The stock market was sluggish last week following the long weekend. But, things picked up in the second half of the week as employment data for May came into focus.
S&P 500's winning streak ended on Tuesday. It happened after the energy sectors were the news headlines. Crude oil pushed the industry lower following reports of heightened production in Libya.
Market improved on Thursday after the National Employment Report for May beat expectations.
There was a disappointing news from the Employment Situation Report on Friday. Investors took it in stride, pushing the major averages to new record highs for the second day in a row.
Russell 2000 took the spotlight. It broke out from the long consolidation that began in December 2016.
The technology sector performed well, but the energy and financials spaces showed weakness.
This is particularly the case for the energy sector. It moved lower with price decline in crude oil. This is following President Trump's decision to pull out of the Paris Climate Accord.
Here are the daily charts for the 4 market indices.
For weekly charts, this is how market indices fared.
Russell 2000 takes the spotlight this week. It is making an attempt to break away from the long consolidation that started in December 2016. Volume is also strong. The spike in volume also indicates that institutional investors are showing more interest in small cap stocks. See if it can continue this upward movement in the next several weeks.
So, is the market overbought? While it is true that majority of the stock market is extended and deserve price pullbacks, take a look at the next chart.
In this chart, it shows the percentage of stocks that is above the 200DMA line. It is considered bullish when the stock price is above the 200DMA line and bearish when it is below it. For this week, the following chart shows that more than 65% of the stocks in the market that is above the 200DMA. Although this is not a good indicator of how well the market is performing, it goes to show that it still has a long way to go before it signals the end of a climax run and the start of short term market top which last happened somewhere in August 2016.
Let us look at the investor's sentiments for the week.
This week, the bullish camp underperformed by 5.9% than last week. More investors are uncertain about how the market is going to react for the next six months. This is clearly seen from the neutral camp. It jumped by 4.4% to 41.5%. From the contrarian perspective, this is a good sign that the stock market has more fuel to keep moving upwards.
Investing Action Plan
Are you waiting for a big stock market pullback?
Major stock indexes are trading tightly and holding near highs, and leading growth stocks are acting well. For the bulls, that's the best of both worlds.
Meanwhile, heavy institutional selling in the major averages has been limited. Since March this year, there have been only two days of heavy selling, in which mutual funds, banks, insurers and other big investors were dumping stock; one on March 21 when the Nasdaq composite slumped 1.8% in higher volume, and the other on May 17 when the index crashed 2.6% in higher volume.
Meanwhile, the latest news showed another decline in bullish sentiment among newsletter writers, along with another increase in those expecting a near-term correction. The bulls like this data because the crowd is often wrong when timing the market.
Amid a growing chorus of calls for a market pullback, don't jump the gun and adopt a bearish outlook. Why? Because one thing always happen ahead of market corrections, and it is still not happening yet.
Here it is. High-quality, market-leading growth stocks always start to break down amid signs of institutional selling. Many will break through a key support level like the 50-day moving average as seen on a daily chart.
So, stay nimble and cut your losses quickly when your stocks triggered selling signals.