Weekly Market Vibes

Major averages finish short week mixed.

Recession fears rattled equities this week sending investors running to defensive sectors as economic data came in weaker than expected, while jobs growth finally showed signs of softening. A surprise cut in oil production by OPEC+ on Monday sent oil related shares sharply higher but the broader market finished mixed. The Energy (XLE) sector surged +4.55%, led by a +4.16% spike in Chevron (CVX), pushing the Dow Jones higher, while the NASDAQ traded lower. That was followed mid-week by a drop in February Factory Orders and a weaker than expected March ISM Services Index that slid to a three-month low. A big miss in March payrolls in the ADP Employment Report on Wednesday and an increase to 228k in Initial Jobless Claims and an adjustment to 246k from 198k the prior week triggered more concerns of slowing growth and left the different indexes mixed, but little changed ahead of the long weekend. Yields dropped on the data with the rate on the 10-year Treasury dipping to 3.29% and the two-year T-Bill landing at 3.82%, both September 2022 levels. Gold was one benefactor of growing recession fears, climbing above $2000 an ounce for the first time since August 2020, finishing at $2022.50. Defensive sectors saw sponsorship as Healthcare (XLV), Utilities (XLU), Communication Services (XLC), Energy (XLE) and Consumer Staples (XLP) outperformed, while growth and cyclical sectors Industrials (XLI) and Consumer Discretionary (XLY) were the weakest market groups. The holiday shortened week left the major averages mixed with the DJIA extending its weekly win streak to three, while the S&P 500 and NASDAQ saw their three-win streaks come to an end on marginal losses.

For the period, the DJIA picked up 211.14 points (+0.6%) and settled at 33485.29. The S&P 500 eased 4.29 points (-0.1%) and closed at 4105.02. The NASDAQ lost 133.95 points (-1.1%) finishing at 12087.96, while the small cap Russell 2000 dropped 48.02 points (-2.7%) finishing at 1754.46.

The technical condition of the market was mixed this week with the DJIA, NASDAQ and S&P 500 finishing little changed. The technical indicators for the major averages remain mostly positive, but Momentum, as measured by the 14-day RSI, slowed. The DJIA found support at its 100-day MA during the week and the major averages are trading above their 50, 100 and 200-day MAs. However, the major averages finished the period overbought with the Market Edge/S&P Short Range Oscillator (SRO) ending Friday at +6.24% which could lead to more back and forth trading ahead. Unfortunately, there was negative divergence in the secondary indexes as the DJ Transportation Index, small cap Russell 2000 and Philadelphia Semiconductor Index underperformed the major averages and closed the week lower. The DJ Transports fell below support at its 50 and 100-day Mas before bouncing off its 200-day MA, but fell -3.3%. The Russell 2000, however, remains below all three key MA levels and every bounce stalled just below its 200-day MA. The Philadelphia Semiconductor Index dropped -4.9%. Upside targets for the major averages are 34,000-34.200 for the DJIA and 4180-4200 for the S&P 500. The NASDAQ target is now 12600-12620.

Underlying breadth was negative with the NYSE and NASDAQ Advance/Decline lines moving lower, while new 52-week lows on the NASDAQ outnumbered the new highs throughout the week and on two of the four days on the NYSE. Investor Sentiment is neutral, but market participants are becoming more bullish. Retail investors saw a big jump in the number of bulls and according to the American Association of Individual Investors (AAII) are now about even with the number of bears. That's a turnaround from a bearish 2:1 ratio just last week. The professionals are also more bullish with The National Association of Active Investment Managers (NAAIM) Exposure Index expanding to 72.9%, up from 41.9% three weeks ago, while the Percentage of Bullish Investment Advisors jumped to 48.6% from 397% two weeks ago.

This week we finally saw cracks in the labor market and this report should lead to a wild start to the week. If the numbers come in hotter than expected, meaning more jobs created, we're likely to see a parade of Fed officials call for additional rate hikes to tame inflation at the May FOMC Meeting and equities tumble. However, a cooler number will encourage the bulls to announce that the Fed is on pause and we rally. Currently, Wall Street is looking for 230k non-farm payrolls added with the Unemployment Rate staying at 3.6%. Of course, this is Wall Street and there's always the chance that someone decides it is a 'goldilocks' number and stocks churn sideways. It's my opinion that this week's softer jobs reports hint that the bulls will be ready to rumble on Monday.

The markets momentum is measured by comparing the strength or weakness of several broad market indexes to the DJIA. Readings of -4 and lower are regarded as bearish since it is an indication that a majority of the broader based market indexes are weaker than the DJIA on a percentage basis. Conversely, readings of +4 or higher are regarded as bullish.

The Momentum Index is Positive at +6, down four notches from the previous week. Breadth was negative at the NYSE as the Advance/Decline line lost 1581 units while the number of new 52-week lows out did the new highs on two sessions. Breadth was also negative at the NASDAQ as the A/D line dropped 2861 units while the number of new lows beat the new highs on each day. Finally, the percentage of stocks above their 50-day moving average increased to 35.1% vs. 34.3% the previous week, while those above their 200-day moving average eased to 48.3% vs. 49.6%. Readings above 70.0% denote an overbought condition, while below 20% is bullish.

Measuring the markets Bullish or Bearish sentiment is important when attempting to determine the markets future direction. Market Edge tracks nine technical indicators that measure excessive speculative or sentiment conditions prevalent in the market.

The Sentiment Index is Neutral at +1, down a notch from the previous week. The Dividend Yield Spread (-2.12 vs. -2.09) is Bullish. NYSE short interest was up +2.2% and 2.8 days of average volume for the period ending 3/15/23 vs. being up +2.4% and 2.5 days average volume to cover at the end of February. Short interest at the NASDAQ was up +2.6% and 2.3 days of average volume mid-March vs. a +1.1% increase and 2.5 days average volume to cover on 2/28/23. The Percentage of Bullish Investment Advisors (48.6% vs. 40.8%), the Percentage of Bearish Investment Advisors (25.0% vs. 26.8%), the Bullish-Bearish Investment Advisors Ratio (1.9 vs. 1.5), the AAII Bull-Bear Ratio (1.0 vs. 0.5), the Fear and Greed Index (51.4 vs. 38.2), the Total Put/Call Ratio (1.06 vs. 1.03), the NAAIM Exposure Index (65.1 vs. 65.1) and the VIX, a measurement of fear in the market, (18.40 vs. 18.70) are Neutral. VIX readings under 13.00 are regarded as bearish while those above 30.0 are bullish.

U.S equity funds, including ETF activity, had outflows of $8.5 billion for the reporting period ending 4/05/23 compared to outflows of $20.5 billion the previous week.

What's Hot (28) What's Not (63). Of the 91 Industry Groups that we track, 28 are rated as either Strong or Improving while 63 are regarded as Weak or Deteriorating. The previous week's totals were 15-76. The following are the strongest and weakest groups for the period ending 4/05/23. Strongest: Advertising, Automobile Manufacturing, Semiconductors & Related and Household Products (Non-Durable). Weakest: Internet-Financial, Banks-Eastern, Banks-Western and Internet-Content.

The top performing ETF categories for the week ending 4/05/23 were: Commodity-Energy (+7.44%), Sector-Energy (+4.57%), Commodity-Precious Metals (3.64%), Commodity-Blend (+3.28%) and Bond-Government Long Term (+3.24%). The weakest categories were: Commodity-Base Metals (-3.06%), Sector-Alternative Energy (-1.75%), International-Ex Europe (-1.64%), International -Emerging (-1.56%) and Blend-Small Cap (-1.20%).

By David L. Blake, CMT

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Next week's Economic Calendar:

Monday - T-Bill Auctions

Tuesday - Small Business Optimism Index

Wednesday -Mortgage Apps, CPI and EIA Petroleum Status Report

Thursday - Jobless Claims and PPI-Final Demand=

Friday - Retail sales, Import and Export Prices, Industrial Production, Business Inventories and Consumer Sentiment

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