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Bears Come Out Of Hibernation

On The Edge (Monthly)

April 01, 2020
ON THE EDGE

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Bears Come Out Of Hibernation
Stocks to struggle in April on Covid-19 fears.

MARKET REVIEW – APRIL 2020

 

March was one for the record books as continued expansion of the Coronavirus pandemic threw global markets into a full-on panic, and the bears came in fast and hard during a highly volatile month. The elevator was already going down from the prior month before the Fed surprised everyone with a 50bps rate cut to start out the month, and Joe Biden became the Democrat candidate frontrunner after a strong Super Tuesday showing. That saw the Dow snap a seven-day losing streak where the blue chips dropped 3938.67 points (-13.4%). By the second full week, a collapse in oil prices, coupled with the spreading of Covid-19 initiated the first of three circuit breakers during the timeframe, and the 10-year Treasury yield fell to .39% before settling back at .59% and the market was officially in Bear territory. Cruise Line and Airline stocks fell -30% and -20% respectively as all the gains from the 2016 election were completely wiped out by mid-March. With the spread of Covid-19 accelerating, investors headed further into the bunkers as the DJIA suffered its worst one day decline since the 1987 crash on March 16th, dropping -2997.10 points (-12.93%) on fears that global economies were headed into a recession. Towards the end of the month, Congress was able to pass its $2T rescue bill and oversold equities spiked on news that Central Banks and G-7 nations were ready to do whatever it takes to keep global economies at scale. Buyers came off the sidelines towards the end of month on hopes that the stimulus would limit damage to the economy and the Dow posted its first 3-day win streak since early February gaining 3960.24 points (+21.3%). The DJIA turned in its biggest one day point gain in history on March 24th, +2112.28 (+11.4%), before losing steam again as deaths from the Coronavirus continued to spike domestically. In the end, the carnage was record setting as the Dow capped off its worst quarter since 1987, led by Boeing (-45.7%), while both Chevron and Exxon each tumbled around 40%. Both the Dow and S&P 500 had its worst month since October ’08 and the NASDAQ had its worst month since November ’08.

 

The market’s volatility gauge, VIX, recorded its highest reading since October ’08, but was able to come back down near the 50 handle as the month ended. For context, it last took the market 174 sessions to sell off into Bear market territory during the great recession of 2008, while this year’s selloff into a bear market took just 20 sessions to get there. There was nowhere to hide as every sector was negative for the second straight month led by declines in Energy (XLE), which lost -34.37%, followed by Financials (XLF), Industrials (XLI) and REITs (XLRE) which were all down more than -15%. WTI Crude oil also had its worst quarter ever and the U.S. 10-Year Treasury yield finished down 38% on the month and is now down 64% year-to-date. In what was the most volatile month in the history of the blue-chip index which posted 12 sessions of quadruple point moves both up and down. The DJIA was pummeled for 3492.20 points (-13.74%) and settled at 21917.16. The S&P 500 followed suit, as it fell by 369.63 points (-12.51%) to close at 2584.59. Finally, the DJ Transportation Index was the weakest index dropping 1655.87 points (-17.64%) to finish at 7732.32, its biggest monthly decline ever.

 

The NASDAQ also tumbled into a bear market, but fared better than the other broader indexes as buying into FANG stocks and Bio-Techs, who are working feverishly on testing solutions and vaccines, limited the downside. The iShares NASDAQ Biotechnology ETF (IBB) outperformed sliding (-5.34%). Amazon (AMZN) was a bright spot as it ended the month higher and eked out a small gain for the quarter. Semiconductors struggled during March and the Philadelphia Semiconductor Index sank -15.09% on 3/16/20 alone before climbing back to finish the month down -11.4%. For the period, the NASDAQ suffered its worst month since the financial crisis and lost -867.27 points (-10.12%) to finish at 7700.10. The small cap Russell 2000, was the biggest loser falling by 323.33 points (-21.90%), finishing at 1153.10.

 

MARKET OUTLOOK

The technical condition of the market deteriorated during the month. The selloff left the major averages in deeply oversold territory and the strong snap back rally ran out of steam at resistance after retracing 38.2% of the selloff from the highs for DJIA, S&P 500 and NASDAQ. The technical indicators were in negative ground and the different indexes finished the period in Bear market territory. A Death Cross, where the 50-day moving average crosses below the 200-day moving average (MA) on the DJIA and S&P 500 was also a negative for the market, but the NASDAQ was spared. The S&P Short Range Oscillator went into severe oversold territory not seen since the 1987 market crash, posting a figure of -24.36%, before showing dramatic improvement and coming out of an oversold condition posting a figure of -1.91% by the end of the month. Breadth showed signs of some positive divergence as the month ended as the NYSE and NASDAQ Advance/Decline lines improved while the number of new 52-week lows contracted.

 

After being turned back at resistance as the month ended, the major averages are likely to be in a trading range as we head into April until we see the number of Covid-19 cases peak and trend lower. For the DJIA, look for support 19,000 with resistance at 23500 and for the S&P 500, 2300 to 2650. The NASDAQ could trade between 6800 support and 7940. For investors looking to buy or add stocks, track equities that have bounced back the strongest on the recent rally and look for previous support areas or gaps in the charts to put in Buy Limit orders. These are the stocks that will outperform and begin to put in higher lows on pullbacks. This will give investors a chance to upgrade their portfolio holdings going forward by picking up stocks that are outperforming the broader market.

 

CYCLICAL TREND INDEX (CTI): Neutral

Presently the CTI is Neutral at +1, unchanged from the previous month. The count for Cycles A, B, C and D are bullish while the count(s) for Cycle E is bearish. However, with the selloff, the Cycles will be reset soon. Until the cycles are reset, investors should follow the Momentum Index for signs that a bottom may have been put in.

 

 

Cycle

Average # Of Weeks

In The Cycle

# Of Weeks Since

Previous Bottom

Bullish Or Bearish

Connotation

A

6 +  or    -1 Week

1  Week

Bullish

B

18+  or    -2 Weeks

 1  Weeks

Bullish

C

36+  or    -4 Weeks

26  Weeks

Bullish

D

72 + or    -7 Weeks

26  Weeks

Bullish

E

216 + or   -20 Weeks

178 Weeks

Bearish

 

 

The following are projected CTI readings through the week ending 4/24/20. 

 

Week Ending

CTI

Connotation

3/27/20 (Actual)

+1

Neutral

4/03/20 (Projected)

+1

Neutral

4/10/20 (Projected)

+1

Neutral

4/17/20 (Projected)

+3

Bullish

4/24/20 (Projected)

+3

Bullish

 

 

** The CTI is the total of the plus and minus values assigned to each cycle based on the number of weeks that have passed since their previous cyclical bottom.  For a detailed explanation of the market timing models, click on "Market Letter Help" located on the top of the 'Market Letter'.

 

 

 

Market Posture Performance 2018-2020

The following is the performance record of the Market Edge ‘Market Posture’ for 2018 - 2020

 

 

 

 

 

 

Projected Strong Periods:

 

Actual Results – DJIA

05/11/18 -  09/28/18  (24831.17 – 26458.31)

DJIA Gain/Loss

+1370.68

01/04/19 -  03/15/18  (23433.16 – 25887.38)

DJIA Gain/Loss

+2454.22

04/18/19 -  08/02/19 (26559.54 – 26485.01)

DJIA Gain/Loss

-74.53

09/03/19 -  11/22/19 (27219.52 – 27865.62)

DJIA Gain/Loss

+646.10

 

 

 

Projected Weak Periods:

 

Actual Results – DJIA

03/09/18  - 05/11/18  (25335.74 – 24831.17)

DJIA Gain/Loss

-504.57

09/28/18  - 01/04/19  (26458.31 – 23433.16)

DJIA Gain/Loss

-3025.15

08/01/19 - 09/03/19  (26485.01 – 27219.52)

DJIA Gain/Loss

+734.51

01/03/20 - 02/14/20   (28634.88 – 29398.08)

DJIA Gain/Loss

+763.20

 

MOMENTUM INDEX: Neutral

As of the close on 3/27/20, the Momentum Index is Neutral at -2, down 4 notches from the previous month. The Momentum Index is a gauge of bullish or bearish divergence in the market.  Readings of +04 and higher are regarded as bullish signaling stronger performance from the majority of the broader indexes vs. the DJIA.  Conversely, readings of -04 or lower are regarded as bearish. Below is a chart of the performance of seven of the major, broad market indexes included in the Momentum Index vs. the DJIA since the last major cyclical low.

 

 

Prev. Lows

DJIA

DJTA

S&P 500

NYSE

R-2000

NASDAQ

UTIL

A/D LINE

Jan. 2020

28256.03

10566.74

3225.52

13614.10

1614.06

9150.94

866.82

+471088

3/31/20

21917.16

7732.32

2584.59

10301.87

1153.10

7700.10

756.16

+465522

%Change

-22.4%

-26.8%

-19.9%

-24.3%

-28.6%

-14.6%

-12.8%

-1.2%

 

 

Average % Change of the Broad Market Indices: -17.4%

 

The broader market indexes are down on average -17.4% from their January 2020 closing lows vs. -22.4% for the DJIA resulting in the Neutral -2 reading. Breadth was negative during the month at the NYSE as the Advance/Decline Line lost 5871 units vs. a loss of 5566 units in February while the number of new 52-week lows surpassed the new highs on all 22 sessions. The breadth at the NASDAQ was negative as the A/D line dropped 7255 units after dropping 5512 units in February, while the number of new lows surpassed the new highs on all 22 sessions. Finally, the percentage of NYSE stocks above their 50-day moving average dropped during the period to 6.4% from 10.7% while those above their 200-day fell to 9.1% vs. 26.5% from the previous month. Readings above 70.0% denote an overbought condition. As previously indicated, Oil posted both its worst quarter and month in history as it was down -56.93% during the month while Gold was off -3.05% on the month.

 

SENTIMENT INDEX: Positive

The Sentiment Index for the month ending 3/27/20 is Positive at +7, up 4 notches from the previous month. The Sentiment Index tracks thirteen market indicators that measure excessive bullish or bearish conditions prevalent in the market. Whenever the crowd becomes overly optimistic (a bearish condition), the readings from the Sentiment Index will drop into negative ground.  Conversely, when fear is rampant (a bullish condition), the index will be in the +3 to +8 area.  

 

The Dividend Yield Spread (0.61 vs. 0.07), AAII Bull-Bear Ratio (0.6 vs. 0.8), Bullish Investment Advisors (30.1% vs. 49.1%), Fear and Greed Index (13.80 vs. 26.0) and VIX, a measurement of fear in the market, (53.54 vs. 40.11) are Bullish. NYSE short interest was up 8.0% for the period ending 3/15/20 vs. being up +2.7% at the end of February. Short interest at the NASDAQ was up +3.3% mid-March vs. a +0.3% increase on 2/29/20. The NAAIM Exposure Index (25.9 vs. 65.0), the Bullish-Bearish Investment Advisors Ratio (0.7 vs. 2.6), the Total Put/Call Ratio (1.02 vs. 1.23) and Percentage of Bearish Investment Advisors (41.7% vs. 19.2%) are Neutral. VIX readings under 13.00 are regarded as bearish while those above 30.0 are bullish.

 

**To view the charts and graphs of the major market indexes and pertinent technical indicators that are incorporated in the Momentum and Sentiment indexes go to the Market-At-A-Glance section located under Market Recap on the Market Edge home page.

  

 

 

MARKET POSTURE: Neutral

Based on the status of the Market Edge, market timing models, the ‘Market Posture’ is Neutral as of the week ending 2/14/2020 (DJIA – 29398.08). For a closer look at the technical indicators and studies that make up the market timing models, check out the 'Market Letter (Weekly)' located on the Market Edge home page. (www.marketedge.com).

             

 

Take a look at the new ‘Dr. Market Edge Talks Stocks’ section located on the Markets or Home Page.  Every Tuesday, the good Doctor reviews three stocks that have recently been in the news.  These articles will help you evaluate stocks when viewing Smart Charts and the Second Opinion reports.

 

Calendar Of Technical Events

Date  EventConnotation
03/26/2020  MACD ST turned bullishBullish
03/24/2020  Price gap upBullish
03/23/2020  Point & Figure Double Bottom breakoutBearish
03/23/2020  50 day SMA cross below 200 day SMABearish
03/23/2020  Stock reached new 52 week low of 182.10Bearish
03/12/2020  Price down more than 5% with volume up more than 200%Bearish
03/09/2020  200 day SMA slope turned downBearish
02/27/2020  21 day SMA cross below 50 day SMABearish
02/26/2020  10 day SMA cross below 21 day SMABearish
02/24/2020  50 day SMA slope turned downBearish
02/21/2020  21 day SMA slope turned downBearish
02/21/2020  MACD LT turned bearishBearish
02/12/2020  Stock reached new 52 week high of 295.87Bullish

**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:      

DJIA: 18213 - Support - The 03/23/2020 low
DJIA: 27102 - Resistance - The 03/04/2020 high
DJIA: 26279 - 50-day simple moving average
DJIA: 26947 - 200-day simple moving average

S&P 500: 2191 - Support - the 03/23/2020 low
S&P 500: 3136 - Resistance - 03/03/2020 high
S&P 500: 3032 - 50-day simple moving average
S&P 500: 3029 - 200-day simple moving average

NASDAQ: 6631 - Support - the 03/23/2020 low
NASDAQ: 9070 - Resistance - the 03/03/2020 high
NASDAQ: 8737 - 50-day simple moving average
NASDAQ: 8402 - 200-day simple moving average

 

 

 

 

ETF Center: The top performing ETF categories for the week ending 3/26/20 were: Sector-Industrials (+20.92%), Blend-Small Cap (+19.84%), Sector-Alternative Energy (+18.80%), Sector-Financial (+18.53%), and Sector-Real Estate (+17.72%). The weakest categories were: Shorts (-29.51%).

 

Industry Group Rankings: What's Hot (0) What’s Not (91)

Of the 91 Industry Groups that we track, 0 are rated as either Strong or Improving while 91 are regarded as Weak or Deteriorating. The previous month’s totals were 16-75. The following are the strongest and weakest groups for the period ending 3/27/20. Strongest: Semiconductor's & Related, Internet-Retail, Telephone Systems and Precious Metals. Weakest: Oilfield-Equipment, Oil-Secondary, Oilfield-Drilling and Airlines.

 

SUGGESTIONS FOR SELECTING BUY CANDIDATES

1) Initiating new long positions for an intermediate-term trading approach:

a)  Go to Stock Watch, select a list, click on the Opinion/Conditions drop down and then on Long for potential buy candidates.  Click on the Situations drop down and then on Early Entry Longs.

 

b)  Click on the Trading Ideas tab and then on Money Runner.  Select stocks from the Today's Buy list.

 

c)  For a more conservative approach, check out the ETF Center.  Choose a category that is either 'Improving' or 'Strong' and then choose ETF's with Long Opinions as potential buys.

 

d)  Click on the Trading ideas tab on the toolbar and then on Prime Ideas.  Choose one of the five investment styles to retrieve a list of stocks that have both favorable technical and fundamental characteristics.

 

2) Initiating new positions for a short-term trading approach:

a)  Click on Trading Ideas located on the toolbar.  Then click on Trading Desk and select either NYSE or NASDAQ Short Term Buys.

 

b)  Click on the Advanced Tools tab and then on either the Point & Figure Breakouts or Point & Figure Early Alert modules.  Look for stocks that have either broken or are in the process of breaking either a Triple Top or Quadruple Top and have a Long Opinion for potential buy candidates.

 

SUGGESTIONS FOR SELECTING SHORT-SALE CANDIDATES

1) Initiating new short positions for an intermediate-term trading approach:

a)  Go to Stock Watch, select a list, click on the Opinion/Conditions drop down and then on Avoid for potential short sale candidates.  Click on the Situations drop down and then on Early Entry Shorts. 

 

b)  Click on the Trading Ideas tab and then on Money Runner.  Select stocks from the Today's Shorts list as potential short sale candidates.

 

c)  For a more conservative approach, check out the ETF Center.  Choose a category that is either 'Deteriorating' or 'Weak' and then choose ETF's with Avoid Opinions as potential shorts.

 

d)  Click on the Trading Ideas tab on the toolbar and then on Prime Ideas.  Choose Short Sale Candidates for stocks that are considered to be broken momentum stocks.

 

2) Initiating new positions for a short-term trading approach:

a)  Click on Trading Ideas located on the toolbar.  Then click on Trading Desk and select either NYSE or NASDAQ Short Term Shorts.

 

b)  Click on the Advanced Tools tab and then on either the Point & Figure Breakouts or Point & Figure Early Alert modules.  Look for stocks that have either broken or are in the process of breaking either a Triple Bottom or Quadruple Bottom and have an Avoid Opinion for potential short sale candidates.

 

 

 

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Market Indicators

Market Posture Cyclical Trend Index
Neutral
1
As of: 02/28/2020
As of: 02/28/2020
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Second Opinion Performance

Second Opinion Status

3299

Current Opinions
As of: 04/03/2020

77%

Long Accuracy
As of: 04/03/2020

91%

Avoid Accuracy
As of: 04/03/2020
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Market Recap - 04/03/2020

Index Close Day Change Day % Change YTD % Change
NASDAQ COMPOSITE 7373.08 -114.2 -1.53% -17.82%
DJ UTILITIES 706.01 -23.35 -3.2% -19.69%
DJ TRANSPORT 7305.31 -140.4 -1.89% -32.98%
DJ INDUSTRIALS 21052.53 -360.9 -1.69% -26.23%
NYSE COMPOSITE 9880.63 -181.7 -1.81% -28.98%
S & P 100 INDEX 1151.57 -16.94 -1.45% -20.15%
RUSSELL 2000 1052.05 -33.76 -3.11% -36.44%
S&P 500 2488.65 -38.25 -1.51% -22.97%
CBOE MKT VOLATILITY 46.8 -4.11 -8.07% 239.62%
AMEX COMPOSITE 1520.31 -37.3 -2.39% -40.43%
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