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Rally Rolls On

On The Edge (Monthly)

April 02, 2021
ON THE EDGE

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Rally Rolls On
Stimulus powers S&P 500 to new high.

MARKET REVIEW – APRIL 2021

 

March came in like a lion as the major averages stormed out the gate and the DJIA posted its biggest one-day point gain, 603.14 points (+1.9%) since early November 2020. The passing of the $1.9T stimulus package by the House and FDA Emergency Use Authorization for Johnson & Johnson’s Covid-19 vaccine was cheered by investors, but the party was short lived. Weakness quickly ensued as yields on the 10-year and 30-year T-Bill soared higher and stocks traded lower. Technology stocks were sold on valuation concerns and the NASDAQ and NDX 100 had wiped out all the gains for the year by the end of the first week, taking the NASDAQ briefly into correction territory. A rotation into cyclical and reopening stocks however sent the DJIA, NYSE, S&P 500, DJ Transportation Index and Russell 2000 back to new record mid-month. Dovish comments from Fed Chair Jerome Powell on the strength of the economy after the March FOMC meeting failed to slow the ascent in rates, and higher yields slammed technology shares for a second time mid-month. The yield on the 10-year Treasury touched a 14-month high and the NASDAQ tumbled -3.0% before finding support at its 100-day moving average. However, the steepening of the yield curve gave a boost to banks, led by Bank of America (BAC) which was higher by +11.4% and Citigroup (C), up 10.4% on the month. The major averages were able to firm the latter half of March as Initial Jobless claims fell below 700k for the first time since April, better than expected economic data, and President Biden’s new infrastructure plan which took the DJIA, DJ Transports and S&P 500 back to fresh new highs on volatile back and forth trading. Weakening demand caused crude oil prices to fall 3.36%, ending the period back below $60 a barrel. The VIX improved throughout the month and fell below the 20-handle for the first time since February 2020 to finish off the period at 19.40. All the sectors were in the green during March with defensive sectors Utilities (XLU), REITs (XLRE), Consumer Staples (XLP) and Industrials (XLI) leading the charge. Technology (XLK), Energy (XLE) and Communication Services (XLC) were laggards but still posted positive. For the month, the DJIA managed to post seven new all-time highs and gained 2049.18 points (+6.62%) settling at 32981.55. The S&P 500 recorded five new all-time highs of its own and rose by 161.74 points (+4.24%), finishing at 3972.89. The DJ Transportation Index was again the biggest percentage gainer and managed to surge higher by 1300.12 points (+9.75%) and settled at 14631.39. The major averages posted their fourth straight quarterly gain with the DJIA and S&P 500 having their best month since November.

 

The technology heavy NASDAQ and NDX 100 had a similar trajectory as the previous month where it peaked mid-month before eking out a small gain on the last day of the period. Performance in the FAANG stocks rebounded as Facebook (FB) outperformed to the tune of a 14% gain. The Philadelphia Semiconductor Index (SOX) finished up in the green (+1.87%), led by gains in Texas Instruments (TXN) and Applied Materials (AMAT) gaining more than 7% each. The NASDAQ Biotechnology ETF (IBB) underperformed for the second straight month (-4.06%) led by weakness in Moderna (MRNA) and Illumina (ILMN). For the first time since October 2020, the NASDAQ never recorded a new high but managed to squeeze a small gain of 54.52 points (+0.41%), ending at 13246.87. Finally, the small cap Russell 2000 managed to post positive due to the infrastructure bill being released on the last trading day as it advanced 19.47 points (+0.88%) to finish higher for a sixth consecutive month at 2220.52.

 

 

MARKET OUTLOOK

The technical condition of the market was mostly positive in March with the major averages all finishing the month higher on volatile trading. The technical indicators for the DJIA and S&P 500 are positive and Momentum, as measured by the 14-day RSI, is bullish. The technical indicators for the NASDAQ and Russell 2000 however, slipped into neutral ground, but were gaining momentum as the month ended.

 

Key moving average (MA) support levels were successfully tested in March with the S&P 500 bouncing off its 50-day MA, while the NASDAQ was able to find support at its 100-day MA. The NASDAQ also found support at this level during selloffs in November and early March, which marked a bottom during those periods of weakness and could help boost prices. The NASDAQ and Russell 2000 remained below their respective 50-day MA as the month ended. The DJ Transportation Index continued to outperform on strength in the Airlines and Trucking Industry Groups. Breadth was showing some negative divergence however, with the NYSE Advance/Decline line, a leading indicator of market direction, three weeks removed from its previous high while the NASDAQ A/D line finished the month negative. New 52-week lows topped new highs several times during the period for the first time since late October which is also a red flag.

 

Investor bullish sentiment tapered during the period but remains too bullish. There are mixed signals here as the National Association of Active Investment Mangers (NAAIM) cut exposure to 57.5 as the month was ending, but according to the American Association of Individual Investors (AAII), retail investors were at their most bullish (50.9%) since the first week of January. In addition, FINRA Customer Margin Balance hit a record high of $813,680,000, while short interest at the NYSE jumped +2.8% mid-March, and the NASDAQ short interest spiked +5.6%! Some of these are contrarian indicators and again show conflicting outlooks for the market going forward.

 

The negative divergence and conflicting signals, coupled with the Market Edge Cyclical Trend Index (CTI), which is projected to turn bearish over the next few weeks, are clouding the market outlook but the trend remains bullish. While interest rates were steady as March came to a close, they could easily begin to rise again if economic data continues to come in better than expected. With stimulus checks in the mail, increased vaccinations and more states easing reopening restrictions, the US economy could heat up faster than expected which could once again stoke inflation fears and send interest rates higher. Market momentum should carry the major averages higher over the next few weeks but heading into Q1 earnings, valuations are going to become a problem for this bull market. It may not be an accident that defensive sectors were the best performers during March.  

 

 

CYCLICAL TREND INDEX (CTI): Positive

Presently the CTI is Positive at +8, down 4 units from the previous month. The counts for Cycles B, C, and E are bullish, while Cycles A and D are bearish.

 

Cycle

Average # Of Weeks

In The Cycle

# Of Weeks Since

Previous Bottom

Bullish Or Bearish

Connotation

A

6 +  or    -1 Week

4 Weeks

Bearish

B

18+  or    -2 Weeks

4 Weeks

Bullish

C

36+  or    -4 Weeks

22 Weeks

Bullish

D

72 + or    -7 Weeks

53 Weeks

Bearish

E

216 + or   -20 Weeks

53 Weeks

Bullish

 

 

The following are projected CTI readings through the week ending 4/30/21. 

 

Week Ending

CTI

Connotation

4/02/21 (Actual)

8

Bullish

4/09/21 (Projected)

8

Bullish

4/16/21 (Projected)

6

Bullish

4/23/21 (Projected)

3

Bullish

4/30/21 (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 2019-2021

The following is the performance record of the Market Edge ‘Market Posture’ for 2019 - 2021

 

Projected Strong Periods:

 

Actual Results – DJIA

01/04/19 - 03/15/19   (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

04/09/20 - 10/23/20   (23719.37 – 28335.57)

DJIA Gain/Loss

+4616.20

11/13/20 -      ???      (29410.00 –      ???    )

DJIA Gain/Loss

???

 

 

Projected Weak Periods:

 

Actual Results – DJIA

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

10/23/20  - 11/13/20  (28335.57 – 29479.81)

DJIA Gain/Loss

+1144.24

 

 

MOMENTUM INDEX: Neutral

As of the close on 3/31/21, the Momentum Index is Neutral at -1, down a notch 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 2021

29982.62

12087.99

3714.24

14397.20

2073.64

12998.50

839.33

+500531

3/31/21

32981.55

14631.39

3972.89

15601.74

2220.52

13246.87

880.34

+510797

%Change

+10.0%

+21.0%

+7.0%

+8.4%

+7.1%

+4.1%

+10.6%

+2.1%

 

Average % Change of the Broad Market Indices: +8.0%

 

The broader market indexes are up on average +8.0% from their January 2021 closing lows vs. +10.0% for the DJIA resulting in the Neutral -1 reading. Breadth was positive during the month at the NYSE as the Advance/Decline Line gained 5109 units vs. a gain of 5157 units in February while the number of new 52-week highs surpassed the new lows on 20 out of 23 sessions. The breadth at the NASDAQ was also positive as the A/D line gained 1351 units vs. a gain 4362 units in February, while the number of new highs surpassed the new lows on 19 out of 23 sessions. Finally, the percentage of stocks above their 50-day moving average decreased during the period to 60.3% from 64.6% while those above their 200-day increased to 86.2% vs. 85.7% from the previous month. Readings above 70.0% denote an overbought condition. Oil posted a loss for the month and finished at $59.48 (-3.36%) for the May contract while Gold was down again by -1.05%.

 

 

SENTIMENT INDEX: Negative

The Sentiment Index for the month ending 3/31/21 is Negative at -2, up one notch 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 (0.12 vs. 0.05) is Bullish. NYSE short interest was up +2.8% and 4.4 days of average volume for the period ending 3/15/21 vs. being up +0.9% and 4.0 days average volume to cover at the end of February. Short interest at the NASDAQ was up +5.6% and 1.6 days of average volume mid-March vs. a +1.5% increase and 1.1 days average volume to cover on 2/28/21. The Fear and Greed Index (46.4 vs. 48.8), the Percentage of Bullish Investment Advisors (54.4% vs. 57.4%), the NAAIM Exposure Index (57.5 vs. 57.5)  and the VIX, a measurement of fear in the market, (19.40 vs. 18.86) are Neutral. The AAII Bull-Bear Ratio (2.0 vs. 2.5), the Percentage of Bearish Investment Advisors (17.5% vs. 18.8%), the Bullish-Bearish Investment Advisors Ratio (3.1 vs. 3.1) and the Total Put/Call Ratio (0.89 vs. 0.90) are 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 11/13/2020 (DJIA – 29410.00). The Market Posture is expected to remain bullish through the end of April 2021. 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
03/31/2021  Up/Down slope turned upBullish
03/29/2021  MACD ST turned bullishBullish
03/19/2021  Price gap downBearish
03/18/2021  Stock reached new 52 week high of 332.86Bullish
03/11/2021  10 day SMA cross above 21 day SMABullish
03/11/2021  MACD LT turned bullishBullish
03/04/2021  Point & Figure Double Bottom breakoutBearish
03/03/2021  Relative Strength turned bullishBullish
02/02/2021  21 day SMA slope turned upBullish
02/01/2021  50 day SMA slope turned upBullish

**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: 30547 - Support - The 03/4/2021 low
DJIA: 33227 - Resistance - The 03/18/2021 high
DJIA: 31413 - 50-day simple moving average
DJIA: 28834 - 200-day simple moving average

S&P 500: 3723 - Support - the 03/4/2021 low
S&P 500: 3983 - Resistance - 03/18/2021 high
S&P 500: 3862 - 50-day simple moving average
S&P 500: 3516 - 200-day simple moving average

NASDAQ: 12397 - Support - the 03/05/2021 low
NASDAQ: 14175 - Resistance - the 02/16/2021 high
NASDAQ: 13422 - 50-day simple moving average
NASDAQ: 11807 - 200-day simple moving average

 

 

 

ETF Center: The top performing ETF categories for the week ending 3/31/21 were: Sector-Alternative Energy (+4.56%), Sector-Internet (+1.35%), Growth-Large Cap (+0.83%), Sector-Technology (+0.81%) and Growth-Small Cap (+0.74%). The weakest categories were: Sector-Energy (-2.43%), Commodity-Base Metals (-2.41%), Commodity-Energy (-1.91%), Commodity-Precious Metals (-1.65%) and Sector-Financial (-1.44%).  To review all the categories in the Market Edge universe, click on the ETFs tab.

 

Industry Group Rankings: What's Hot (50) What’s Not (41)

Of the 91 Industry Groups that we track, 50 are rated as either Strong or Improving while 41 are regarded as Weak or Deteriorating. The following are the strongest and weakest groups for the period ending 3/31/21. Strongest: Steel, Airlines, Aluminum and Home Construction. Weakest: Advertising, Semiconductors & Related, Auto Manufacturing and Industrial Technology. 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.

 

 

 

 

 

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Market Indicators

Market Posture Cyclical Trend Index
Bullish
8
As of: 11/13/2020
As of: 03/19/2020
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Second Opinion Performance

Second Opinion Status

3058

Current Opinions
As of: 04/12/2021

88%

Long Accuracy
As of: 04/12/2021

52%

Avoid Accuracy
As of: 04/12/2021
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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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