Down Debt

Weak jobs, higher inventories with debt crisis averted


It has been a crazy week in the stock market last week as the daily fluctuations in the stock market have kept investors confused and on their toes. The moderate reaction to Friday’s weak jobs report helped maintain the weekly gains. It was probably the vote to extend the debt ceiling deadline that helped curtail sales, as the S&P 500’s 1.3% drop on Monday caught the attention of markets as well as some politicians.

Considering the S&P 500 was down nearly 100 points before lunch on Monday, the weekly gain of 0.8% was better than most had hoped earlier in the week. The Dow Jones Transportation Average led the way, gaining 2.7%, followed by a 1.2% gain in the Dow Jones Industrial Average.

It is still a divided market, as the Nasdaq 100

NDAQ
only rose 0.2%, while the iShares Russell 2000 was down 0.3% for the week. Those in energy stocks or ETFs were the biggest winners, such as Energy Sector Select (XLE)

XLE
is up by more than 5%, while the Real Estate Sector (XLRE)

XLRE
was down 0.70% for the week.

Since August, nervousness from global fund managers has supported my expectations of a market correction. There had been signs since July that most stocks were moving lower, not higher.

The NYSE Composite hit higher highs in early September, but the NYSE All Advance / Decline Line did not hit a new high, diverging in price (c line). This A / D line includes not only equities but also bond funds, ADRs, etc. It is more telling that the NYSE Stocks Only A / D line deviates more sharply from price (line d). It was an even stronger indication that most stocks were down, not up.

Both A / D lines closed slightly above their Exponential Moving Averages (EMA) and are trading well above the September 20 lows. These slight positive divergences could be a sign that the market is now closer to the bottom. In order to confirm that a bottom is in place, the A / D lines must move above their recent highs and key resistance levels. Last week there were 1,735 issues on the rising NYSE and 1,754 falling.

The Invesco QQQ (QQQ) trust

QQQ
had led the overall market higher all summer until it peaked on September 7 at $ 382.78. At Monday’s low of $ 350.32, which tested the uptrend (line a), it had fallen 8.5% from the high. Last week’s rebound took the QQQ down to its EMA decline and monthly pivot at $ 365.95. This is typical of a rebound in a downtrend and suggests that the correction is not yet complete.

The Nasdaq 100 Advance / Decline line had violated support (line c) in September, a sign that a correction was underway. The A / D line moved up last week towards key resistance (line b). A strong move above this downtrend will be a strong sign that the worst of the sale is over. On Balance Volume (OBV) is also always negative, as it shows a tendency towards lower highs (line d). It closed below its weighted moving average (WMA) on Friday, so volume should be watched closely for any further decline.

The stock market was supported last week by energy stocks. The one that appeared on my weekend scan was Phillips 66

PSX
(PSW), which is up more than 13% for the week. It closed at $ 82.13 which was above the 61.8% Fibonacci resistance level from the June high. This chart from Friday October 1st shows that Daily Relative Performance (RS) ended its bottom formation on September 27th as resistance (line a) was overcome. The OBV shows a similar positive formation as it had overcome its downtrend (line b) a few days earlier. PSX closed the week on top of its starc + strip.

The uptrend for crude oil and energy stocks is starting to get too high, increasing the chances of a sharp correction in the weeks to come. From the low of $ 61.50 on August 20, crude has rebounded. The October R1 pivot resistance at $ 78.83 was reached last week with the daily starc + band at $ 82.47. Friday’s close was 4.3% above the 20-day EMA at $ 75.05, with additional support at $ 73.73 (line a). The monthly pivot is $ 72.87.

Open interest peaked eight days ago (point b) and has declined by 100,000 contracts, suggesting some of the recent strength is likely due to short hedging. There has not yet been a dramatic increase in open interest for the December contract.

The Herrick Payoff Index uses volume, open interest, and price to determine positive cash flows and has been above the zero line since September 2 (point c). It still shows a positive trend, just like the OBV (line d).

At the end of August, I encouraged investors and traders to learn more about the market corrections and commented that “professional managers and individual investors are likely to turn more negative before the correction is over.” This process is ongoing. From the American Association of Individual Investors, the% bullish fell from 43.4% on 9/1 to 25.5% last week.

Expectations of strong corporate earnings have encouraged investors throughout the year, but the start of the earnings season this week could further dampen bullish investor sentiment. In a report released Friday, Factset warned that a high percentage of companies in the S&P 500 commented on the negative impact of supply chain factors on their profits.

In my opinion, we are getting closer to the right buying opportunity that I have been waiting for. Once the correction is complete, I would expect only certain stocks and ETFs to lead the market higher, so be sure to check out the technical studies to determine which stocks and ETFs are leading before establishing new positions. long.


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