NASDAQ Continues To Lead Market Higher

Market Letter (Weekly)

July 10, 2020

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NASDAQ Continues To Lead Market Higher
Summer rally remains intact despite rising Covid-19 cases.

U.S. stocks were mixed this week before a strong rally on Friday saw the major averages post modest gains as improving economic data outlasted rising Covid-19 cases. Robust hiring data coupled with a slowing of layoffs, surging mortgage applications and decreasing jobless claims pushed the NASDAQ and NASDAQ 100 to new record highs on four sessions during the week. Upside seemed limited mid-week as Coronavirus hotspots in the South and West concerned investors about the state of the recovery and possible second wave of restrictions. However, biotechnology and leisure stocks got a shot in the arm on Friday with promising vaccine drug trials. The gains were led by Communications Services (XLC), Consumer Discretionary (XLY) and Technology (XLK) while Energy (XLE), Real Estate (XLRE), and Industrials (XLI) were all down at least 1% on the week. Gold continued to be a haven as volatility rose while crude oil prices popped over the $40 a barrel mark. Investors were becoming concerned this week as early earnings reports for Q2 have guided lower as it eyes the all-important Money Center banks with a focus on their future guidance.

For the period, the DJIA was able to post a gain of 247.94 points (+1.0%) to close at 26075.30. The S&P 500 added 55.03 points (+1.8%) and finished at 3185.04. The NASDAQ closed at another record, jumping another 409.81 points (+4.0%) to finish at 10617.44, while the small cap Russell 2000 underperformed and was somewhat even, losing just 9.96 points (-0.7%) and settled at 1421.90. The DJ Transportation Index managed to eke out a gain for the week as it moved up +0.8%.

Market Outlook: The technical condition of the market was mixed this week as the major averages moved modestly with the NASDAQ and NDX 100 hitting several new highs during the period. The technical indicators were again in neutral to bullish territory with MACD, which looks at the short-term trend, moving into bullish ground on the NASDAQ and S&P 500. Momentum, as measured by 14-day RSI, was also in neutral to positive ground for the different indexes. Unlike last week, strong momentum confirmed the NASDAQ’s move to new highs this week but is close to topping out. VIX managed to stay under 30, which is looked upon positively and DJ Transportation was higher for the week. However, negative divergences are present for the DJIA, as the blue-chip index remains locked under resistance at its 200-day moving average (MA). As mentioned previously, a close above that level would serve as confirmation and be a positive for the short to intermediate trend. Momentum for the Dow remains muted as the 14-day RSI has been moving sideways for a month. In addition, the small cap Russell 2000 Index remained underwater for the week.

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 +4, unchanged from the previous week. The CTI was reset as of the week ending 4/03/20 and the bottom for the cycles was 3/23/20 indicating that a new bull market began on that date. Cycles A, C, D and E are bullish, while Cycle B is bearish. The CTI is projected to change to a negative reading within the next week or two which could change the Market Posture to neutral or bearish.

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 Positive at +5, up two notches from the previous week. Breadth was mixed at the NYSE as the Advance/Decline line gained 306 units while the number of new 52-week highs out did the new lows on all five days. Breadth was also mixed at the NASDAQ as the A/D line lost 432 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 eased to 52.5% vs. 66.8% the previous week, while those above their 200-day moving average increased to 35.9% vs. 34.8%. 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 7/08/20 shows outflows of -$1.5 billion. Currently, the Sentiment Index is Negative at -1, down 2 notches 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 5/29/2020 (DJIA – 25383.11). 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 (68) – What’s Not (23). Of the 91 Industry Groups that we track, 68 are rated as either Strong or Improving while 23 are regarded as Weak or Deteriorating. The previous week’s totals were 83-8. The following are the strongest and weakest groups for the period ending 7/09/20. Strongest: Semiconductors & Related, Internet-Retail, Internet-Software and Home Construction. Weakest: Clothing and Fabrics, Heavy Construction, Secondary-Oil and Airlines. ETF Center: The top performing ETF categories for the week ending 7/09/20 were: Equity-Shorts (+16.3%), Commodity-Longs (+8.92%), Internet (+7.06%), Alternative Energy (+6.81%) and Technology (+4.24%). The weakest categories were: Shorts (-4.42%) and Small Cap (-3.29%).

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:


”Dr. Market Edge Says"
Dr. Market Edge has been involved in the stock market for over thirty years. He publishes informative articles every month that provide insight into the workings of the market and features of the Market Edge website. These articles are part of the Market Edge Education Institute located on the Market Edge ‘Home Page’. There are currently thirty-one articles ranging from how to interpret various chart formations to the proper placement of stop loss orders. Check them out today.

Market Timing Models   Current Reading Prior Week Connotation
Cyclical Trend Index (CTI):     4   4   Positive
Momentum Index:     5   3   Positive
Sentiment Index:   -1   1   Negative
Strength Index - DJIA (DIA):     34.5   20.7   Negative
Strength Index - NASDAQ 100 (QQQ):     49.0   34.7   Negative
Strength Index - S&P 100 (OEX):     44.7   29.8   Negative
Dow Jones Industrial Average (DJIA):   26075.30 25827.36   1.0%
S&P 500 Index: , 3185.04   3130.01   1.8%
NASDAQ Composite Index:   10617.44 10207.63   4.0%
 **Connotation is Positive or Negative Divergence from the DJIA          
Momentum Index Components   Current Reading Prior Week Connotation
**Dow Jones Industrial Averages (DJIA):   26075.30 25827.36  
**DJ Transportation Average   9312.48 9235.70 Negative
**S&P 500 Index 3185.04 3130.01 Positive
**NYSE Composite Index 12075.15 11991.52 Negative
**NYSE Advance-Decline Line 476278 475972 Positive
**10 Day MA Advance-Decline Line 1.12 0.98 Positive
**NDX 100 Index 10836.33 10341.89 Positive
**NASDAQ Composite Index 10617.44 10207.63 Positive
**DJ Utilities Index 791.35 786.89 Negative
**Russell 2000     1421.90   1431.86 Positive
Trin (5 Day Average) 0.76 1.02 Neutral
NYSE Weekly New Highs-New Lows  145-20 130-25 Positive
Zweig Breadth Indicator 0.77 0.63 Positive
McClellan Oscillator 30 25 Neutral
McClellan Summation Index 2947 3178 Positive
Unchanged Issue Index 0.02 0.03 Negative
Sentiment Index Components Current Reading Prior Week Connotation
Fear-Greed Index(5 Day Avg) 51.60 47.80 Neutral
Shares Sold Short NYSE - Monthly (000) 15406582 15855896  
NYSE Short Interest Ratio----(NYSE Only) 7.9 6.8 Bullish
Shares Sold Short NASDAQ  - Monthly (000) 9033432 8975381  
NASDAQ Short Interest Ratio 1.9 2.2 Bullish
AAII Bull-Bear Ratio 0.6 0.5 Bullish
Put/Call Ratio (5 Day Avg.- All Equity Options) 0.86 0.99 Bearish
Dividend Yield Spread 0.53 -0.55 Bullish
NAAIM Exposure Index 85.1 71.5 Neutral
Bullish Investment Advisors 57.7 54.5 Bearish
Bearish Investment Advisors 18.3 19.8 Bearish
Bullish - Bearish Investment Advisors Ratio 3.2 2.8 Bearish
VIX (CBOE Volatility Index) 27.39 27.68 Neutral

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Market Indicators

Market Posture Cyclical Trend Index
As of: 05/29/2020
As of: 06/26/2020
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Market Recap - 07/10/2020

Index Close Day Change Day % Change YTD % Change
NASDAQ COMPOSITE 10617.44 69.69 0.66% 18.33%
DJ UTILITIES 791.35 17.12 2.21% -9.98%
DJ TRANSPORT 9312.48 172.05 1.88% -14.57%
DJ INDUSTRIALS 26075.3 369.21 1.44% -8.63%
NYSE COMPOSITE 12075.58 146.95 1.23% -13.2%
S & P 100 INDEX 1481.96 15.92 1.09% 2.75%
RUSSELL 2000 1422.68 23.76 1.7% -14.05%
S&P 500 3185.04 32.99 1.05% -1.41%
CBOE MKT VOLATILITY 27.29 -1.97 -6.73% 98.04%
AMEX COMPOSITE 1977.91 7.13 0.36% -22.51%
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