Weekly Market Vibes

Stocks Gain on Big Cap Earnings

Major averages close in on February highs.

A volatile week ended with the major averages higher as the DJIA, S&P 500 and NASDAQ closed out April at their highest level since February. Investors processed a slew of earnings from big cap technology companies, and economic data that showed slowing growth, but sticky inflation. Despite better-than-expected Q1 earnings from the likes of Microsoft (MSFT) and Alphabet (GOOGL) during the period, equities traded lower to start the week on recession and debt ceiling concerns. Investors also were cautious ahead of next week's FOMC Meeting where another 0.25-point rate hike by the Federal Reserve is expected. The DJIA dropped 573.53 points (-1.7%) through Wednesday, while the DJ Transportation Index sank 1020.29 points (-7.0%), pulled down by a -10% slide in United Parcel Service (UPS) after coming up short on earnings and issuing weak guidance. The major averages turned it around on Thursday however, as disappointing data on Q1 GDP and inflation was offset by continued strength in consumer spending and the jobs market that blunted fears of a recession. The Dow Jones nearly erased its two-day tumble and put up its best day since January, with the NASDAQ, getting a boost from a +13.93% spike in Meta Platforms (META) on blowout earnings, soaring +2.43% and moving into positive territory for the week. The different indexes were able to push higher again on Friday on solid earnings and hopes that the Federal Reserve would announce a pause next week in its tightening policy. The market sectors were mixed but mostly higher with Communication Services (XLC), Technology (XLK), REITs (XLRE) and Consumer Staples (XLP) outperforming, while Utilities (XLU), Industrials (XLI) and Healthcare (XLV) moved lower. Yields edged down with the rate on the 10-year Treasury easing to 3.43% and the two-year T-Bill sliding to 4.03%. Despite volatile trading, the major averages were able to post positive on the week with their sights set on new highs for the year..

For the period, the DJIA gained 289.20 points (+0.9%) and settled at 34098.16. The S&P 500 added 35.96 points (+0.9%) and closed at 4169.48. The NASDAQ jumped 154.12 points (+1.3%) finishing at 12226.58, while the small cap Russell 2000 fell 22.52 points (-1.3%) finishing at 1768.99.

The technical condition of the market held its positive bias after the selloff and rebound during the weekend as the major averages were able to close at the top of their trading range, close to their February highs. The technical indicators improved with MACD, a short-term trend gauge, close to crossing into bullish territory for the DJIA, S&P 500 and NASDAQ, while Momentum, as measured by the 14-day RSI, was positive and moving higher. The DJIA and NASDAQ were also able to bounce off key MA support this week, which points to the possibility that the major averages could add to recent gains and make a run to new highs for the year. The secondary indexes, however, continue to show negative divergence and ended the period down across the board. The DJ transportation Index, small cap Russell 2000 and Philadelphia Semiconductor Index also remain below key MA resistance. It wasn't all bad however, as the DJ Transportation Index was able to cross back above its 200-day MA on Friday, while the Philadelphia Semiconductor Index was able to bounce off support at its 100-day MA during the week. The stock market will need to pick up support from the secondary indexes if a rally off a Fed pause is going to stick.

Underlying breadth was mixed with the NYSE Advance/Decline line modestly higher, but the NASDAQ Advance/Decline line lower showing the majority of stocks remain under distribution. The A/D lines are considered leading indicators of market direction and can foretell market direction. New 52-week lows however, outnumbered the new highs on both the NYSE and NASDAQ and expanded on the NASDAQ continuing to show narrow leadership. Investor Sentiment is neutral but both retail and the pros saw another uptick in bearishness. Retail investors saw a drop in the bulls to only 24.1%, while according to the American Association of Individual Investors (AAII), the bears hit their highest mark, 35.1%, since late March. The National Association of Active Investment Managers (NAAIM) Exposure Index shows money managers trimmed equities to 50.8% from 78.3% the prior week. That's also the lowest exposure to equities since March.

Next week many investors are hoping that the Federal Reserve will announce a pause in raising rates after another -.25-point hike, with some expecting rate cuts as early as September. Investors may want to be careful for what they wish for. A study at Bloomberg shows that the average time before the Fed's first rate cut after raising rates is six-months. When a rate cut occurs before that, it historically has meant that the Fed has gone too far in its tightening cycle and a deteriorating economy leads to a sharp decline in equities or, like in 1987, a stock market crash. The stock market could breakout of its trading range next week if the Fed announces a pause, but before chasing any market rally take note, Bloomberg also points out that after rate hike headwinds are removed, the rally usually fizzles out as the focus returns to a deteriorating economy and earnings. That notion is supported by negative divergence in underlying breadth and should keep investors wary of any breakout in prices next week if the Fed announces a pause in rate hikes.

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 Neutral at +2, down four notches from the previous week. Breadth was mixed at the NYSE as the Advance/Decline line added 418 units while the number of new 52-week lows out did the new highs on three sessions. Breadth was negative at the NASDAQ as the A/D line lost 1385 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 slipped to 40.4% vs. 45.5% the previous week, while those above their

200-day moving average fell to 44.7% vs. 50.3%. 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, unchanged from the previous week. The Dividend Yield Spread (-2.29 vs. -2.48) and the AAII Bull-Bear Ratio (0.6 vs. 0.8) are Bullish. NYSE short interest was up +0.7% and 2.5 days of average volume for the period ending 4/14/23 vs. being up +2.2% and 2.8 days average volume to cover at the end of March. Short interest at the NASDAQ was up +4.6% and 2.8 days of average volume mid-April vs. a +2.6% increase and 2.3 days average volume to cover on 3/31/23. The Percentage of Bullish Investment Advisors (48.6% vs. 50.7%), the Percentage of Bearish Investment Advisors (25.0% vs. 24.0%), the Bullish-Bearish Investment Advisors Ratio (1.9 vs. 2.1), the Fear and Greed Index (59.4 vs. 67.4), the Total Put/Call Ratio (1.03 vs. 1.03), the NAAIM Exposure Index (50.8 vs. 78.3) and the VIX, a measurement of fear in the market, (15.78 vs. 16.77) 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 $2.0 billion for the reporting period ending 4/26/23 compared to outflows of $853 million the previous week.

What's Hot (32) What's Not (59). Of the 91 Industry Groups that we track, 32 are rated as either Strong or Improving while 59 are regarded as Weak or Deteriorating. The previous week's totals were 37-54. The following are the strongest and weakest groups for the period ending 4/27/23. Strongest: Advertising, Precious Metals, Pharmaceuticals and Cosmetics/Personal Care. Weakest: Banks-Eastern, Internet-Financial, Banks-Western and Banks-Central.

The top performing ETF categories for the week ending 4/27/23 were: Shorts (+2.80%), Specialty Communications (+2.43%), Sector-Telecom (+2.43%), Sector-Consumer Staples (+0.72%) and Europe (+0.48%). The weakest categories were: Sector-Alternative Energy (-4.08%), Sector-Energy (-3.50%), Commodity-Base Metals (-3.44%), Specialty Financial (-2.77%) and Specialty Natural Resources (-2.69%).

By David L. Blake, CMT

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Next week's Economic Calendar:

Monday - Chicago Fed National Activity Index and Dallas Fed Manufacturing Survey

Tuesday - Case-Schiller Home Price Index, Consumer Confidence, New Home Sales and Richmond Fed Manufacturing Index

Wednesday -Mortgage Apps, Durable Goods Orders and EIA Petroleum Status Report

Thursday - Jobless Claims, GDP and Pending Home Sales Index

Friday - Personal Income and Outlays, Employment Cost Index, Chicago PMI and Consumer Sentiment

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