving average eased to 61.5% vs. 63.4%. 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 nine technical indicators that measure excessive speculative or sentiment conditions prevalent in the market.

The Sentiment Index is Negative at -2, unchanged from the previous week. The Dividend Yield Spread (0.69 vs. 0.79) and the Delta Market Sentiment Index (66.3 vs. 50.3) are Bullish. NYSE short interest was up +1.2% for the period ending 6/14/19 vs. being up +2.5% at the end of May. Short interest at the NASDAQ was up +0.7% mid-June vs. a +3.2% increase on 5/31/19. The Fear and Greed Index (55.2 vs. 53.0) and the NAAIM Exposure Index (87.3 vs. 79.4) are Neutral. The Percentage of Bearish Investment Advisors (18.3% vs. 18.1%), the Percentage of Bullish Investment Advisors (56.7% vs. 55.2%), the Bullish-Bearish Investment Advisors Ratio (3.1 vs. 3.0), VIX, a measurement of fear in the market, (12.39 vs. 13.28) and the Total Put/Call Ratio (0.97 vs. 0.92) are Bearish. VIX readings under 13.00 are regarded as bearish while those above 30.0 are bullish.

U.S equity funds, including ETF activity, had inflows of $1.0 billion for the reporting period ending 7/10/19 compared to outflows of $19.8 billion the previous week.

Strength Indexes: The Strength Indexes were higher with all three in bullish territory. The DJIA jumped to 63.3% vs. 46.7%, while the S&P 100 rose to 68.0% vs. 48.5%. The NASDAQ 100 increased to 80.4% vs. 64.7%. While readings above 50.0% indicate that the majority of the stocks in the index are under accumulation, it is the trend that tends to forecast future price direction.

Industry Group Rankings : What's Hot (64) – What’s Not (27) Of the 91 Industry Groups that we track, 64 are rated as either Strong or Improving while 27 are regarded as Weak or Deteriorating. The previous week’s totals were 62-29. The following are the strongest and weakest groups for the period ending 7/11/19. Strongest: Precious Metals, Semiconductors & Related, Medical Supplies and Toys. Weakest: Household Products (Non-Durable), Oilfield-Equipment, Food and Air Freight/Couriers.

ETF Center: The top performing ETF categories for the week ending 7/11/2019 were: Commodity-Energy (+2.78%), Commodity-Blend (+2.03%), Sector-Energy (+1.23%) and Sector-Technology (+1.07%). The weakest categories were: Blend-Small Cap (-2.04%), Sector-Basic Materials (-1.71%), Value-Small Cap (-1.51%) and Bond-Government Long Term (-1.41%). To review all the ETF categories in the Market Edge universe, click on the ETF Center tab.

Calendar of Technical Events:

**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:

By David L. Blake, CMT