A Technical Review After Dow 40,000

Stock traders and investors had no problem with last week’s PPI and CPI report even if the PPI was a bit higher than expected. This is typical of a strong bull market as while the S&P futures were lower in an initial reaction to the PPI report, they moved higher for the rest of the day. This provided a bullish setup for Wednesday despite concerns over the CPI report.

Since the S&P 500 and Nasdaq 100 made their lows on April 19^th which coincided with a 10% drop in the stock of Nvidia (NVDA), the overall stock market has continued higher despite a few bumps in the road.

That low was significant to my analysis because “the American Association of Individual Investors (AAII), the bullish % had dropped to 38.3% from 43.4% the previous week and 50% on March 27”. The next week it was even lower at 32.8% but rose last week to 40.9%.

In a positive weekly trend, I look for a declining bullish sentiment % and the corrective formations in the advance/decline lines to signal the start and the end of market corrections. The A/D lines play the most important role in this analysis but the AAII data often confirms the signals.

Just four days after the March 24^th high at $524.61, the Spyder Trust (SPY
Principal Shareholder Yield Index ETF

SPDR S&P 500 ETF Trust
) formed a key reversal on April 4^th, point 1. In late February, there were clear warnings from key growth ETFs like XLK
Technology Select Sector SPDR Fund
(see chart) that they had given up their market leadership which appeared to be the start of more sector rotation.

On April 10^th the S&P 500 Advance/Decline line moved into the correction mode by dropping below its EMA ( line 2) . The SPY was lower that week and then dropped for five straight days into the close on April 19^th.

Two days later the A/D closed back above its EMA (line 3) as the market had become quite oversold. The move in the A/D line above the downtrend line 4, was a sign that the correction was over. This was confirmed by similar breakouts in both the NYSE Stocks Only and NYSE All A/D lines.

Now the 20-day EMA has crossed back above the 50 SMA as they represent support in the $514 to $517.62 area The weekly starc+ band is in reach next week at $537.68 with the yearly R2 resistance at $545.36 which is 3% above Friday’s close.

The SPDR Gold Shares (GLD
SPDR Gold Shares
) led the market higher last week as it was up 2.3% last week and is now up a market-leading 17.5% year-to-date. The bullish signal in early February was on target. The Nasdaq 100 had a gain of 2.1% while the iShares Russell 2000 was up 1.9%.

The S&P 500 outpaced the Dow Industrials as it was up 1.5% versus 1.2%. Even the Dow Jones Utility Average gained 1% while the Dow Jones Transports declined 0.6%. For the NYSE 1973 issues were advancing and just 916 declining.

A possible long-term top in the growth/value ratio was my focus last week, but growth did outperform last week. The iShares Russell 1000 Growth (IWF
iShares Russell 1000 Growth ETF
) was up 1.86% while the iShares Russell 1000 Value (IWD
iShares Russell 1000 Value ETF
) gained just 1.26% so the ratio was a bit higher.

The weekly chart of IWF (on the left) shows that it made a new high last week. There are Fib targets at $347.63 with the weekly starc+ band at $351.56. The 20-week EMA is now at $324.13, was tested at the correction low in April. IWF is well above both the rising 20-day EMA at $334.78 and the monthly pivot at $325.66. Volume increased last week and the weekly OBV has just closed back above its WMA.

IWD closed at $179.12 last week after recently testing the breakout level on the weekly chart at $169.96, line c.. The March high of $179.56 has not yet been exceeded with the weekly starc+ band at $181.61. The OBV has been in a positive trend, line c, since last October’s low. It is now above its WMA but has not yet exceeded the prior high. The positively rising 20-day EMA is at $175.64.

The daily analysis of the tech-heavy Invesco QQQ
Invesco QQQ Trust
Trust (QQQ) that tracks the Nasdaq 100 is not as positive as the daily outlook is for the SPY. First of all the QQQ formed daily dojis on both Thursday and Friday which my students know is often a cautionary sign. QQQ was not able to overcome the March high at $449.34 last week like the SPY or NYSE Composite. Also, the rising 20-day EMA is at $440.27 which is 2.56% below the close.

It may also be significant that the Nasdaq 100 Advance/Decline did not make a new high last week as it is below the high at line b. This potentially bearish reversal could be overcome this week and it would take a sharply lower close to put more emphasis on the potential bearish divergence. The daily relative performance (RS) has reached its downtrend, line c, but a strong move above it is needed to indicate that QQQ is again leading the SPY.

Those worried that the move in the Dow Jones Industrial Average above 40,000 completed a top should relax. First of all, I think the low in October 2022 was a major low. Therefore the bull market should last through 2024 and into 2025.

Last week the SPDR Dow Jones Industrials (DIA
SPDR Dow Jones Industrial Average ETF Trust
) moved above the March high at $398.82 as it had a high of $400.99 on Thursday. There is initial support now in the $394.33 area, line a, with the strongly rising 20-day EMA at $391.01.

On May 9^th the Dow Jones Industrial A/D line made a new all-time high one day after breaking its downtrend, line b. The A/D line had formed what I teach is a bullish setup on May 2^nd (see arrow) as it tested its WMA and then turned higher. The A/D line continues to lead prices so even if we see a near-term pullback then DIA should then move even higher.

In this week’s T&J ETF Watchlist, there were three new bullish WKS_DTS signals last week., Health Care Select (XLV
Health Care Select Sector SPDR Fund
), Real Estate Select (XLRE
Real Estate Select Sector SPDR Fund
), and the Technology Select (XLK). On a year-to-date basis, XLRE is the only one that is lower, down 2.6% YTD and it also closed the week below its Q_Pivot at $39.02 XLV is up 7.7% YTD while XLK is up 10.3%.

Given the technical readings for the overall market, including the Dow Industrial Average, the move above 40,000 does not worry me about the market’s trend. On a short-term basis, the overall market looks ready for a pullback that should create a good buying opportunity in market-leading ETFs and stocks. On any new positions be sure to manage the risk and use protective stops.