bull trap
getty
A quiet start to the week for the stock market was followed by a sharp two-day decline that brought most averages back to decent support. This erased some of the recent market gains and led to an increase in bearish market comment. I was what I was looking for in last week’s comment that the “more volatile ETFs are overbought with double-digit gains and could easily see a 1-2% decline.”
Weaker retail sales and Fed comments added renewed recession fears that fueled sales. The pessimistic assessment of the global economy expressed by some CEOs at the World Economic Forum in Davos did not help.
By Thursday’s close, many were convinced that the rally from the start of the year was over as put buying increased on Wednesday. The Nasdaq Composite’s 2.9% gain on Friday was its best performance since November as tech stocks led the market higher.
They were boosted in part by better-than-expected NetflixNFLX (NFLX) earnings, and traders were buoyed by job cuts in the technology sector. Many of the tech giants are expected to report earnings this week, so volatility is likely to remain high.
markets
Tom Aspray – Viper Report.com
Even with Friday’s nice gains, there were few markets with positive weekly performance, but the Nasdaq 100 managed a 0.7% gain and SPDR Gold Shares (GLDGLD) was up 0.5%. The big losers were the Dow Jones Utility Average and the Dow Jones Industrial Average, down 2.8% and 2.7%, respectively.
The Dow Jones Transportation Average was down just 0.1% this week, while the S&P 500 fell 0.7% and the iShares Russell 2000 fell 1.1%. Market internals ended positive as the NYSE saw 1811 issues rise and 1478 fall.
NYSE composition
Tom Aspray – Viper Report.com
It was also a good sign that the NYSE made 228 new weekly highs with only 28 new lows. Daily analysis of the number of NYSE stocks making new highs and lows in late 2021 and early 2022 warned that the stock market was likely to peak.
The pattern of fewer NYSE stocks making new highs, line a, warned that fewer and fewer stocks were moving averages higher at the end of the high. This was helped by the rise in stock prices, which hit new lows as more stocks fell than rose.
In October it was the other way around as the number of new lows peaked ahead of the NYSE, line d, which was a positive sign. This was a sign that fewer stocks were dragging the NYSE Composite lower. The concomitant increase in the number of stocks making new highs was consistent with a bottom and last week saw a new multi-month high, line c. They are still well below the May 2021 high of 674.
Spyder Trust A/D Analysis
Tom Aspray – Viper Report.com
The Spyder Trust (SPYPY SPY) hit support on the hourly chart (see tweet) and violated the monthly pivot at $388.60 before closing at $395.88 on Friday. The 20-day EMA and the 50-day moving average have been successfully tested. Once above $400, the R1 sits at $402.44 with the December high at $408.61.
Last Wednesday’s sharp drop in price was not reflected in the market internals, which were only 2-1 negative. By Thursday’s close, the S&P 500’s advance/decline line had fallen towards support at line a and then reversed sharply higher. The NYSE Stocks Only Advance/Decline line tested support at line b before turning higher.
The NYSE All Advance/Decline line was even stronger as it only had a minor pullback before closing at a new yearly high on Friday. That is a bullish sign for the overall market and favors higher prices in the coming weeks.
So far in January, six of the S&P sectors are up, up more than 4%, led by the communications services sector (XLCXLC), which is up 12.7%. This ETF has 23.7% in Meta PlatformsFB (META) and over 22.6% in Alphabet (GOOG, GOOGL). The other two best performing sectors were Real Estate (XLREXLRE) and Consumer Discretionary (XLYXLY), both up over 7%.
Communication Services (XLC)
Tom Aspray – Viper Report.com
XLC has been higher for the past three weeks after triggering a weekly doji buy signal with the close on Jan 6th. The move above the early December high of $52.19 completes the range on the daily chart. This has upside targets in the $60 area, which is the resistance at $60.24, line a, and the 38.2% Fibonacci retracement resistance.
Relative performance (RS) is rising and above its WMA but now likely needs to move above resistance at line b to confirm XLC leads SPY. The weekly OBV has closed above its WMA but is still well below the downtrend, line c.
This week’s market action has improved the technical outlook and provides me with further evidence that a key stock market bottom is in place. It still seems that a majority on Wall Street is still overly negative about the stock market and the economy. Some think the rally so far in 2023 is just a bull market trap.
This is not supported by the NYSE All A/D Line and will take a much stronger rally before they are convinced. It would now require a massive reversal lower and a close below the previous two week lows to reverse the technical improvement. Just remember to stick with the market leaders and don’t forget to manage your risk.
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