The volatile week in the stock market was followed by the overnight passage of the Trump tax bill.
The erroneous story from ABC news hit the markets hard on Friday as the S&P futures dropped over 40 points in fifteen minutes. All of the major averages rebounded for the rest of the day. The sharp likely cleaned out many of the weak longs as those who sold in a panic had a rough day. It was a good week except for the tech shares.
The rebound from Friday’s lows capped in a strong week for the markets with the Dow up 2.9% and the S&P 500 gaining 1.53%. The small cap Russell was hit hard during Friday’s drop but was still up 1.18% for the week but by far the 5.89% gain in the Dow Transports was the big surprise. As investors see the Dow above 24,000 some are looking at the at the 2018 year-end forecasts from Wall Street strategist.
The market internals did not keep pace with the price gains last week as there were 1687 stocks advancing and 1382 declining. This is in contrast the better than 2-1 positive A/D ratio the previous week.
The NYSE Composite came very close to its weekly starc+ band last week and this week it stands at 12,696 with monthly pivot resistance for December at 12,808. This is just 1.5% above Friday’s close. There is strong support at 12,177 and the rising 20 week EMA. The weekly NYSE Advance/decline line made a new high last week and is well above its rising WMA. There is long term A/D support at line a.
The Spyder Trust closed the week at $264.46 and the weekly starc+ band for the week ahead is at $266.10. The December pivot resistance (red line) is at $268.83. The Friday low at $260.76 and the rising 20 day EMA at $260.10 are now the first levels of support. There is additional support in the $258-$259 area.
The weekly A/D line turned sharply higher last week and the daily A/D line made a new high last Thursday. There are no signs of a top in the daily A/D as it is well above the rising WMA.
The PowerShares QQQ Trust (QQQ) closed the week down just over 1.1% as the daily starc- band was tested on both Wednesday and Friday. The weekly low at $152.26 was not far above the monthly pivot support at $151.71. The support from the September and October lows, line a, is at $151.13 with additional support in the $149-$150 area.
The Nasdaq 100 A/D line made a new high Thursday but turned down on Friday. It is above its WMA and the breakout level, line b. The uptrend, line c, could be tested on a further decline but it would take a drop below the late October lows to weaken the intermediate trend. The weekly A/D line is well above its rising WMA.
The February Crude oil contract closed up 5% in November as it has reached the resistance, line a, that goes back to late 2015. The 38.2% Fibonacci retracement resistance from the 2014 high is at $58.00 and was exceeded during the week. The monthly starc+ band is at $61.26 with the 50% resistance level at $64.09.
The monthly OBV has moved above its WMA but is still well below the long term resistance at line b. The weekly OBV moved above tis WMA in September and is well above its rising WMA. The monthly Herrick Payoff Index (uses the price, volume and open interest to measure money flow) moved above its WMA in August.
It moved above the zero line in September and in November it overcame the major resistance at line c. This is consistent with a major bottom. The weekly HPI moved above its WMA in July when many were looking for crude oil to drop below 40%.
The oil and gas sector was one of the best performers last week as it gained 2.7%. Viper ETF investors and traders are long either the Vanguard Energy ETF (VDE) or the SPDR Oil & Gas (XOP). The weekly indicators for both indicate they can still move significantly higher.
What to do? Clearly long term investors should stay with their core long positions and do not worry about the price levels of an individual market average. In June 2016, with the S&P 500 trading at 2105, I again recommended “dollar cost averaging program … in a broadly diversified ETF”.
My view at the time as that “Very few analysts or investors are looking for sharply higher stock prices in the 2nd half of the year but I think it is a real possibility. I would not be surprised to see the S&P 500 reach the 2200 level and 2300 is a real possibility”. The yearly high on December 14, 2016 was 2278.
Investors should stay long until the weekly A/D lines have formed negative divergences like they did in May 2015. Before that can occur there needs to be a correction of 5% or more where the A/D ratios are quite negative.
Of course the daily A/D lines will top out first and then move into the corrective mode. The recent new highs in the daily A/D lines means that the market’s short term trend is also positive. This means that the higher 2018 S&P 500 targets from the Wall Street strategists are attainable next year.
Trades should pay more attention to the daily A/D lines to identify corrections as well as periods of consolidation. This will allow them to move into inverse ETFS during corrective periods.
It is also possible that there will be signs of a top before 2800 or 2950 is reached so don’t fixate on a particular price level. There are always some individual stocks that are just completing continuation patterns and they can often provide good trading opportunities.
After last week my Viper Hot Stocks scan revealed over 30 stocks with new weekly buy signals. They will be reviewed to find those with the best technical patterns for Monday's report.
Investors or traders might consider the Viper ETF or Viper Hot Stocks services where reports are sent out twice each week. Each report is just $34.95 per month and includes five recent trading lessons.
