Just A Bull Trap?

The quiet begin to the week for the inventory market was adopted by a pointy two day decline that took a lot of the averages again to good help. That erased a few of the current market good points and brought on a rise within the bearish market commentary. I used to be what I used to be on the lookout for in last week’s comment that the “extra unstable ETFs are overbought with double-digit good points and will simply see a 1-2% pullback.”

The weaker Retail Sales and Fed feedback as soon as once more elevated recessionary fears that helped gas the promoting. The pessimistic views of the world financial system expressed by some CEOs on the World Economic Forum in Davos didn’t assist.

By Thursday’s shut many had been satisfied that the rally from the beginning of the 12 months was already over because the put shopping for elevated on Wednesday’s decline. The 2.9% Friday acquire within the Nasdaq Composite was the very best efficiency since November as tech shares led the market greater.

They had been boosted partially by the better-than-expected earnings from Netflix
NFLX
(NFLX) and merchants had been inspired by the job cuts within the tech sector. Many of the tech giants are scheduled to report earnings this week so volatility is more likely to stay excessive.

Even with Friday’s good good points, there have been few markets with optimistic weekly efficiency however the Nasdaq 100 managed a 0.7% acquire and the SPDR Gold Shares (GLD
GLD
) was up 0.5%. The large losers had been the Dow Jones Utility Average and the Dow Jones Industrial Average, down 2.8% and a couple of.7% respectively.

The Dow Jones Transportation Average misplaced simply 0.1% whereas the S&P 500 dropped 0.7% and the iShares Russell 2000 dropped 1.1% for the week. The Market internals did shut positively as on the NYSE there have been 1811 points advancing and 1478 declining.

It was additionally a very good signal that there have been 228 new weekly highs on the NYSE with simply 28 new lows. The daily analysis of the variety of NYSE shares making New Highs and New Lows in late 2021 and early 2022 warned that the inventory market was more likely to prime out.

The sample of fewer NYSE shares making New Highs, line a, warned that fewer and fewer shares had been transferring the averages greater on the finish of the upper. This was supported by the surge in shares making New Lows as extra shares had been declining than rising.

In October it was the other scenario because the variety of New Lows peaked forward of the NYSE, line d, which was a optimistic signal. It was an indication that fewer shares had been pushing the NYSE Composite decrease. The simultaneous improve within the variety of shares making New Highs was in line with a backside and there was a brand new multi-month excessive final week, line c. They are nonetheless effectively beneath the May 2021 excessive of 674.

The Spyder Trust (SPY
PY

SPY
) reached the help on the hourly chart (see Tweet) and violated the month-to-month pivot at $388.60 earlier than closing Friday at $395.88. The 20 day EMA and 50 day transferring common had been efficiently examined. Once above $400, the R1 is at $402.44 with the December excessive at $408.61.

The sharp value decline final Wednesday was not mirrored by the market internals which had been simply 2-1 unfavorable. By Thursday’s shut S&P 500 Advance/Decline line had dropped in direction of the help at line a after which reversed sharply to the upside. The NYSE Stocks Only Advance/Decline line examined the help at line b, earlier than turning greater.

The NYSE All Advance/Decline line was even stronger because it had solely a minor pullback earlier than closing at a brand new excessive for the 12 months on Friday. This is a bullish signal for the general market and favors greater costs within the weeks forward.

So far in January, there are six of the extent S&P sectors which are up greater than 4% led by the Communications Services Sector (XLC
XLC
) which is up 12.7%. This ETF has 23.7% in Meta Platforms
FB
(META) and over 22.6% in Alphabet (GOOG, GOOGL). The different two top-performing sectors had been Real Estate Sector (XLRE
XLRE
) and Consumer Discretionary Sector (XLY
XLY
) as each had been up over 7%.

XLC has been greater for the previous three weeks after triggering a weekly doji purchase sign with the shut on January 6^th. The transfer above the early December excessive at $52.19 completes the buying and selling vary on the every day chart. This has upside targets within the $60 space which corresponds to the resistance at $60.24, line a, and the 38.2% Fibonacci retracement resistance.

The relative performance (RS) is rising and above its WMA however now possible wants to maneuver above the resistance at line b, to substantiate that XLC is main SPY. The weekly OBV has closed above its WMA however continues to be effectively beneath the downtrend, line c.

This week’s market motion has improved the technical outlook and offers additional proof for me that an essential inventory market backside is in place. It nonetheless appears {that a} majority on Wall Street are nonetheless too unfavorable on the inventory market and financial system. Some assume the rally to this point in 2023 is only a bull market entice.

That just isn’t supported by the NYSE All A/D Line and it’ll take a a lot stronger rally earlier than they’re satisfied. It would now take an enormous draw back reversal and a detailed beneath the prior two week lows to reverse the technical enchancment. Just keep in mind to stay with the market leaders and don’t overlook to handle your threat.