Market Updates

My concern now is that the indicators that I rely on for market strength are indicating declining market strength. Nothing that is alarming, but it is noticeable. First to notice is the decline in trading volume, but reduced volume is normal during summer months. Also, there are less stocks trading above their 200-day moving average than last month. Last month’s reading was 83% this month is 73%. This indicator has been declining since April. The Advance/Decline line is weakening. And the VIX Index has been rising since June 29th. Markets don’t go up forever, they just seem to be slowing down, for now. The markets are still trading near the all-time highs!

As reported by Factset on Friday August 6th, “Overall, 89% of the companies in the S&P 500 have reported actual results for Q2 2021 to date. Of these companies, 87% have reported actual EPS above estimates, which is above the five-year average of 75%.

After 29 weeks of very contained trading action from 11/30/2020 through 6/14/2021 the Nasdaq 100 index finally broke higher on the week of 6/21/21. For 29 weeks the Nasdaq 100 market stayed within a 12% trading range. This week both the Nasdaq 100 and the S&P 500 made new all-time highs on below average volume. It is always more convincing when the market breaks higher on higher volume. As you can see on the chart below of the NASDAQ 100 Exchange Traded Fund, symbol “QQQ”.

The Nasdaq 100 is generally considered to be comprised of “Growth Stocks”. Growth stocks have been underperforming the S&P 500 most of this year. Now, notice on the right side of the chart, on 6/3/2021 the Nasdaq 100 has begun to accelerate, increasing in price, faster than the S&P 500. This could be a sign of growth stocks coming back into favor.

In last month’s newsletter I questioned if the Nasdaq 100 would make a new high. On the week of April 12th, the market did break out of its trading range and indeed made a new high. The very next day the market pulled back into its previous trading range and continued down for the next 3 weeks. This action is known as a failed breakout.

Decreasing volume is not necessarily a problem but it is something to be watching as the QQQ’s try to make new highs. Can it break out to new highs or will the old high become a level of resistance. We might find out this week.

The Nasdaq 100 Market ETF (Symbol “QQQ”) made an all-time high on 2/16 hitting 338.19. But quickly began a correction for 3-weeks to a low to 297.45 on 3/5. That was more than a 10% correction. Concerns over the government’s Corona relief package and the 10-yr Treasury Index yield rising put a bit of fear in the markets.

The Markets continue higher with three more weeks of quarterly earnings reports. Neither a virus, nor politics, can stop the markets from making from new highs. As reported by FactSet, overall, 59% of the companies in the S&P 500 have reported actual results for Q4 2020 to date. Of these companies, 81% have reported actual EPS above estimates, which is above the five-year average of 74%.

The chart time-period is from Election day, November 3, until this past Friday, January 8th. Between those dates the “SPY” increased in price from 336.03 to 381.26, approximately a 13% gain.

In the October Market Newsletter I mentioned the market looked like it was going to get back to the all-time highs that it made on September 2nd.  Looking at the charts below you can see this month the SP500, the NASDAQ, the Mid-Cap Index and the Small Cap Index attained new all-time highs. When all the style indexes are making new highs, it is very bullish.