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Summer Is Over - Weekly Market Outlook

|Includes: DIA, IWM, Invesco QQQ ETF (QQQ), SPY

Summer-vacation season is over, yet, so far, there are not a lot of changes from the previous week. The market Breadth sentiment continue to favor the Bulls. By the end of the week we have following Breadth numbers:

76% of the S&P 500 stocks are bullish (no changes form a week ago),
93% of the DJI stocks are also bullish (just slightly higher than as a week ago),
69% of the Nasdaq 100 stocks are bullish (no changes from a week ago),
66% of the Russell 2000 stocks are bullish (just slightly higher than a week ago),
76% of the NYSE index stocks are also bullish (just slightly higher than a week ago).
Source: http://www.marketvolume.com/quotes/highlowrangechart.asp

385 of the S&P 500 stocks are moving above their 150-day moving average - this is the bullish number as well. However this number is smaller than the reported at the end of July:
source: https://seekingalpha.com/instablog/47498064-vicorka/4902297-market-breadth-sentiment-update

The S&P 500 was slightly lower at that time and we had bigger number of stocks moving above their major MAs:

- on July 23rd of 2016 we had 414 S&P 500 stocks moving above their 150-day ma and now we have only 385:
source: http://www.marketvolume.com/stocks/filter.asp?s=ma&t0=0&t1=10000&v=10&optCriteria=12&t=SPX&p1=150
- on July 23rd of 2016 we had 403 S&P 500 stocks moving above their 150-day ma and now we have only 343:
source: http://www.marketvolume.com/stocks/filter.asp?s=ma&t0=0&t1=10000&v=10&optCriteria=12&t=SPX&p1=100
- on July 23rd of 2016 we had 423 S&P 500 stocks moving above their 150-day ma and now we have only 297:
source: http://www.marketvolume.com/stocks/filter.asp?s=ma&t0=0&t1=10000&v=10&optCriteria=12&t=SPX&p1=50
- on July 23rd of 2016 we had 432 S&P 500 stocks moving above their 150-day ma and now we have only 274:
source: http://www.marketvolume.com/stocks/filter.asp?s=ma&t0=0&t1=10000&v=10&optCriteria=12&t=SPX&p1=20

As you may see Breadth numbers in the category of stocks moving above their major MAs became weaker, however, they are still bullish.

With respect to the volume data, we saw small increase in trading volume which suggests the investors are coming back from their vacations (see chart #2 below). However, the average daily volume is still down from the levels seen in July. Summer is officially over and we may see more volume in coming weeks. However, as of now, by looking at volume we may think that Summer is sill on.

When we look at volatility data (14-day ATR on the S&P 500), the past week brought us 30% increase in volatility (see chart #3 below). However, the volatility is still at very low levels. Increase in volatility is a bearish sign. At the same time, low volatility readings still favor the long-term Bulls.

Overall, long-term sentiment remains bullish. However it does not mean that we will see market advancing strongly up next week. When it comes to the number of stocks moving above their major MAs, we see weakening breadth data. We also have increase in volatility which is a bearish signal. This suggest we may see a reversal down. However, overall Breadth data favor the long-term Bulls and volatility still at low levels. Based on this, we may say that if we see a reversal down next week, it should not be a strong one. Most likely, long-term Bulls will use it as an opportunity to buy which will push the indexes back toward the recent high.

Chart #1: S&P 500 index High-low Breadth chart - green line represents bullish stocks and red line represents bearish stocks

Chart #2: S&P 500 index volume chart - 1 bar = 1 day

Chart #3: S&P 500 index volatility chart - 1 bar = 1 day, 14-day Average rue Range

Charts source: http://www.marketvolume.com/charts/

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.