Why The Next Four Days May Be Important For The Stock Market

The flexibility of the Dow Jones Industrials to rally from being down 850 factors in Thursday’s session to shut down simply 350 brightened the outlook for Friday’s session. The entire market averages, even the tech-heavy Nasdaq 100, have been larger on Friday.

Final week’s motion triggered some stunning enhancements within the total market outlook and that could possibly be vital to the adverse investor sentiment as we begin the brand new 12 months. Let’s take a look at final week’s numbers.

The Dow Jones Utility Common led the market larger because it was up 1.3% and the Dow Jones Industrial Common gained 0.9%. The SPDR Gold Shares have been up 0.3% whereas the iShares Russell 2000 was unchanged.

As has been the case for a lot of 2022 the Nasdaq 100 was the weakest down 2.3% whereas the Dow Jones Transportation Common declined 1.3%. The 0.6% acquire within the S&P 500 on Friday helped cut back the weekly loss to 0.2%.

Within the newest survey from the American Affiliation of Particular person Buyers (AAII), solely 20.2% have been bullish on shares for the subsequent six months. In accordance to AAII “This week’s studying is the 52nd lowest recorded for the reason that survey began in 1987.” Comparable low ranges of bullish % coincided with correction lows in 2020, 2011, 2016 and 2018 however not in 2022 because it made a 30-year low of 15.8% in April.

The NYSE Advance/Decline numbers have been higher than 2-1 optimistic on Friday however for the week have been barely adverse. 1584 points have been advancing and 1764 points declining. It was a distinct image on the S&P 500 and the Dow Industrials the place the weekly A/D ratio have been optimistic.

The weekly S&P 500 Advance/Decline has been the strongest in 2022 and final week it moved again above its WMA. That is encouraging however a barely adverse studying this week might drop it again under its WMA.

The weekly downtrend within the Spyder Belief (SPY
PY

SPY
) was damaged two weeks in the past earlier than it reversed to the draw back and closed weak. The 20 week EMA is at $390.92 with chart resistance now at $408.61. A powerful shut above this stage would additional enhance the technical outlook. On the draw back, there’s vital assist from $374.77 to $367.10.

The SPDR Dow Jones Industrials (DIA
DIA
) is appearing even stronger than SPY. The every day evaluation in October (see chart) indicated that it was a market chief based mostly on the RS evaluation. The weekly downtrend, line a, was damaged in November and was retested final week as it’s now assist. The 20 week EMA at 326.51 has been holding. On a transfer above $347.43, DIA ought to rally to a brand new excessive within the $363-$367 space.

The Dow Jones Advance/Decline line broke its year-long downtrend, line b, in late November. Final week the A/D line turned up from its WMA which is in step with only a pullback in an uptrend.

The weekly relative performance (RS) made larger lows in October, line c, which is typical of a brand new market chief. The RS broke out sharply to the upside in November confirming the divergence. The RS stayed properly above its rising WMA on the current pullback and made a brand new excessive final week.

The outlook for DIA and SPY is in distinction to the technical appraisal of the Invesco QQQ
QQQ
Belief (QQQ). QQQ is down 32.3% YTD versus simply an 8.6% YTD decline in DIA. From December by means of the 23^rd DIA is down 3.9% in comparison with a 5.9% decline in QQQ. The assist, line b, was damaged final week however not on a closing foundation. The declining 20-week EMA is at $285.47 with the two-week excessive at $296.17.

The Nasdaq 100 Advance/Decline line has dropped additional under its declining WMA and isn’t near turning optimistic. The weekly RS final dropped under its WMA in early September indicating that QQQ was weaker than the SPY. The RS made new lows final week and has a longer-term downtrend, line d.

It needs to be a really attention-grabbing week for the markets as I will probably be watching the in a single day motion heading into the NYSE open on Tuesday. Then it will likely be vital to watch the A/D numbers as in the event that they keep optimistic this week it is going to assist the view that the Dow Jones Industrials and S&P 500 are going to steer the market larger. It’s nonetheless a break up market as many progress shares are more likely to be weaker.

Don’t miss Tom’s analysis of the semiconductor stocks