Of the top 15 largest tech companies, only 2 are not at new highs.
For several weeks, I wrote that the big cap tech stocks were choppy and trendless. Amazon dipped to $962, Apple $155, Netflix $191, etc. In late October, the big cap tech stocks paused. They did not correct or post any major declines, but they moved sideways with a negative bias for several weeks. The market in general was moving higher but it was a constant battle led by individual stock performance in the Dow.
That has changed with the tech earnings and post earnings moves. The pause in the big caps gave them a chance to recharge and now we are experiencing the fruits of their resurgence.
The Dow is still making new highs but it is struggling. This index also rested over the last two weeks with more sideways movement than vertical gains. There was just enough help from earnings on a couple days each week to power the index to a 100-point gain for each of the last two weeks. The Dow was not setting the world on fire but it was holding its gains and slowly adding to them.
The market challenges have come from the small caps and the transportation sector. Like the Russell 2000, the S&P-600 small cap index is struggling. However, the $SP600 closed at a 5-week low on Friday. The index appears to be on the verge of a breakdown where the Russell chart looks more like a consolidation/continuation pattern. The SP600 is a managed index where the stocks are picked out of the small cap universe. The Russell 2000 is simply the bottom 2,000 stocks by market cap in the Russell 3000 index. The SP600 is actually reflective of the small cap sector. The SP600 lost 15 points for the week.
The Dow Transports ($TRAN) lost -176 points for the week and the second worst performance behind the SP600. The Transports should be in rally mode because of the expanding economy. However, airlines are struggling with competition and shrinking margins and railroads are feeling the pinch from declining rig counts in the energy sector and the potential impact from a change in NAFTA. Any further declines in the transports should be negative for the Dow.
The biotech sector was hit the prior week on drug pricing headlines out of Washington. The sector began a recovery on Thursday, probably on the news that President Trump would be out of the country for a couple weeks and the pricing headlines would evaporate. I think we all agree that something needs to be done when new drugs cost $75,000 to as much as $750,000 a year. I am a free market guy but this is getting ridiculous when other countries pay only 10% to 20% for the same drug. Sorry, did not mean to go off on a rant.
In the past buying the biotech ETFs on a bounce from uptrend support would have been a profitable play. This time, I would not be surprised to see resistance at 4,300 hold.
The energy sector is seeing a rebound but it has a long way to go. If oil prices were to suddenly break free of $55 and move higher, it would be very market positive. The energy stocks have been hammered for the last three years and $65 oil would cause a monster rally. I am not yet a believer in this rebound but we are at least headed in the right direction.
The MACD on the Dow has triggered a sell signal but there is no confirmation. The crossover is still too close to make a sell call. The index has been struggling and the uptick on Friday was all due to Apple. The Dow remains the most overbought chart.
The MACD on the S&P remains negative but the index continues to make new highs on the strength of the big cap tech stocks. The A/D line ticked up slightly late in the week but the momentum from Sep/Oct has faded. The MACD on the A/D is in full decline.
The Nasdaq gains on Friday came from a dozen big cap stocks but mostly AAPL, AVGO and QCOM, which added 33 of the 49 points. The Nasdaq has spiked above uptrend resistance and well above the October decline lows. The key for the Nasdaq next week will depend on how many of those earnings gains are sold.
The broadest market index closed at a new high despite the weakness in the MACD. As long as the Russell 3000 is moving higher, the overall market trend will remain intact. This is the key index to watch along with the S&P-600.
The markets appear to be headed higher but we are moving into the post earnings depression period. I have been writing for several weeks to beware of weakness in the week of November 6th. Given all the positive fundamentals, any weakness could be brief but this is the week that the earnings fuel begins to evaporate.
Any dip should be bought but not on the first day. I like to say buy the rebound since picking a bottom can be tricky.
The trend is our friend until it ends but there is rarely any warning.
Enter passively and exit aggressively!
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