Weekly Market Review: Bulls Charge Ahead as Bears Retreat on the Golf Course
Setup: The Opening Drive
Last week on the financial market golf course, it was a hefty and grinding round. The bulls and bears battled through a slow week, characterized by low participation ahead of the upcoming long weekend. The Dow Jones Industrial Average took a significant hit, losing 934 points, while the Nasdaq showed resilience, climbing 235 points. The Russell 2000 edged down by 26 points, and the S&P 500 (SPX) barely made a move, gaining just 1 point, ending the week in a doji candlestick formation.
From March onwards, the volume has been consistently slowing down, and market participants lack confidence in the upward movement of the price action. Despite low volume, prices have been rising, driven by a bid-ask process where buyers outnumber sellers. This trend suggests that the market is building up without a solid foundation, setting the stage for potential volatility.
Conflict: Navigating the Hazard
Last Thursday brought significant changes to the market. The SPX started the week with a poor drive, opening at 86 points on Monday, comparable to a weak six-iron shot. Tuesday's performance was below average, pushing the index towards an out-of-bounds penalty on Wednesday. The SPX continued to struggle on Thursday, akin to hitting a double-triple penalty, but managed a slight recovery on Friday, closing up 36 points, barely making it with a two-putt.
On the Nasdaq side, the drive was decent on Monday with a 108-point gain. However, Tuesday saw a poor six-iron shot leading to a penalty area and out-of-bounds trouble. Despite these setbacks, NVIDIA's strong performance saved the tech sector, allowing the Nasdaq to recover and close the week with a bogey or even par, highlighting the resilience of the technology sector amidst challenges.
Volume-wise, the Nasdaq saw above-average participation due to the technology sector's strength and recent earnings reports, particularly NVIDIA's impressive performance. The Nasdaq's three-month trend is upward, with the price hitting the first standard deviation and turning around on Thursday but stabilizing on Friday. The RSI stands at 68-70 points, indicating a high end of the price action.
Market Breadth and Correlation
- Market Breadth: Closed at a low 11.99%, indicating potential choppiness ahead. The market breadth is neutral at 53 points, suggesting a balanced participation between buyers and sellers. The VIX, in the 10 to 12 range, suggested low volatility but with the possibility of sudden spikes.
- Fear and Greed Index: Increased to 53, indicating growing investor confidence, but the memory of a month ago, when it stood at 33, was still fresh.
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 75%, 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.
Resolution: The Winning Putt
As the week progressed, it became clear that the bulls were not just holding their ground but advancing. The Nasdaq's 10-day hourly chart showed an uptrend, with prices moving within the lower standard deviation range and heading towards the second standard deviation on the upper side. Strong buying activity reinforced this bullish trend.
The SPX's resistance levels were closely monitored. Near-term resistance at 5395 was challenged, and the longer-term target of 5532 seemed within reach if the trend continued. The market was forming an ABC pattern in both NDX and SPX, indicating that the buyers were in sync and the upward trajectory was likely to persist, much like a well-executed approach shot landing close to the pin.
Weekly Price Forecast
| Symbol | Up | Down | Deviation |
|---|---|---|---|
| SPX | 5361 | 5246 | 57.5 |
| NDX | 19073 | 18546 | 263.5 |
| Russell | 2102 | 2035 | 33.5 |
Upcoming News and Market Impact
Next week, several key economic reports are scheduled to be released, including GDP reports, PPI data, and farm prices. These reports are crucial as they provide insights into the health of the economy and can significantly impact market movements. Investors should be vigilant and monitor these releases closely to gauge potential shifts in market trends.
Conclusion: A Triumphant Round
The past week has been challenging, with the markets experiencing a slow and grinding round. Despite the setbacks, the Nasdaq showed resilience, buoyed by strong performances in the technology sector. The SPX and other indices faced challenges but managed to recover slightly towards the end of the week.
As we look ahead, it is essential to remain cautious. The upcoming economic reports will play a crucial role in determining market direction. Understanding the interplay between economic indicators, market trends, and investor sentiment is vital for navigating the current landscape. By staying informed and responsive to market signals, investors can make more strategic decisions in this dynamic environment.
This week's market round may have ended with mixed results, but the game continues. The bulls and bears will continue their battle, setting the stage for the next chapter in this ongoing saga of market dynamics. This round of the market game ended with the bulls sinking their winning putt, but the game is far from over.