Stock traders and investors were unfazed by last week’s PPI and CPI reports, with the S&P futures initially dropping in reaction to the PPI report but ultimately moving higher for the rest of the day. This trend, typical of a strong bull market, set the stage for a bullish setup on Wednesday despite concerns over the CPI report. The overall stock market has continued to climb since the S&P 500 and Nasdaq 100 hit their lows on April 19th, coinciding with a 10% drop in Nvidia’s stock.
The American Association of Individual Investors’ data showed a decline in bullish sentiment from 50% in late March to 32.8% in the subsequent weeks, before rising to 40.9% last week. This decline in bullish sentiment, along with corrective formations in the advance/decline lines, plays a crucial role in signaling the start and end of market corrections. The A/D lines, particularly the S&P 500 Advance/Decline line, offer important insights into market trends.
After forming a key reversal on April 4th, the Spyder Trust experienced a drop, signaling the start of more sector rotation following warnings from key growth ETFs like XLK in late February. By April 10th, the S&P 500 Advance/Decline line had moved into correction mode, dropping below its EMA, leading to a five-day decline in the SPY. However, two days later, the A/D line closed back above its EMA, signaling the end of the correction as the market rebounded.
The SPDR Gold Shares led the market higher last week, up 2.3% and 17.5% year-to-date, followed by gains in the Nasdaq 100 and the iShares Russell 2000. The growth/value ratio analysis indicated a possible long-term top, but growth outperformed last week, with IWF making a new high. While the daily outlook for the SPY is positive, the Invesco QQQ Trust formed cautionary daily dojis and failed to overcome its March high, raising some concerns.
Despite worries about a potential top in the Dow Jones Industrial Average above 40,000, technical readings, including the Dow Industrial A/D line making a new all-time high, suggest a bullish trend through 2024 and into 2025. Last week, the DIA moved above the March high, with initial support at $394.33 and the 20-day EMA at $391.01. The T&J ETF Watchlist identified three new bullish signals last week, including XLV, XLRE, and XLK, with XLRE being the only one lower year-to-date.
Overall, the market is poised for a pullback, creating a buying opportunity in market-leading ETFs and stocks. While the move above 40,000 in the Dow Jones Industrial Average may spark concerns, the technical indicators suggest a bullish trend in the market. As investors navigate the market volatility, managing risk and using protective stops on new positions remains crucial.
