The stock market was affected by many headlines this week. Investors reacted to the news feeling mixed. Dow Jones and S&P 500 recorded new highs this week. Meanwhile, Nasdaq and Russell 2000 continued to slump. The poor performance by the former is due to the price plunges in mega-cap companies.
Investors were not surprised by Fed’s rate announcement on Wednesday. The news released that the decision is to raise the hike up to 1.25%. The Fed also declared that another rate hike would happen this year.
The market budged little from Fed's policy prescription. But some questioned if the Fed might be tightening policy too much and too fast.
Russell 2000 and Nasdaq were the laggards for the week. The former was hit with -1.1% and the latter by -0.9%. Dow Jones is the best performer amongst the four indexes. Overall, Nasdaq is still leading the front in 2017, followed by S&P 500, DOW Jones and finally Russell 2000.
Here are the daily charts for the 4 market indices.
Dow Jones reached another milestone this week. It reached a new all time high of 21,384 on last Friday at a very strong volume (see red arrow). This is an encouraging sign. It shows that there is a strong interest from the institutional investors. See if it can continue to stay above the 50DMA line (blue) next week.
However, NASDAQ continued to slide down further. The technology-driven market index showed high activity of selling. See the two read arrows of high volumes. On the positive note, it seems that the price is finding intermediate support on the 50DMA line. See if it can float on the line or bounce convincingly with strong volume.
S&P 500 broke into all time-high on Tuesday. It digested its short-term gain and settled at 242.64 on Friday. One lesson here is that the price is within the price range of 241 and 242. And the volumes for the past several days are low too. This is a good sign as it shows that the institutional investors are not ready to sell their position in the market.
Small-cap index, Russell 2000 was the laggard for the week. It performed poorly amongst the four indexes. The three consecutive days of selling demand inventors’ attention. The index seems to be pulling back to its intermediate support at 50DMA line. The encouraging sign will be when IWM stays above the line next week.
For weekly charts, this is how the market indices fared.
Dow Jones is the leading index. It has been climbing for the past four weeks. Apart from reaching all time-high, it shows convincing performance; the volume continues to pick up too. The volume is the highest for this year too.
Although Nasdaq continues to be in a strong uptrend, the last two-week of decline is worrying. Especially when it is selling at an increasing volume. But a pullback can be welcoming too. The index has been climbing for fourteen months since February 2016. A conservative bet is that it finds support above 5900 or the red line.
After breaking to new high, S&P 500 is now consolidating for the past three weeks (see arrow). There is no clear sign that it is weakening. In fact, chart indicators such as 50DMA (blue) and 200DMA (red) are rising for the past twelve months.
Russell 2000 is stabilizing itself after breaking out from a six-month sideway movement. It is still early to forecast if this is the beginning of a new uptrend for small-cap stocks. Only time will tell if this is true. Else, expect the price consolidation to continue for at least four more months.
Nasdaq continue its slump this week. How should you and I react to such matter?
In general, stocks that are above the 200DMA line indicates that it is bullish and may climb up higher. The chart above shows that more than 60% of the stocks are still above the 200DMA. But there is more to that. When two straight lines are drawn, it shows that the trend is gradually downwards (perhaps it is turning bearish?). See if this trend continues next week.
There is a change in sentiment in the latest survey. Investors are asked about how they feel the market will perform in the next six months. The re are more people who are uncertain how the market will perform. This is indicated based on the 3.2% rise. Although this is not an accurate indication of the market performance, this gives us a rough idea how things are perceived by the recreational investors.
The sentiment is justified further with this index. The fear and greed indicator shows that many investors prefer to remain neutral. The sentiment has been inclining towards fear for the past four weeks. This might be an encouraging sign for the contrarian investors. Should this continue to drop further in the next few weeks, it is a sign that the market is due for bullish advancement.
NAAIM Number measures the level of active investors in S&P 500. The first chart (above) shows that it is about to reach the old time high of around 100 (red line). It seems that the pool of active investors is about to grow larger in the next few weeks. Meanwhile, S&P 500 chart (below) continues to climb higher till date (red arrow). See if the growing number of investors will push the index beyond 2500.
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It is going to be quiet next week. Earning release is still far away. Aside from economic reports for housing data, no event is sparking interest yet.
As always, keep your losses small in your stock holdings. Continue to watch if this rotation out of big-cap stocks continues.