Last week, stocks experienced another week of gains, bringing the Dow Jones Industrial Average and the S&P 500 Index to new all-time highs and marking the 12th weekly advance out of the last 13 for the latter.
The NASDAQ posted a modest weekly gain but remained 3.7% below its historic high achieved on November 19, 2021. Also, despite these gains, the small-cap Russell 2000 Index remained nearly 20% below its all-time intraday high. Tech stocks kept climbing, while the other 10 sectors of the index are still trading an average of 15% below their all-time highs
Eight out of the 11 S&P 500 sectors experienced gains last week. The energy sector saw the largest increase, rising by 5.2%, followed by a 4.5% gain in the communication services sector. The consumer discretionary sector was the notable laggard, facing a 1.4% decline, primarily due to Tesla’s disappointing earnings and guidance, leading to a 13.6% drop in its shares. Conversely, Microsoft stood out among mega-cap stocks, reaching a market cap exceeding $3 trillion for the first time this week.
The McClellan Oscillator, an indicator of overbought/oversold, closed at a near-neutral reading of just +19.32. Since it’s comprised of advance/declines and up/down volume, it’s a clear indicator of a very narrow and possibly tired market. Most underlying technicals do not support these new highs and generally indicate that a top may be approaching, if not already reached in some of the indices.
Over the last couple of weeks, I’ve indicated the market technical were narrower and perhaps vulnerable, but fairly positive economic indicators and possible pending interest rate cuts in the months ahead have kept the indices afloat. How long this lasts and keeps the indices pushing even further, with the underlying technicals not supporting them, certainly has me very concerned.
Technically, many major market leaders are at or near Elliott Wave based 5th wave tops and deepen the concern for the need for a pullback /retracement or at least a period of consolidation. However, the momentum in this market has not yet been abated, and as the expression goes,” The trend is your friend” and the trend obviously remains up! The markets nearly always go further than you think they will (in both directions!).
Going forward, as a result of the above comments and data, the period ahead may turn out to be very volatile and dangerous. I strongly suggest that my followers pay closer attention to the technicals in the days and weeks ahead, as I believe they will not only reveal market direction but act as guidance in your short and intermediate trading.
And remember, Trade what you see, not what you think!
