Technicals stand out amid a complacent market
Indexes: Dow -0.20 pc, S&P -0.23 pc, Nasdaq +0.03 pc
the S&P peaked this year on March 1.
On Friday it closed at its weakest level in nearly three weeks.
“The bigger risk now (to the stock market) would be overbought conditions, even more overseas than in the US,” 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.”
The Nasdaq Composite, which closed on Friday almost 4 per cent above its March 1 close and set intraday and closing records this week, is showing a particularly damning pattern in terms of breadth.
The 50-day average of advancing names on Nasdaq peaked this year in mid-January and is in a clear trend lower.
It hit its lowest level this year on May 5, and the spread with the 50-day average of decliners has been in and out of negative territory since early March.
Waning breadth suggests the market advances on less than solid ground as fewer and fewer stocks participate to the upside.
On the S&P 500 the 50-day advancers average is at its lowest level since the November 8 US presidential election.
However, with the index trading basically sideways since the March record, the signal can be misleading.
“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 case is even darker for the 30-component Dow industrials, where the 50-day average of advancers is also near the lowest level since November.
Apple Inc alone is responsible for 25 per cent of the Dow’s year-todate advance, even if the index is not market-cap weighted.
There’s more bad news for Dow followers. The Dow Transport Average, which peaked with the industrials on March 1, is more than 6 per cent below its high, while the industrials are just 1 per cent below their record.
A record on the industrials without the confirmation of the transports would be another bad omen for stocks.
Timing can be blunt, but there was divergence present between these two averages at major tops in 2000, 2007 and 2015.
US STOCKS: Wall Street fell on Friday and was on track to end the week lower as tepid economic data weighed on banks and worries deepened over Nordstrom and other department stores.
A risk-off sentiment gripped Wall Street this week after President Donald Trump unexpectedly fired his FBI chief, the potential fallout from which could delay Trump’s pro-growth goals to cut taxes and boost spending on infrastructure.
Soft retail sales and monthly inflation data on Friday raised concerns about slow economic growth and questions about whether the Federal Reserve could maintain its hawkish outlook for interest rates this year.
Federal funds futures implied a 49per cent chance of two more rate hikes this year, compared with 54 per cent shortly before the release of the data, CME Group’s FedWatch tool showed.
Banks, which typically benefit from higher interest rates, dragged on the S&P 500 and Dow Jones Industrial Average.
The S&P 500 financial sector fell 0.6 per cent, while industrials were off 0.8 per cent.
Department stores faced serious pressure for a second straight day after JC Penney reported lower-thanexpected comparable-store sales, sending its shares down 14 per cent.
Nordstrom dropped 10 per cent after weak quarterly same-store sales.
Macy’s fell 2.4 per cent, bringing its loss to more than 18 per cent in the past two sessions following its dismal quarterly report.
The less-than-expected 0.4 per cent month-over-month increase in April retail sales stirred fears about the retail sector as well as the economy.