Category: Newsletter

The market took a hit this week once again as the summer weakness continued. While many attributed the decline in stocks and rise in bond yields to the recent Fed projections of "higher for longer," the action this week seemed more akin to end-of-the-quarter rebalancing for fund managers. Furthermore, September 30th marked the fiscal year-end for about 20% of fund managers who needed to make distributions and redemptions. Nonetheless, the market declined this week, with only minor support holding the market in place.

As shown, the market did break below the previous low on Friday after failing to reclaim that previous support at the 20-DMA. The failure to reclaim that support turns the previous 20-DMA into resistance and makes the 50-DMA new critical support over the next few days.

As we previously noted, just because the market breaks the 20-DMA does not mean we must take immediate action. What we need to see is a confirmation of that break with either a failed retest of previous support or a further decline. On Friday, the stronger-than-expected employment report sent stocks higher as "good news is good news" as more robust economic growth should support earnings. However, "bad news also remains good news," as it would mean Fed rate cuts.

With March behind us, the market has posted 5-consecutive months of gains. While not entirely uncommon, some interesting data points surround such win streaks from the chart below.

Last week, we suggested we could see a further correction this week, given some of the weaknesses that had been accruing. Such was the case until Wednesday's FOMC meeting announcement. While the meeting was largely as expected, with no real change to outlook, the outcome was seen as primarily "dovish" as Powell reaffirmed the Fed was still on track to cut rates three times this year.

After a rally to all-time highs, the market again traded lower on Thursday and Friday to finish at the 20-DMA. However, some differences this week suggest we may see a further correction next week.

Last week, the ongoing "can't stop, won't stop" bullish trend remained firmly intact. That was the case again this week, as the market tested the 20-DMA, the bottom of the trend channel, early in the week, which sparked buyers to push the index to all-time highs by the week's end. At the same time, volatility remains compressed, with the deviation from the 200-DMA growing. As shown, the breadth of the market and momentum are both negatively diverging from the rising market, which historically serves as a warning.

Last week, we discussed the ongoing bull rally following Nvidia's blowout earnings report. That remains the case this past week. While the overall market traded higher into the end of the week, setting new all-time highs, the bullish November trend remains intact. While the market remains confined to that narrow rising trend channel, the MACD "buy signal" remains elevated, and an apparent deterioration in the market's momentum remains.

The rally continued this past week, spurred higher by Nvidia's blowout earnings report Wednesday night. After a brief test of the 20-DMA, the market surged to new all-time highs on Thursday, confirming the ongoing bullish trend. As shown, the 20-DMA continues to act as crucial support for the market.