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Weekly Market Outlook

|Includes: SPDR Dow Jones Industrial Average ETF (DIA), IWM, QQQ, SPY

A week ago we wrote

The bullish Breadth momentum (increase in the number of the bullish stocks) suggests the possibility of having a positive week ahead of us.

This week the market suffered a strong decline. Over the past week the Breadth sentiment declined:

  • 34% of the S&P 500 (SPY) index listed stocks are bullish - down by 12% from a week ago - Bearish sentiment;
  • 60% of the DJI (DIA) index listed stocks are bullish - down by 7% from a week ago - Weak Bullish sentiment;
  • 35% of the NASDAQ 100 (QQQ) index listed stocks are bullish - down by 10% from a week ago - Bearish sentiment;
  • 29% of the Russell 2000 (IWM) index listed stocks are bullish - down by 5% from a week ago - Strong Bearish sentiment;
  • 23% of the NYSE index listed stocks are bullish - down by 8% from a week ago - Strong Bearish sentiment.
    source: Advance Decline Charts

The bearish stocks dominate the market. For as long as we see higher number of the bearish stocks on the NYSE we will be on the side of the long-term Bear market. From the chart below you may see that according to the NYSE, we are in the Bear market since the end of January of 2018.
NYSE Composite index Breadth chart

Short-term market Breadth dropped as well:

  • 31% of the S&P 500 stocks are above their 200-day MA - down by 11% from a week ago - Bearish sentiment,
  • 21% of the S&P 500 stocks are above their 120-day MA - down by 16% from a week ago - Strong Bearish sentiment,
  • 10% of the S&P 500 stocks are above their 50-day MA - down by 12% from a week ago - Extremely Bearish sentiment.
  • 27% of the Russell 2000 stocks are above their 200-day MA - down by 6% from a week ago - Strong Bearish sentiment,
  • 16% of the Russell 2000stocks are above their 120-day MA - down by 7% from a week ago - Strong Bearish sentiment,
  • 8% of the Russell 2000stocks are above their 50-day MA - up by 5% from a week ago - Extremely Bearish sentiment.
    source: Market Breadth Charts

We recorded a strong increase in the number of the bearish stocks in both Large Cap (S&P 500) and Small cap (Russell 2000) market sectors. On some short-term timeframes the sentiment could be called as extremely bearish. Such bearish levels are usually associated with oversold condition and could be seen before a reversal up. As of now, the Short-term Breadth favor the Bears for the coming week.
S&P 500 Percent above 50-day MA

Market breadth favors the Bears. However, this week's decline brought us a strong increase in volume. Volume surge witnessed during the current correction is already equal and even stronger than the volume surge recorded during flash-crash at the beginning of February of 2018 (see Volume chart below). This is a sign of a big wave of the Bulls coming and buying at low (by their opinion). These Bulls could reverse the market up. However, at this moment, we may expect only for a recovery within the general Bear market.
S&P 500 index volume

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