Weekly Market Vibes

Stocks Gain on Cooling Price Pressures

DJIA higher for a fourth consecutive week.

Cooler inflation data helped prop up equities this week as investors debated whether the Federal Reserve's ongoing tightening measures would tip the US economy into a recession. The major averages traded mixed early in the week as market participants assessed a weaker than expected March jobs report, while waiting for key inflation numbers and the roll out of Q1 earnings from the Money Center Banks on Friday. A dip in the Consumer Price Index (CPI) on Wednesday sent stocks sharply higher, but the gains were pared in the afternoon after the release of the March FOMC Meeting minutes showed hawkish Fed officials expected rates to move higher and remain high, while expressing concern that the economy could slip into a mild recession later in the year. Fed President's Tom Barkin and Patrick Harker added that the Fed had more work to do, and rates should remain above 5% for a longer period than previously thought. A drop in the Producer Price Index (PPI) was cheered by investors on Thursday as Wholesale Prices fell -0.5% vs. +0.1% expected and core-PPI eased -0.1% MoM and slowed to +3.6% YoY. The different indexes jumped at the bell led by gains in big cap technology and the FANG names and finished near the highs of the day with the NASDAQ surging 236.93 points (+1.99%). Although Q1 earnings from the big banks beat estimates on Friday, equities struggled on mixed economic data and comments from Fed President Christopher Waller urging more tightening with inflation far too high sending yields higher. The rate on the 10-year Treasury rose to 3.519% and the two-year T-Bill to 4.101% as hopes for a pause in rate hikes diminished. On the week the market sectors were mixed, with cyclical groups Financials (XLF), Energy (XLE), Industrials (XLI) and Materials (XLB) at the top of the leader board, while rate sensitive Utilities (XLU) and REITs (XRE) lagged. Despite Friday's weakness, the major averages were able to post positive with the DJIA extending its weekly win streak to four.

For the period, the DJIA gained 401.18 points (+1.2%) and settled at 33886.47. The S&P 500 added 32.62 points (+0.8%) and closed at 4137.64. The NASDAQ rose 35.51 points (+0.3%) finishing at 12123.47, while the small cap Russell 2000 picked up 26.69 points (+1.5%) finishing at 1781.15.

The technical condition of the market improved this week, but the major averages finished the period overbought by several measures with stochastics in the 90's. The technical indicators for the DJIA, S&P 500 and NASDAQ are positive with MACD, a short-term trend gauge, and Momentum, as indicated by the 14-day RSI, bullish. The major averages ran out of steam however, just below their February highs, which represents a significant resistance level. Those highs were hit going into the February FOMC Meeting and investors were hoping a pause in rate hikes was forthcoming. The major averages sold off however, after being disappointed by a more hawkish Fed intent on additional rate hikes. If the indices can't break above these levels over the near-term on better-than-expected earnings, we could see the market struggle ahead of the May FOMC Meeting, but positive underlying breadth this week hints that investors could see additional upside. Investors may also want to keep an eye on the VIX. While the VIX suggests traders see limited downside here, the Volatility Index hit its lowest mark since January 2022 on Friday, which marked the top of the last bull market. The technical indicators for the secondary indexes, including the DJ Transportation Index, Russell 2000 and Philadelphia Semiconductor Index are in neutral ground and momentum has slowed, but the transports and small caps showed positive divergence this week and outperformed the major averages. However, the small cap Russell 2000 is stalled below its 200-day MA, while the DJ Transportation Index struggled at resistance below its 100-day MA. These indexes will need to bust through those resistance areas before the broader market is likely to take another leg higher. On a positive note, the Philadelphia Semiconductor Index managed to hold support at its 50-day MA. The initial upside target of 34,000-34,200 for the DJIA and 4180-4200 for the S&P 500 were met this week. The NASDAQ target remains at 12600.

Underlying breadth was mostly positive with the NYSE and NASDAQ Advance/Decline lines, leading indicators of market direction, moving higher. The NYSE A/D line hit its highest accumulative mark since mid-February, which signals that the Bulls may have a little more in the tank before this run is over. New 52-week highs on the NYSE outnumbered the new lows for a third consecutive week but the numbers remain somewhat anemic. New lows continue to outnumber the highs on the NASDAQ with the new s last reversing the numbers in early February. Investor Sentiment is neutral but both retail and pros saw an uptick in bearishness. Retail investors saw a drop in the bulls from 33.3% to 26.1%, with most of those moving to the Neutral camp according to the American Association of Individual Investors (AAII). The National Association of Active Investment Managers (NAAIM) Exposure Index trimmed equities to 58.7% from 72.9% the prior week.

As mentioned, the major averages have climbed back to the February highs on hopes that the Fed was ready to pause in raising rates. That doesn't appear to be the case now, and on Friday the CME Group FedWatch projected an 80.0% probability of a 0.25-point hike in May, up from a 41.2% chance in mid-March. That could leave the different indexes range bound going into Q1 earnings, but positive underlying breadth shows the Bulls still have some life. While investors may want to remain cautious ahead of the FOMC meeting, equities could take another run up to test those February highs as investors hope that the Fed will back off further rate hikes to avoid or limit a recession.

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, unchanged from the previous week. Breadth was positive at the NYSE as the Advance/Decline line gained 2422 units while the number of new 52-week highs out did the new lows on four sessions. Breadth was mixed at the NASDAQ as the A/D line added 816 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 jumped to 48.1% vs. 35.1% the previous week, while those above their 200-day moving average increased to 53.9% vs. 48.3%. 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 +2, up a notch from the previous week. The Dividend Yield Spread (-2.04 vs. -2.12) and the AAII Bull-Bear Ratio (0.8 vs. 1.0) are 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 (48.7% vs. 48.6%), the Percentage of Bearish Investment Advisors (24.3% vs. 25.0%), the Bullish-Bearish Investment Advisors Ratio (2.0 vs. 1.9), the Fear and Greed Index (60.8 vs. 51.4), the Total Put/Call Ratio (1.04 vs. 1.06), the NAAIM Exposure Index (58.7 vs. 72.9) and the VIX, a measurement of fear in the market, (18.40 vs. 18.40) 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 $53 million for the reporting period ending 4/12/23 compared to outflows of $8.5 billion the previous week.
 
What's Hot (31) What's Not (60). Of the 91 Industry Groups that we track, 31 are rated as either Strong or Improving while 60 are regarded as Weak or Deteriorating. The previous week's totals were 28-63. The following are the strongest and weakest groups for the period ending 4/13/23. Strongest: Advertising, Precious Metals, Semiconductors & Related and Household Products (Non-Durable). Weakest: Internet-Financial, Banks-Eastern, Forest Products and Banks-Western.
 
The top performing ETF categories for the week ending 4/13/23 were: Sector-Basic Materials (+3.37%), Blend-Small Cap (+3.25%), Sector-Alternative Energy (+3.11%), Europe (+3.07%) and Specialty Financial (+3.04%). The weakest categories were: Shorts (-3.71%), Bond-Government Long Term (-1.70%) and Bond-Multisector Aggregate (-0.63%).


By David L. Blake, CMT

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