March 28, 2025

Signs the White House would take a more measured approach to tariffs on trading partners triggered an oversold bounce on Monday, but investors faded the rally and stocks sank into the weekend on inflation jitters and new tariff concerns. The major averages inched higher again on Tuesday, led by big cap technology stocks, but were on a three-day losing streak after Friday's drop. Despite the selloff, market sectors were mixed with Consumer Staples (XLP), Energy (XLE), REITs (XLRE) and Consumer Discretionary (XLY) closing higher. The Technology (XLK) sector was the weakest market group as it took out its March low on Friday and down -11.09% YTD. Communication Services (XLC), Industrial (XLI) and Healthcare (XLV) were also lower, down more than -1%. Yields ticked higher during the period but moved lower on Friday even with the March core-PCE slightly above expectations. The rate on the 10-year Treasury ended the week at 4.262% and the two-year landed at 3.918%. The probability of a May rate cut was taken off the table with inflation remaining sticky, but the CME Group FedWatch projected a 72% chance of a June cut. Cautious investors sent gold to another record close of $3114.30 an ounce on trade war concerns, while crude oil prices ended the week at $69.11 on perceived strong US demand. The S&P 500 and NASDAQ finished the period down for a fifth time over the last six weeks, while the DJIA was lower four of the last five. Next week, the focus will be on March payroll numbers as investors hope a resilient jobs market can signal that a slowing economy isn't headed for a recession. An April 2 planned date for reciprocal tariffs will also be on investors radar.

For the period, the DJIA lost 401.45 points (-1.0%) and settled at 41583.90. The S&P 500 fell 86.62 points (-1.5%) and closed at 5580.94. The NASDAQ tumbled 461.06 points (-2.6%) finishing at 17322.99, while the small cap Russell 2000 lost 33.71 points (-1.6%) and settled at 2023.27.

Market Outlook: The technical condition of the market remained weak as the different indexes were unable to hold their gains from an oversold bounce and closed below their respective 200-day moving average (MA) support level. The technical indicators are mostly negative with Momentum, as measured by the 14-day RSI, bearish and sliding below 40 indicating the market trend remains lower. While the RSI is normally looked at as an indicator of an overbought/oversold market, technician Connie Brown has found that a move in the 14-day RSI below 40 confirms a bearish market posture. Most of the different indexes were able to close above their mid-March lows, but the Philadelphia Semiconductor Index, down another -6.0%, took out its March low on Friday finishing the week at its lowest level since April 2024 and down -22.4% from its intraday January high. A look at the market's make-up shows only defensive sectors Consumer Staples (XLP) and Utilities (XLU), along with Energy (XLE), remain above their respective 50, 100 and 200-day MA, while Technology (XLK) is the biggest drag on the major averages down -14.9% from its 2025 high. The weakness in big cap tech shares and the overweighted Magnificent 7 stocks have hit the different indexes hard as surprisingly, only Consumer Discretionary (XLY), Technology (XLK), Industrial (XLI) and Communication Services (XLC) are the only market sectors trading red YTD. 

After taking out the Market Edge initial downside targets of 41900 for the Dow Jones and 5600 for the S&P 500, this week the DJIA, S&P 500 and NASDAQ all flirted with a 61.8% retracement of the rally off the August lows and traders will need to keep a keen eye on those levels going forward. A break below that support level could trigger a reversal back to the August lows. For the DJIA, a drop below 40750 would target 38,650-39,000. The S&P 500 needs to hold 5520, while a break below would bring 5150-5200 into play. The NASDAQ tested and held its 61.8% retracement level of 17373 numerous times over the last three weeks but closed below that support level on Friday. The NASDAQ could drop to around 15570, the August low if selling persists. With the Market Edge Cyclical Trend Index (CTI) in a negative configuration through April, the August lows for the major averages can't be ruled out. The secondary indexes, including the DJ Transportation Index, small cap Russell 2000 and Philadelphia Semiconductor Index, which technicians like to see leading the market higher and lower, are all below their respective 50, 100 and 200-day moving average and have already fallen back to their lows from August 2024. 

Underlying breadth is negative and points to equities being in a distribution phase with the NYSE and NASDAQ Advance/Decline lines, considered leading indicators of market direction, continuing to move lower with the NYSE A/D line close to its September lows, while the NASDAQ A/D line did post a new low. New 52-week lows on both the NYSE and NASDAQ outdid the new highs with the NASDAQ new lows once again expanding. One positive caveat in an otherwise bleak picture was that the new lows on the NYSE only hit triple digits on Friday (136) after hitting 289 mid-March. 

Investor Sentiment is at neutral reading as investors look like they haven't thrown in the towel, yet. The American Association of Individual Investors (AAII) survey showed a slight increase in bullish retail investors, but they remain below the historical norm of 37.5% for the 11th time in 13 weeks. The professionals are growing more bearish with the National Association of Active Investment Managers (NAAIM) Exposure Index this week falling to 57.6%. That is the lowest exposure to equities since a 56.6% read in mid-August. Contrarian investors can take heart that it marked the lows for the major averages. The Percentage of Bullish Investment Advisors nudged higher for a second week however, hitting 30.5% after falling to 27.6%. 

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 -3, unchanged from the previous week. Cycles A, B and E are bullish, while Cycles C and D are bearish. The CTI is projected to remain in a negative configuration through April.

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 Negative at -6, unchanged from the previous week. Breadth was negative at the NYSE as the Advance/Decline line lost 1765 units while the number of new 52-week lows exceeded the number of new highs on three sessions. Breadth was also negative at the NASDAQ as the A/D line dropped 4232 units while the number of new lows out did the new highs on all five days. Finally, the percentage of stocks above their 50-day moving average dropped to 31.7% vs. 33.9% the previous week, while those above their 200-day moving average fell to 36.6% vs. 38.0% 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 Neutral at +1, down a notch from the previous week.

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 (12) - What's Not (18): The following are the strongest and weakest Industry Groups for the period ending 3/27/25. Strongest: Telecommunications, Metals & Mining, Insurance and Integrated Oil & Gas. Weakest: Transportation, Construction, Technology Hardware and Retail. 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 3/27/25 were: Specialty Retail (+2.16%), Sector-Consumer Discretionary (+2.01%), Sector-Consumer Staples (+1.60%), Specialty Communications (+1.46%) and Sector-Telecom (+1.46%). The weakest categories were: Sector-Alternative Energy (-2.50%), Bond-Government Long Term (-2.19%), Specialty Technology (-1.95%), Bond-International (-1.80%) and Commodity-Agriculture (-1.75%). To review all the ETF categories in the Market Edge universe, click on the ETF Center tab.

By David L. Blake, CMT