MARKET REVIEW – JUNE 2020

The month of June kicked off the start to the summer season, with a theme park like roller coaster ride as increasing cases of the resurgent coronavirus was offset by better than expected economic data. The month got off to a hot start with the Dow notching a 6 straight session win streak as it gained 2,189.33 points (+8.5%) and along with the S&P 500 surged above their respective 200-day moving average (MA).  A surprise May jobs report rose +2.5M vs. an expectation of -7M jobs lost caused another spike in equities sending the NASDAQ and NASDAQ 100 to new record highs and the DJIA and S&P 500 to their highs of the month. The major averages took a dive mid-month however, following the Federal Reserve’s gloomy forecast for a quick economic recovery and soaring Covid-19 cases. The Dow suffered a 3-day losing streak where it dropped by 2,444.27 points (-9.0%), giving back all the prior gains from the beginning of the month and dropped back below 200-day MA and never recouped that support level. Volatility increased in June and the VIX surged up to the 40 area for the first time since mid-April before closing the month still elevated at 30.43. The Federal Reserve juiced equities on plans for another $1 trillion in stimulus as June was nearing an end and sent the NASDAQ and NASDAQ 100 once again to record highs.

Despite the market gains, the sectors were mixed in June, with Technology (XLK), Consumer Discretionary (XLY), Industrials (XLI) and Basic Materials (XLB) leading the advance. Utilities (XLU), Energy (XLE) and Financials (XLF) however, lagged and were in negative territory. The DJIA notched its best quarter since 1987 helped by stimulus from Central Banks and record low interest rates as it finished up 429.77 points (+1.7%) and settled at 25812.88. The S&P 500 added 55.98 points (+1.8%) to close at 3100.29. Finally, the DJ Transportation Index outperformed as it gained 202.93 points (+2.26%) to close at 9172.72.

The tech laden NASDAQ and NDX100 continued to outperform in June and were again the largest percentage gainers buoyed by investments in big cap technology and FANG stocks. Technology stocks which are serving the stay-at-home economy continue to be beneficiaries. The iShares NASDAQ Biotechnology ETF (IBB) continued to move higher on advances in testing and treatments for the Covid-19 global pandemic as it broke out to new highs in June and gained +1.21%. The Philadelphia Semiconductor Index (SOX) also outperformed led by strength in gaming chips and Nvidia (NVDA) surging +5%. For the period, the NASDAQ jumped 568.90 points (+5.99%) and settled at 10058.77. The small cap Russell 2000 had a solid month as it moved up 47.33 points (+3.40%) and finished at 1441.37.

MARKET OUTLOOK

The technical condition of the market was mixed in June, despite the NASDAQ posting new all-time highs. The technical indicators finished the period in Neutral to negative territory with MACD, which looks at the short-term trend, in bearish ground for the major averages, but momentum positive for the S&P 500 and NASDAQ. Negative divergence was apparent in some of the technical indicators and the 14-day RSI did not confirm the NASDAQ's record high as the month came to a close. Another sign of weakness is the DJIA's inability to trade above its 200-day moving average (MA). After briefly spiking above that resistance level in early June, the Dow has struggled just below that area and traded back down to its 50-day MA before finding support. Negative divergence is also showing in the market's internal breadth. The NYSE and NASDAQ Advance/Decline lines, which are regarded as leading indicators of market direction, both topped out about three weeks ago. New 52-week highs remain anemic, which shows a narrower group of stocks accounting for much of the market's strength. Finally, the Market Edge Strength Indexes have been nudging lower for the past two months, and the DIA and QQQ Strength Indexes slipped into negative ground as June ended. That indicates that fewer stocks are under accumulation based on the Up/Down Volume calculations.  The week leading up to the Fourth of July holiday has a slight bullish bias, but stocks tend to struggle in July and August. With Q2 earnings season rolling out mid-July we could see the major averages range bound until we see what earnings expectations look like for the second half of the year. Despite what could be a weak start to July as Covid-19 cases increase, the back stop provided by the Federal Reserve should limit downside for the market. Support for the S&P 500 is 2980 followed by 2850. For the DJIA, 24950 with 24,000 support below that.

CYCLICAL TREND INDEX (CTI): Positive

Presently the CTI is Positive at +11, up 8 units from the previous month. The counts for Cycles A, C, D and E are bullish while the counts for Cycles B is bearish.

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

** 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

MOMENTUM INDEX: Neutral

As of the close on 6/26/20, the Momentum Index is Neutral at 0, down 3 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.

Average % Change of the Broad Market Indices: +34.8%

The broader market indexes are up on average +34.8% from their March 2020 closing lows vs. +36.5% for the DJIA resulting in the Neutral 0 reading. Breadth was positive during the month at the NYSE as the Advance/Decline Line gained 5066 units vs. a gain of 3360 units in May while the number of new 52-week highs surpassed the new lows on all 21 sessions. The breadth at the NASDAQ was also strong as the A/D line gained 5210 units after gaining 2654 units in May, while the number of new highs surpassed the new lows on all 21 sessions. Finally, the percentage of NYSE stocks above their 50-day moving average declined during the period to 68.3% from 89.4% while those above their 200-day increased slightly to 33.0% vs. 32.5% from the previous month. Readings above 70.0% denote an overbought condition. Oil surged on the month and finished at $39.82 (+11.89%) for the August contract while Gold was up moderately by +2.37%.

SENTIMENT INDEX: Neutral

The Sentiment Index for the month ending 6/26/20 is Neutral at 0, which is equal to 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 (0.51 vs. 0.54), AAII Bull-Bear Ratio (0.5 vs. 0.8), and VIX, a measurement of fear in the market, (34.73 vs. 27.51) are Bullish. NYSE short interest was down -2.8% or 7.9 days average volume for the period ending 6/15/20 vs. being down -3.5% and 6.8 days average volume at the end of May. Short interest at the NASDAQ was up +0.6% or 1.9 days average volume mid-June vs. a -1.1% decrease and 2.2 days average volume on 5/31/20. The NAAIM Exposure Index (76.6 vs. 81.7), and Fear and Greed Index (50.60 vs. 51.4) are Neutral. The Bullish Investment Advisors (57.3% vs. 50.5%), Percentage of Bearish Investment Advisors (XX.X% vs. 23.8%), Bullish-Bearish Investment Advisors Ratio (3.1 vs. 2.1), and the Total Put/Call Ratio (0.93 vs. 0.91) is Bearish. 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: Bullish

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. The Market Posture is expected to remain bullish through the first week of July. 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

**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: 22789 - Support - The 05/14/2020 low
DJIA: 27338 - Resistance - The 06/05/2020 high
DJIA: 24928 - 50-day simple moving average
DJIA: 26282 - 200-day simple moving average

S&P 500: 2766 - Support - the 5/14/2020 low
S&P 500: 3233 - Resistance - 6/8/2020 high
S&P 500: 2980 - 50-day simple moving average
S&P 500: 3021 - 200-day simple moving average

NASDAQ: 8705 - Support - the 5/14/2020 low
NASDAQ: 10221 - Resistance - the 06/23/2020 high
NASDAQ: 9299 - 50-day simple moving average
NASDAQ: 8712 - 200-day simple moving average

ETF Center: The top performing ETF categories for the week ending 6/26/20 were: Sector-Internet (+1.98%), Sector-Technology (+0.97%), Commodity-Precious Metals (+0.91%) and Shorts (+0.73%). The weakest categories were: Commodity-Energy (-3.48%), Sector-Energy (-3.20%), Value-Mid Cap (-2.81%), Sector-Industrial (-2.62%) and Sector-Utilities (-2.59%). To review all the categories in the Market Edge universe, click on the ETFs tab.

Industry Group Rankings: What's Hot (84) – What’s Not (7)

Of the 91 Industry Groups that we track, 84 are rated as either Strong or Improving while 7 are regarded as Weak or Deteriorating. The previous month’s totals were 91-0. The following are the strongest and weakest groups for the period ending 6/26/20. Strongest: Advertising, Home Furnishings/Appliances, Home Construction, and Internet-Software. Weakest: Coal, Electric Utilities, Gas Companies and Medical Supplies. To review all the Industry Group Rankings, click on the Industries tab.

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.