With the post-election rally continuing to march ahead, only a few sectors are lagging; the majority, however, are moving to Intermediate-Term Trend Model (ITTM) BUY Signals. BUY signals are triggered when the 20-EMA crosses above the 50-EMA. The Market/Sector Summary posture table is located in the DP Reports blog that is available to members. I also publish it daily in the DecisionPoint Alert blog to set the stage for the analysis to follow. This table is a great tool to see quickly what sectors are performing and underperforming.
An oversold rally began on Monday, when a Clinton win was assumed to be in the bag. Early Wednesday morning a Trump win was obvious, and the futures markets went crazy with panic -- at one point the Dow futures were down almost -800 points in pre-market trading -- but by Wednesday's market open, things had settled down. Before the close, price had broken out of the declining trend channel on a huge advance. On Thursday SPY approached but failed to exceed the previous all-time high, and on Friday it pulled back to support, presumably in preparation for another breakout attempt next week. Volume faded on Thursday (hinting at a pullback), then contracted even more on Friday when the pullback took place. All normal.
This week has been volatile for the market and the country. After Dow Futures were down well over 5% and even 8% at one point Tuesday night, the Dow surprised everyone with a solid rally on Wednesday. Today that rally was followed by a breakout to new all-time highs. The thrust of this rally pushed the Dow to a new Intermediate-Term Trend Model (ITTM) BUY signal. However, the NDX was down over 1.6% today, clearly not participating in the rally. It isn't just a matter of underperforming the Dow, the indicators are heading south and a new Intermediate-Term Trend Model Neutral signal materialized on the NDX DP Scoreboard shown below.
Technical analysis is a vast discipline that covers many different analysis processes. Through my continuing studies, I remembered reading about the "Presidential Election Cycle" and its effect on the markets. I thought this was a timely article given today is voting day. In this article I'll be referencing the figures from Perry Kaufman, Trading Systems and Methods.
From the August price top to the present, price has been deteriorating, and this week we finally got a bottom beneath the September bottom to officially set a declining trend. I think it is notable that the falling trend has persisted from the summer, when Clinton had a clear lead in the polls, to the present where Trump is reportedly closing the gap. One conclusion we could draw from that is that the market doesn't have a preference regarding the outcome of the election, that other issues are influencing market movement; however, we can't rule out some reaction once the election is decided. Let's look at the market condition so we can assess which reaction the technicals favor.
With major support being broken on the SPY (see today's DP Alert blog article for more on the SPY), I decided to run my "dogs" scan. It picks up S&P 500 stocks that have a negative Trend Model configuration (20-EMA < 50-EMA < 200-EMA) and have a Price Momentum Oscillator (PMO) that has topped and been falling three days. I'll include the text of the scan at the end of the article. There were only two stocks that fit these criterion in the S&P 500, Starbucks (SBUX) and Costco (COST).
Last week Erin's article on the Russell 2000 gave me reason to browse the Straight Shots collection of indicator charts for the S&P 600 Small-Cap Index. Straight Shots allow us to shoot straight through a collection of indicator charts that are derived from the component stocks in the selected index. My intent was to write an article highlighting that particular group of small-cap indicators; however, I got sidetracked when I saw the McClellan Summation Index chart.
In Perry Kaufman's book, Trading Systems and Methods, he discusses a relationship between small-caps and large-caps:
"Investors shift from small-cap stocks to the S&P 500 and then to the Dow when they are looking for safety."
Interestingly, Gold has put in a short-term bottom and has held onto it even through the Dollar's magnificent rally. This shows there is likely short-term internal strength and this current support could hold. There are still plenty of obstacles for Gold in the longer term as you'll see, but the new Price Momentum Oscillator (PMO) BUY signal is encouraging for the shorter term.