Just A Bull Trap?

The quiet begin to the week for the inventory market was adopted by a pointy two day decline that took many of the averages again to good help. That erased a few of the current market features and brought about 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 risky ETFs are overbought with double-digit features and will simply see a 1-2% pullback.”

The weaker Retail Gross sales and Fed feedback as soon as once more elevated recessionary fears that helped gas the promoting. The pessimistic views of the world economic system expressed by some CEOs on the World Financial Discussion board in Davos didn’t assist.

By Thursday’s shut many have 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 two.9% Friday acquire within the Nasdaq Composite was the very best efficiency since November as tech shares led the market increased.

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

Even with Friday’s good features, 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 have been the Dow Jones Utility Common and the Dow Jones Industrial Common, down 2.8% and a pair of.7% respectively.

The Dow Jones Transportation Common 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 an excellent 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 high out.

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

In October it was the other state of affairs 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 have been pushing the NYSE Composite decrease. The simultaneous enhance within the variety of shares making New Highs was in step with a backside and there was a brand new multi-month excessive final week, line c. They’re nonetheless properly under the Could 2021 excessive of 674.

The Spyder Belief (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 have been efficiently examined. As soon as above $400, the R1 is at $402.44 with the December excessive at $408.61.

The sharp worth decline final Wednesday was not mirrored by the market internals which have been simply 2-1 damaging. 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 Shares Solely Advance/Decline line examined the help at line b, earlier than turning increased.

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. It is a bullish signal for the general market and favors increased costs within the weeks forward.

Up to now in January, there are six of the extent S&P sectors which can be up greater than 4% led by the Communications Providers 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 opposite two top-performing sectors have been Actual Property Sector (XLRE
XLRE
) and Shopper Discretionary Sector (XLY
XLY
) as each have been up over 7%.

XLC has been increased 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 each 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 doubtless 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 properly under the downtrend, line c.

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

That’s not supported by the NYSE All A/D Line and it’ll take a a lot stronger rally earlier than they’re satisfied. It might now take a large draw back reversal and an in depth under the prior two week lows to reverse the technical enchancment. Simply bear in mind to stay with the market leaders and don’t overlook to handle your threat.