Wall Street Rallies Ahead of Q1 Earnings

Market Letter (Weekly)

April 09, 2021

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Wall Street Rallies Ahead of Q1 Earnings
S&P 500 trades higher for third week.

The DJIA, NYSE and S&P 500 nudged higher for a third consecutive week as mostly better than expected economic data and a pullback in interest rates sent the indexes to new record highs. The major averages sprang from the gates on Monday after a Friday jobs report showed hiring had escalated faster than expected led by strength in big cap technology and the FAANG names. The NASDAQ outperformed gaining 225.49 points (+1.67%) and had tacked on +5% in just three sessions going back to last Wednesday. The different indexes traded mixed midweek on some of the lightest volume numbers of the year before pushing to new heights again on Friday to close out the period. The advance was broad based led by a +4.66% jump in the Technology (XLK) sector, followed by strength in Consumer Discretionary (XLY), Communication Services (XLC) and Financials (XLF), which all set new highs. Energy (XLE) was the only market sector to finish lower dropping -4.10%. Crude oil prices slipped back below $60 finishing the week at $59.31 a barrel on concerns that slower reopenings overseas will keep pressure on demand. Yields on the 10-year and 30-year T-Bills inched lower as Fed Chair Jerome Powell and Vice-Chair Richard Clarida reemphasized that the Federal Reserve would let the economy run hot until they saw significant improvement in jobs. Also giving a boost to equities was a comment from JP Morgan CEO Jamie Dimon that strong consumer savings, expanded vaccine distribution and the Biden administration’s proposed $2.3 trillion infrastructure plan could lead to a "Goldilocks" economy of fast, sustained growth alongside inflation and interest rates that drift slowly upward. Stocks were able to finish on a high note as market participants positioned for Q1 earnings to kick off next week with the Money Center Banks reporting midweek.

For the period, the DJIA added 647.39 points (+2.0%) and closed at 33800.60. The S&P 500 gained 108.93 points (+2.7%) and settled at 4128.80. The NASDAQ jumped 420.08 points (+3.1%) to close at 13900.19, while the small cap Russell 2000 was the laggard easing 10.43 points (-0.5%) finishing at 2243.47.

Market Outlook:The technical condition of the market improved during the week as the DJIA, S&P 500, NYSE, DJ Transportation Index and Philadelphia Semiconductor Index all pushed further into record territory. The technical indicators for the different indexes are in positive territory and momentum, as measured by the 14-day RSI is bullish. The NASDAQ, which outperformed the broader market for a second straight week, completed a bullish reverse Head & Shoulders breakout pattern this week and could rally to a new high with 14650-14800 as a new target. The Russell 2000 however, is showing negative divergence and is underperforming the major averages. The technical indicators for the small cap index are neutral and the index has been range bound since February. Technicians would prefer to see the small caps lead market rallies, but in this case, the underperformance is likely due to delayed reopening's among smaller businesses. Breadth is also bullish with the NYSE Advance/Decline line, a leading indicator of market direction, posting several all-time highs during the period. New 52-week highs expanded again this week showing broadening participation in the market rally.

Investor Sentiment took a step closer to excessive bullishness and is close to raising the red caution flag. This week the American Association of Individual Investors survey showed retail investors were at their most bullishness (+56.9%) since January 3, 2018 (+59.8%). The S&P 500 tumbled -11.8% over the next three weeks. In addition, the Bull/Bear ratio is 2.8, a multi-year high that shows bullish investors outnumber bears almost 3:1. The pros are even more bullish. The latest numbers from Investors Intelligence show the Percentage of Bullish Investment Advisors outdo the Bearish Advisors 3.6:1! The National Association of Active Investment Managers saw a spike in market exposure this week jumping from 52% last week, to 89.9% this week. These are considered contrarian indicators at extreme levels. The reason is that if everyone is bullish and, in the market, who's left to buy?

The different indexes finished the week overbought by several measures and is in need of some backing and filling. The S&P Short Range Oscillator (SRO) closed the week at +5.80%, which has historically led to some profit taking. In addition, the S&P 500 is +15.1% above its 50-day moving average which has been a trigger for some selling in the past.

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, C and E are bullish, while Cycles A and D are bearish. The CTI is projected to remain in Bullish Territory through April.

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 -1, up a notch from the previous week. Breadth was positive at the NYSE as the Advance/Decline line added 2244 units while the number of new 52-week highs out did the new lows on all five sessions. Breadth was also positive at the NASDAQ as the A/D line gained 251 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 jumped to 68.6% vs. 60.3% the previous week, while those above their 200-day moving average increased to 87.4% vs. 86.2%. 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 4/07/21 shows inflows of $5.7 billion. That marks a ninth consecutive week of inflows. Currently, the Sentiment Index is Negative at -3, 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 11/13/2020 (DJIA – 29479.81). 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 (53) What's Not (38). Of the 91 Industry Groups that we track, 53 are rated as either Strong or Improving while 38 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 4/08/21. Strongest: Airlines, Aluminum, Steel and Securities Brokers. Weakest: Beverages, Auto Manufacturing, Industrial Technology and Retailers-Drug Based. To review all of the Industry Group rankings, click on the Industries tab. ETF Center:The top performing ETF categories for the week ending 4/08/21 were: Commodity-Agriculture (+2.89%), Commodity-Base Metals (+2.80%), Sector-Technology (+2.60%), Sector-Telecom (+2.17%) and Sector-Consumer Staples (+2.17%). The weakest categories were: Sector-Energy (-3.90%), Sector-Alternative Energy (-3.12%), Commodity-Energy (-2.79%), Blend-Small Cap (-0.71%) and Shorts (-0.58%). To review all of the ETF categories in the Market Edge universe, click on the ETF tab.

By David L. Blake, CMT

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:


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Market Timing Models   Current Reading Prior Week Connotation
Cyclical Trend Index (CTI):     8   8   Positive
Momentum Index:     -1   -2   Neutral
Sentiment Index:   -3   -2   Negative
Strength Index - DJIA (DIA):     58.6   69.0   Positive
Strength Index - NASDAQ 100 (QQQ):     54.2   54.2   Positive
Strength Index - S&P 100 (OEX):     59.1   63.4   Positive
Dow Jones Industrial Average (DJIA):   33800.60 33153.21   2.0%
S&P 500 Index: , 4128.80   4019.87   2.7%
NASDAQ Composite Index:   13900.19 13480.11   3.1%
 **Connotation is Positive or Negative Divergence from the DJIA          
Momentum Index Components   Current Reading Prior Week Connotation
**Dow Jones Industrial Averages (DJIA):   33800.60 33153.21  
**DJ Transportation Average   14918.33 14748.38 Positive
**S&P 500 Index 4128.80 4019.87 Negative
**NYSE Composite Index 15956.37 15751.70 Negative
**NYSE Advance-Decline Line 515039 512795 Positive
**10 Day MA Advance-Decline Line 1.45 1.16 Positive
**NDX 100 Index 13845.05 13329.52 Negative
**NASDAQ Composite Index 13900.19 13480.11 Negative
**DJ Utilities Index 891.67 879.51 Negative
**Russell 2000     2243.47   2253.90 Negative
Trin (5 Day Average) 1.13 1.45 Neutral
NYSE Weekly New Highs-New Lows  442-89 340-262 Positive
Zweig Breadth Indicator 0.55 0.80 Neutral
McClellan Oscillator -82 -79 Neutral
McClellan Summation Index 3052 2602 Positive
Unchanged Issue Index 0.04 0.02 Negative
Sentiment Index Components Current Reading Prior Week Connotation
Fear-Greed Index(5 Day Avg) 66.00 46.40 Neutral
Shares Sold Short NYSE - Monthly (000) 13365403 13007595  
NYSE Short Interest Ratio----(NYSE Only) 4.4 4.0 Bullish
Shares Sold Short NASDAQ  - Monthly (000) 9980395 9454943  
NASDAQ Short Interest Ratio 1.6 1.1 Bullish
AAII Bull-Bear Ratio 2.8 2.0 Bearish
Put/Call Ratio (5 Day Avg.- All Equity Options) 0.82 0.89 Bearish
Dividend Yield Spread 0.27 -0.12 Bullish
NAAIM Exposure Index 89.9 52.0 Neutral
Bullish Investment Advisors 60.8 54.4 Bearish
Bearish Investment Advisors 16.7 17.5 Bearish
Bullish - Bearish Investment Advisors Ratio 3.6 3.1 Bearish
VIX (CBOE Volatility Index) 16.69 17.33 Neutral

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Market Posture Cyclical Trend Index
As of: 11/13/2020
As of: 03/19/2020
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Market Recap - 04/12/2021

Index Close Day Change Day % Change YTD % Change
NASDAQ COMPOSITE 13850 -50.19 -0.36% 7.46%
DJ UTILITIES 892.01 0.34 0.04% 3.16%
DJ TRANSPORT 14969.58 51.25 0.34% 19.69%
DJ INDUSTRIALS 33745.4 -55.2 -0.16% 10.25%
NYSE COMPOSITE 15977.46 21.09 0.13% 10%
S & P 100 INDEX 1881.82 -1.07 -0.06% 9.37%
RUSSELL 2000 2233.78 -9.69 -0.43% 13.11%
S&P 500 4127.99 -0.81 -0.02% 9.9%
CBOE MKT VOLATILITY 16.91 0.22 1.32% -25.67%
AMEX COMPOSITE 2775.36 -9.76 -0.35% 17.55%
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