April 25, 2025

The stock market was able to reverse a steep selloff on Monday and the major averages were able to close out the period higher for a second time over the last three weeks. Monday's plunge, on a lack of progress in trade talks and President Trump's threats to replace Fed Chair Jerome Powell, ended with the S&P 500 flirting with bear market territory as the bellwether index dropped -2.36% and the US Dollar to a three-year low as foreign investors dumped US assets. A de-escalation of trade tensions with China overnight however, erased the losses and the S&P 500 and NASDAQ were on a four-day win streak going into the weekend. While gold continued to knock off new record highs on a flight to safety on the uncertainty of tariffs, equities got a boost from a pullback in yields midweek with the rate on the 10-year Treasury easing to 4.261%. Economic data was mixed with slower manufacturing activity being offset by solid job numbers. Despite questionable forward guidance, Q1 earnings were mostly better than expected with shares of ServiceNow (NOW), Texas Instruments (TXN), GE Aerospace (GE), charter Communications (CHTR) and 3M (MMM) surging on solid numbers. Disappointing earnings resulted in a trip to the woodshed with International Business Machines (IBM), Intel (INTC), T-Mobil (TMUS) and Proctor & Gamble (PG) trading sharply lower. Growth sectors outperformed as investors scooped up beaten down shares and Technology (XLK), Consumer Discretionary (XLY), Communication Services (XLC), Industrial (XLI) and Financial (XLF) outperformed, while only Consumer Staples (XLP) finished in the red. Next week is a busy few days of key data on inflation and jobs. Also look for a full slate of earnings to power stocks while keeping a keen eye on trade talks and the President's 'tweets' that continue to rattle investors and add to volatility.

For the period, the DJIA gained 971.27 points (+2.5%) and settled at 40113.50. The S&P 500 added 242.51 points (+4.6%) and closed at 5525.21. The NASDAQ jumped 1096.49 points (+6.7%) finishing at 17382.94, while the small cap Russell 2000 traded higher for a third consecutive week gaining 70.00 points (+4.1%) and settling at 1957.62.

Market Outlook: The technical condition of the market improved during the week with the major averages on a four-day win streak going into the weekend. The rally sent the S&P 500 through resistance at the 50% retracement level of the February-April decline when it crossed above 5500 and the NASDAQ within a chip shot of that resistance which could trigger more buying if that index can close above 17430-17450 in the next few days. The S&P 500 and NASDAQ also broke above their downward sloping trend lines off the February and March highs, which is another plus going forward. The DJIA was lagging due to several components reporting disappointing earnings and will need to put 40825-40850 in its crosshairs to crack that resistance level. The Philadelphia Semiconductor Index also traded above a key resistance area, surging +10.9% on the week, as it crossed above its 38.2% retracement of its selloff and closed above its downward sloping trend line off the February- March highs, which bodes well for growth and technology stocks. The technical indicators also improved with MACD, a short-term trend gauge, crossing into bullish ground, while Momentum, as measured by the 14-day RSI, neutral but improving. Market technicians may be looking for a completion of a bullish double-bottom chart pattern before jumping back into equities, but the DJIA, S&P 500 and NASDAQ came within 3-6% of the April 7 bottom this week and with positive divergence showing up in underlying breadth and the technical indicators, it's likely that the April 7 selloff marks the bottom for this cycle. Lastly, the VIX, which can gauge fear among traders of additional downside, fell back 25 on Friday, its lowest mark since April 3, showing investors are more comfortable with the rhetoric coming out of the White House on trade.

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 negative at -9, unchanged from the previous week. Cycles A, B, C and D are bearish, while Cycle E is bullish. The DJIA was unable to hold above the previous week's low of 38950.31 preventing a reset of several cycles. If the DJIA is able to hold above 37830.66 in the coming week, the CTI will be reset to a bullish configuration going forward and confirming that the low of April 7 was the bottom for the February-April decline.

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 Neutral at -2, up four notches from the previous week. Breadth was positive at the NYSE as the Advance/Decline line gained 3817 units while the number of new 52-week highs exceeded the number of new lows on four sessions. Breadth was also positive at the NASDAQ as the A/D line added 5761 units while the number of new highs out did the new lows on three of the five days. Finally, the percentage of stocks above their 50-day moving average jumped to 28.3% vs. 15.7% the previous week, while those above their 200-day moving average rose to 26.4% vs. 20.4% the prior week. Readings above 70.0% denote an overbought condition, while below 20% is bullish. The NYSE and NASDAQ Advance/Decline lines, leading indicators of market direction, were sharply higher showing positive divergence, while new 52-week highs outdid the new lows this for the first time on the NYSE in eight weeks.

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 Neutral at +1, down a notch from the previous week. Investor Sentiment remains bearish with the American Association of Individual Investors showing retail bulls stayed below their historical average for a 15th week over the last 17. The pros are still cautious, but we saw an increase in The National Association of Active Investment Managers (NAAIM) Exposure Index to 40.7% from 35.2% the prior week. With that much cash on the sidelines, progress in trade talks could set up a buying spree in equities like we saw on April 9.

Market Posture: Based on the status of the Market Edge market timing models, the Market Posture is Bearish as of the week ending 2/28/2025 (DJIA - 43840.91). 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 (9) - What's Not (21): The following are the strongest and weakest Industry Groups for the period ending 4/24/25. Strongest: Agricultural, Metals & Mining, Infrastructure and Insurance. Weakest: Paper & Forest Products, Transportation, Technology Hardware and Hospitality. 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 4/24/25 were: Specialty Technology (+7.24%), Sector-Internet (+6.78%), Blend-Small Cap (+6.09%), Specialty Financial (+6.01%) and Growth-Mid Cap (+5.50%). The weakest categories were: Shorts (-6.12%) and Currencies (-0.14%). To review all the ETF categories in the Market Edge universe, click on the ETF Center tab.

By David L. Blake, CMT