And That's A Wrap For Now (Technically Speaking For The Week Of 5/2-5/6)

May 08, 2022 1:10 AM ETDIA, IWM, QQQ, SPY47 Comments
Hale Stewart profile picture
Hale Stewart


  • This week's economic news was positive.
  • The EMA and market breadth data are bearish.
  • The charts are right at support.
Bull and Bear Symbol with Stock Market Concept.

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I've been writing about economics on the web for nearly 20 years. Unfortunately, that streak has to come to an end, at least for now. I've been hired by a large tax consulting company and won't have the time during the day to write about economics or the markets (plus, my employment contract has a little something to say about, "outside employment").

Of all the changes that are occurring, this is the one that I will miss the most. The market has provided a wonderful rhythm to my professional life for nearly three decades which I will dearly miss.

To all the people who have regularly read my articles, thanks. And -- to all the great back-office Seeking Alpha staff (which is probably spread all over the globe) thanks as well. Your editing has been great throughout these years.

For now, I wish you the best of luck in all your endeavors.

Now, for the last weekly wrap.

There were three key economic releases this week, starting with Friday's employment report:

Total nonfarm payroll employment increased by 428,000 in April, and the unemployment rate was unchanged at 3.6 percent, the U.S. Bureau of Labor Statistics reported today. Job growth was widespread, led by gains in leisure and hospitality, in manufacturing, and in transportation and warehousing.

Regardless of the measure, the current jobs market is very hot.

Total payroll employment and monthly gain in establishment jobs

Total payroll employment and monthly gain in establishment jobs ((FRED))

Total payroll employment (left) continues to grow briskly. The monthly gain in establishment jobs (right) is printing at solid levels.

U6 and U3 unemployment levels

U6 and U3 unemployment levels ((FRED))

Both the U3 and U6 unemployment rates have returned to pre-pandemic levels.

The Institute for Supply Management released both the manufacturing and service reports this week (the author has permission to use the latest month's reports).

The manufacturing report is positive:

Fiore continues, “The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment. In April, progress slowed in solving labor shortage problems at all tiers of the supply chain. Panelists reported higher rates of quits compared to previous months, with fewer panelists reporting improvement in meeting head-count targets. April saw a slight easing of prices expansion, but instability in global energy markets continues. Surcharge increase activity across all industry sectors continues. Panel sentiment remained strongly optimistic regarding demand, though the three positive growth comments for every cautious comment was down from March’s ratio of 6-to-1, Panelists continue to note supply chain and pricing issues as their biggest concerns.

Services are also growing at strong rates:

Nieves continues, “According to the Services PMI®, 17 industries reported growth. The composite index indicated growth for the 23rd consecutive month after a two-month contraction in April and May 2020. Growth continues for the services sector, which has expanded for all but two of the last 147 months. There was a pullback in the composite index, mostly due to the restricted labor pool (impacting the Employment Index) and the slowing of new orders growth. Business activity remains strong; however, high inflation, capacity constraints and logistical challenges are impediments, and the Russia-Ukraine war continues to affect material costs, most notably of fuel and chemicals.”

All three data points are coincidental data. Combined, they mean there are no signs of a slowdown in the concurrent data.

There are, however, some concerning developments:

Long-leading, leading, and coincidental indicators

Long-leading, leading, and coincidental indicators (FRED; author's tabulations)

The above table notes that financial market indicators, especially debt market data, are showing pre-recession patterns.

Now, let's turn to the charts, starting with the EMA environment:

EMA picture of major market sectors' ETFs

EMA picture of major market sectors' ETFs (StockCharts; author's tabulations)

EMAs strip out daily volatility, allowing us to look at the short, intermediate, and long-term trends. The EMA picture for the stock and bond markets is very bearish.

Market breadth

Market breadth (StockCharts; author's tabulations)

Market breadth is very negative.

The five largest sectors of each broad-index ETF

The five largest sectors of each broad-index ETF (StockCharts)

The above table shows the EMA picture for the five largest sectors of each index-tracking ETF (the largest is on the left). The overall picture is very negative.

Finally, let's look at the year-to-date charts:

The five largest sectors of each broad-index ETF

YTD SPY, QQQ, DIA, and IWM (StockCharts)

For the last year, the IWM has led the markets lower, followed by the QQQ and SPY. Assuming that trend continues, we can expect further downside activity -- a statement which is strengthened by the EMA environment and hawkish Fed.

And that, ladies and gentlemen, is a wrap.

I wish you all the best.

This article was written by

Hale Stewart profile picture
Hale Stewart spent 5 years as a bond broker in the late 1990s before returning to law school in the early 2000s. He is currently a tax lawyer in Houston, Texas. He has an LLM in domestic and international taxation (MagnaCumLaude). He is the author of the book The Lifetime Income Security Solution. Follow me on Twitter at @originalbonddadYou can read his legal analysis on his law office's blog.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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