Daily Management Review

Amid A Quiet Market, Technicals Stand Out


05/14/2017




The biggest concern for some market analysts is the lack of concern with the S&P 500 and Nasdaq Composite hovering near record highs and as the strongest earnings season since 2011 draws to a close.
 
The largest daily move on the S&P 500 in almost three weeks was only 0.4 percent.
 
A more than 20-year closing low hit this week on the CBOE Volatility index, a measure of investor anxiety has been attributed partially to the small daily moves.
 
"Most of what you’ll find that is outright negative will have to do with sentiment," said Marc Pado, president at DowBull.com in San Francisco.
 
"People worried about the market on a technical basis are worried because there is too much complacency or optimism, but not on an indication that there is some kind of top."
 
Momentum has not mirrored what was seen in early March precisely because of the sideways move. This year on March 1, the 14-day momentum measure of the S&P reached a peak.
 
"The bigger risk now (to the stock market) would be overbought conditions, even more overseas than in the U.S.," said Katie Stockton, chief technical strategist at BTIG in New York.
 
"If momentum doesn’t stay strong enough, which I think it will, that would be a risk to the market. It’s a matter of momentum remaining strong enough."
 
In a clear trend lower is the 50-day average of advancing names on Nasdaq peaked this year in mid-January. The spread with the 50-day average of decliners has been in and out of negative territory since early March and it hit its lowest level this year on May 5.
 
As fewer and fewer stocks participate to the upside, waning breadth suggests the market advances on less than solid ground.
 
Placed at its lowest level since the Nov. 8 U.S. presidential election is the S&P 500 the 50-day advancers average. However, the signal can be misleading with the index trading basically sideways since the March record.
 
"In every one of the (previous) legs higher we saw internal breadth indicators confirming the new high. We haven’t seen that over the last week but the high was marginal only," said Paul Hickey, co-founder of research firm Bespoke Investment Group in Harrison, New York, who remains with a positive view of the market.
 
"We see this as the continuation of a consolidation period the markets have been in since March 1."
 
The 50-day average of advancers is also near the lowest level since November for the 30-component Dow industrials where the case is even darker. Even if the index is not market-cap weighted, Apple Inc alone is responsible for 25 percent of the Dow's year-to-date advance.
 
However, bad news for Dow followers also exists. While the industrials are just 1 percent below their record, the Dow Transport Average, which peaked with the industrials on March 1, is more than 6 percent below its high.
 
Another bad omen for stocks would be a record on the industrials without the confirmation of the transports. But between these two averages at major tops in 2000, 2007 and 2015, there was divergence present even though timing can be blunt.
 
(Source:www.reuters.com) 






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