The downtrend continued, and only three of the eleven S&P SPDR sectors were up for the week, notes Bonnie Gortler of bonniegortler.com.
Energy (XLE) and Health Care (XLV) was the strongest, while Consumer Discretionary (XLY) and Consumer Staples (XLP) were the weakest. The SPDR S&P 500 ETF Trust (SPY) was down -3.01%.
Figure 1: 5/13/22 – 5/20/22 S&P SPDR Sector ETFs Performance Summary
Source: Stockcharts.com
Figure 2: Bonnie's Mix of ETFs - Performance Summary 5/13/22 – 5/22/22
Source: Stockcharts.com
Technology and Transports were weak with high volatility. On the other hand, international markets outperformed the US market and are beginning to gain relative strength.
Market sentiment continued to show extreme fear, with the CNBC Fear and Greed Index (a contrary indicator) closing at 11. The AAII Sentiment Survey (a contrary indicator) shows abnormally low optimism, and pessimism remains high above its historical average, implying a potential market bottom could occur despite most people being pessimistic.
The Ten-Year US Treasury yields moved lower for the second week in a row, closing at 2.787 % after breaking its steep uptrend last week, closing near support at 2.77%. The following support is 2.15% (blue circle). The upside target of 3.42% remains. The Five-Year US Treasury yield dropped last week, closing at 2.80%, falling after reaching its highest reading since 2018 a few weeks ago.
For the week, The Dow (DOW) fell -2.90%. The S&P 500 was down -3.05%, and Nasdaq (NDX) fell -3.82%, again the weakest average. The Russell 2000 Index (RUT) declined by only -1.08%, while The Value Line Arithmetic Index (a mix of approximately 1700 stocks) was down by -1.72%.
The short and intermediate trend remains down. Weekly market breadth continued to be negative for New York Stock Exchange Index (NYSE) and Nasdaq. The NYSE had 1559 advances and 1987 declines, with 78 new highs and 800 new lows. There were 2393 advances and 2875 declines for the Nasdaq, with 69 new highs and 1116 new lows.
Market breadth showed some improvement. However, not enough to break any downtrends. Until there are more issues up than down with more highs than lows, it will remain challenging for consistent, sustainable gains from the long side.
Figure 3: CBOE Volatility Index VIX
Source: Stockcharts.com
The CBOE Volatility Index (VIX), a measure of fear, has been trading above 20.00 for most of 2022. In January, VIX made a high at 31.96 on 1/26 (brown circle), on 3/1 at 33.32 (red circle), and 36.95 on 3/7 (blue circle). VIX remains below March and April peaks.
Last week, VIX fell to 29.43 (green circle), never closing above the high of 34.75 on 5/9 (purple circle). It’s a promising sign in the near term that volatility didn’t rise to new highs, and the April uptrend could be broken if the market rises early in the week.
On the other hand, expect more day-to-day volatility until VIX closes at a minimum below 24.00 (brown dotted line and ultimately falls below the 4/01 April low (orange circle) at 19.63, which may not occur until summer, when investors decide to take time away from the market.
If you are day trading, adjust your size of trades to be smaller and keep tight stops if the decline continues to accelerate lower to manage your risk. If you need support and are unsure how to navigate during these volatile times and would like to talk about your portfolio, email me to schedule a free 30-minute strategy session with me. Even a small change in your portfolio can make a difference in your plan, helping you be more confident and comfortable on your journey to wealth.
Figure 4: Daily New York Stock Exchange (NYSE) New Lows
Source: Stockcharts.com
Watching new lows on the New York Stock Exchange is a simple technical tool that helps awareness of the immediate trend's direction. New lows warned of a potential sharp pullback, high volatility, and "panic selling" for most of 2022, closing above 150.
Here is an excerpt from my book on new lows, Journey to Wealth, "When new lows are above 150, the market is negative, higher risk, and selling is taking place. Sometimes it could be severe, and sometimes on a very nasty day, you can have 'panic selling,' and big wild swings (high volatility) to the downside may occur."
As the market started to move lower in January, new lows rose sharply, peaking at 792 on 1/24 (red circle), and then contracted but not enough to be in a low-risk zone before rising again on 2/24 at 792, matching the 1/24 peak. In March, things were looking better as new lows fell below 150, and a rally began, but it was short-lived.
Investors continue to unload stocks, and new lows made a new high for 2022 of 1063 on 5/9 (pink circle). New lows only increased slightly with the decline, closing at 364 on 5/20 (brown circle).
Until new lows drop below 150 and then fall between 25 and 50, the risk of a continued decline remains.
Figure 5:Daily iShares Russell 2000 (IWM) Price (Top) and 12-26-9 MACD (Middle) and Money Flow (Bottom)
Source: Stockcharts.com
The top portion of the chart is the daily iShares Russell 2000 Index ETF (IWM), the benchmark for small-cap stocks, with a 50-Day Moving Average (MA) (blue line) and 200-Day Moving Average (MA) that traders watch and use to define trends.
IWM failed to break out above resistance at 210.00 (orange circle) and turned sharply lower, forming a downtrend (green line). IWM closed at 176.08 down -1.12%, remaining in a downtrend, closing below the 50 and 200-Day Moving Averages.
IWM is one of the few averages that didn’t take out the May low and made a higher low, a short-term positive. Short-term resistance is 183.00, 195.00, 200.00, and 210.00. Support is at 173.00, followed by 170.00, and 160.00.
MACD (middle chart) generated a buy below zero, above the April downtrend (green line), and a short-term positive. Money Flow (lower chart) turned up and then declined after breaking the April downtrend (dotted blue line).
With the thrust of the downside, it’s safer to wait for the price downtrend to be broken and a close above 185.00 for confirmation a rally is sustainable. Relative strength improvement in the Russell 2000 compared to the S&P 500 is favorable.
Figure 6: Russell 2000 (IWM)/S&P 500 (SPY) Daily Ratio
Source: Stockcharts.com
A rising line means the Russell 200 (IWM )is stronger, and if falling, the S&P 500 (SPX) is stronger. Watch this week if IWM is stronger than the S&P 500. A break of the downtrend from March 2021 would be bullish for the short term. Nasdaq continued its short-term downtrend last week.
Figure 7: Daily Invesco QQQ Trust (QQQ) Price (Top) and 12-26-9 MACD (Bottom)
Source: Stockcharts.com
The chart shows the daily Invesco QQQ (QQQ), an exchange-traded fund based on the Nasdaq 100 Index with its 50 and 200-Day Moving Average. QQQ accelerated lower after breaking the January uptrend (pink rectangle), penetrating the January lows.
After breaking the March uptrend (brown line) at 355.00, QQQ has been under heavy selling pressure. The short-term trend remains down (red line). Last week QQQ fell -4.39%, closing at 288.68, staying below its 50-Day and 200-Day Moving Average.
Resistance is at 305.00, 315.00, 330.00, and 350.00. Support is at 285.00, followed by 280.00.
The middle chart is MACD (12, 26, 9), a measure of momentum that remains on a sell deeply oversold, below 0, with a potential positive Divergence. QQQ made a lower low, and MACD made a higher high.
Money Flow (lower chart) trended lower in April, closing at resistance (purple dotted line). It would be a short-term positive for QQQ if MACD generates a buy and penetrates the April downtrend.
Figure 8: Van Eck Semiconductors (SMH) Daily Price (Top), 12-26-9 MACD (Middle), and Money Flow (Bottom)
Stockcharts.com
In late January, Van Eck Semiconductors (SMH) support was broken (red circle) and then fell sharply but held the October 2021 lows. SMH then rallied but turned down again, closing below support at 240.00 on 3/14/22, a false breakdown. SMH broke the March uptrend (red line) after failing to get above the resistance at 290.00.
SMH fell -1.76% for the week, closing at 228.17, falling less than QQQ, which often leads to gains. However, SMH still has work to do closing below resistance, and it remains below its 50 and 200-Day Moving Averages.
Support is at 223.00 and 220.00. Resistance remains at 245.00, followed by 270.00, and 290.00.
MACD (middle chart) is on a buy (green circle) and generated a re-buy (purple circle). However, MACD is not yet accelerating higher or above zero, showing internal strength. It's positive the downtrend broke (green line), signifying downside momentum is slowing.
Money Flow (lower chart) has been trending sideways since April 11 but began to break out of its April consolidation, but then turned lower. Time will tell if Money Flow rises above the May highs resistance (purple dotted line) and if it also can break the downtrend (green line).
Figure 9: I Shares Hi-Yield Corporate Bond (HYG) (Top), and 12-26-9 MACD (Bottom)
Stockcharts.com
Hi-Yield Bonds (HYG) peaked on 12/27/21, but HYG failed to show much strength after breaking the downtrend in early April (green line), a false breakout.
HYG closed down only -0.46% for the week at 76.46, no longer accelerating to the downside; however, HYG remains below its 50-Day MA and a new low in May for 2022.
MACD (lower chart) did not get above zero in 2022, implying continued weak momentum. Watch for MACD to generate a buy and close above 77.50, followed by 79.50, meaning investors are beginning to be willing to take more risk.
Figure 10: The Bears Appear In Barrons (Contrary Indicator)
Source: Barrons Magazine 5/20/22
Summing Up
A volatile week where the major averages continued lower, with the S&P 500 down for the seventh. The short-term and intermediate trend remains down. Momentum patterns are oversold, ripe for a rally when the selling finally ends. Whoever you talk to is negative on the market. The Bears showed up in Barron's magazine. Be alert to a change in short-term direction. Watch for Semiconductors, Technology, and Small Cap stocks to show strength in leading the market higher with contracting new lows on the NYSE and Nasdaq for a potential trend change.
Improved market breadth is necessary for a major market bottom and the averages to get through resistance breaking the downtrends. Keep a close eye for several days in a row of more advances than declines, with new lows contracting below 150 for a sign of a potential sustainable intermediate rally.
Remember to manage your risk, and your wealth will grow.
I would love to hear from you. If you have any questions or comments or would like to talk about the market, Email me at Bonnie@Bonniegortler.com.
Disclaimer: Although the information is made with a sincere effort for accuracy, it is not guaranteed that the information provided is a statement of fact. Nor can we guarantee the results of following any of the recommendations made herein. Readers are encouraged to meet with their own advisors to consider the suitability of investments for their own particular situations and for determination of their own risk levels. Past performance does not guarantee any future results.
