Weekly Market Review: Bullish Momentum and Historical Context
Market Overview
As we close the 20th week of 2024 in May, the stock market has showcased a remarkable bullish trend over the past three weeks. This period has seen the bulls decisively outpace the bears, driving major indices to new heights:
- Dow Jones Industrial Average: Up by 490 points, crossing the historic 40,000 mark.
- Nasdaq (NDX): Increased by 345 points.
- Russell 2000: Added 35 points.
- S&P 500 (SPX): Rose by 80 points.
This bullish momentum indicates strong investor confidence and a significant shift in market sentiment. Despite a few dips, the overall trend remains positive, with substantial buying activity observed even during sell-offs.
Technical Analysis: Trends and Indicators
SPX Analysis
The SPX hourly chart reveals a high level of activity, with the 10-day trend moving upwards. The price is within the lower standard deviation range, suggesting room for further upward movement. On the monthly chart, SPX is trending sideways to up, with prices touching the second standard deviation on the upper side. Key technical indicators include:
- MACD: Upward trend with a deviation of around 26 points.
- Market Forecast: Slightly up to down.
- RSI: Approximately 67 points, nearing the overbought territory.
Nasdaq Analysis
Similar to SPX, the Nasdaq's 10-day hourly chart shows an uptrend, with prices within the lower standard deviation range and heading towards the second standard deviation on the upper side. The bullish trend in NDX is reinforced by strong buying activity.
SPX Volume Profile
The SPX volume profile highlights a key resistance level at 5325, reached last Thursday and Friday, forming a bullish flag pattern. This suggests a potential continuation of the upward trend. Key resistance levels include:
- 5395: Near-term resistance.
- 5532: Likely to be reached within two months if the trend continues.
- 5670: Longer-term target.
Market Breadth and Volatility
- Market Breadth: VIX Closed at 11.99%, indicating low participation and potential for choppy movements.
- VIX: Currently in the 10 to 12 range, suggesting low volatility but potential for sudden spikes.
- Fear and Greed Index: Increased to 65, indicating growing investor confidence, up from 33 a month ago and 60 a year ago.
Correlation and Sector Analysis
The correlation between major indices remains high, with SPX, NDX, and Russell showing correlations in the high 80s to low 90s. Volatility (VIX) is inversely correlated at 67%, and the USD is inversely correlated at 24%. Commodities like gold, oil, Bitcoin, and copper show positive correlations with the market, albeit at lower levels around 30%. Copper, in particular, is a leading indicator, moving in sync with the market.
Historical Context
The market's current behavior reflects a shift in trading dynamics over the decades. In the late 1980s, traders relied heavily on price action and pivot points, making quick decisions based on immediate market movements. However, the advent of computer-based trading in the 1990s introduced a greater reliance on electronic charts, technical analysis, and fundamental analysis. This evolution has led to faster and more efficient trading practices.
In the modern era, characterized by new generations of traders, the focus has shifted towards quick action and immediate returns. The prevalence of buying activity, even during sell-offs, underscores the market's bullish bias. This trend is particularly evident as older, more conservative traders ('boomers') make way for younger, more aggressive market participants who favor buying over short selling.
Weekly Price Forecast
| Symbol | Up | Down | Deviation |
|---|---|---|---|
| SPX | 5361 | 5248 | 56.5 |
| NDX | 18815 | 18286 | 264.5 |
| Russell | 2129 | 2060 | 34.5 |
Upcoming News and Market Impact
Next week is expected to be relatively slow due to the approaching long weekend. Key economic reports to watch include:
- CPI and PPI: Indicators of inflation that can influence market sentiment and central bank policies.
- Merchandise Trade: Reflects the trade balance and economic health.
- CBI Industrial Trends: Provides insights into manufacturing sector performance.
- PMI Composite Flash: A leading indicator of economic health.
- GDP and Employment News: Critical for assessing overall economic performance and labor market conditions.
These reports are essential as they offer a snapshot of the economy's health and can significantly impact market movements. Investors should closely monitor these releases to gauge potential shifts in market trends.
Conclusion
The past few weeks have demonstrated a robust bullish momentum, driving major indices to new highs. The current trends in SPX and NDX, coupled with bullish technical patterns, suggest continued strength. However, low market breadth and upcoming economic reports warrant caution. Historically, similar trends have led to sustained bullish markets, but investors should remain vigilant and ready to adapt to changing conditions.
Understanding the interplay between economic indicators, market trends, and investor sentiment is crucial for navigating the current market landscape. By staying informed and responsive to market signals, investors can make more strategic decisions in this dynamic environment.