The stock market held some trading earlier this week as Monday’s mixed close led to Tuesday afternoon’s decline. The Nasdaq Composite fell 2.8% on Tuesday. There are clear technical signs ahead of a higher open on Tuesday, adjustments still underway. The sharp increase in yield is another catalyst. Tuesday’s average market decline was the worst since March and May.
The stock market tried to stabilize again on Wednesday, but the S&P 500 fell another 1.2% on Thursday, easing its first close since January. Even Friday’s 1.1% recovery couldn’t compensate for the losses earlier in the week.
The Nasdaq-100 was the biggest loser this week, down 3.5%, but could be worse off. The Nasdaq advanced after hitting a low of 14555 (down 5.5%) on Friday. Both the S&P 500 and Dow Jones Industrial Average fell 2.2% for the week. The Dow Jones industrial average lost 1.4 percent, while the iShares Russell 2000 (IWM) lost 0.4 percent.
The damage for the month fell an average of 6.5% for the Dow Jones Industrial Average, but it wasn’t too late for the Nasdaq 100 and the Dow Jones Industrial Average to 5.9% and 5.6%, respectively.
All markets are low for the month with IWM down 2.7% to stay high. News from Merck about a new pill to treat COVID-19, suspension legislation the government will hold until Dec. 3, and positive economic data added up to 1.07% of Friday’s S&P 500. This encourages improvement.
Friday’s rally raised its near-term outlook with another revision to $427.23 before Spider Trust (SPY) ended at $434.25. The 20-day moving average (EMA), which broke through the 100-day moving average of $432.09 during the week but is currently falling to $439.62, is the first resistance. There is more significant resistance at $444.89 which has been high since September 23.
The S&P 500 Advance/Decline broke the uptrend (line b) on September 17 and confirmed the downtrend. The A/D line is still below the EMA but has not fallen below the September 21 low during last week’s trading, creating a potential positive divergence (line c). The daily A/D line for NYSE stocks alone shows a more marked divergence (line e). You need to move above the downtrend (line d) to signal that the correction is complete.
What about the average trend? After last week’s action, most of the weekly advance/fall lines are negative. Invesco QQQ Trust (QQQ) hit a low of $354.38 last week after hitting support (line a) from its highs in February and April. There is additional support of $349.36 (line b). The closing price in October is below the monthly pivot of $365.90 and S1 is at $349.22.
The Nasdaq 100A/D closed below its weighted moving average (WMA) for the first time since the start of the year. The A/D line fell below the WMA on February 26, 2021. Two weeks later, the A/D line crossed the WMA. The A/D line is also maintained at its lowest value in July (line c). During the QQQ revision in fall 2020, the A/D line was maintained above the WMA (see arrow).
In September, the Energy Select sector closed at the highest single price among the 11 S&P sectors. The next best performer was Financial Sector Select (XLF), down 1.8%. In my regular monthly stock checks, I haven’t seen many stocks with positive monthly momentum. I only chose one stock from the energy sector.
Baker Hughes Co (BKR) is a Houston-based oil and gas equipment and services company with a market capitalization of $20.86 billion. We will report selling on October 20, 2021. The monthly chart shows that the 20-month EMA, currently at $20.82, was tested at a low of $19.07 in July and August. There is a lot of resistance at $26.21 (line a) and a move above this level has an initial target in the $34 to $36 area.
Monthly Relative Yield (RS) ended in September, outperforming the slightly rising WMA. That’s up 8.5% that month, compared to a 4.9% drop in the S&P 500. The weekly RS (not shown) is stronger and supportive if BKR is currently the market leader.
Volume rose in September and Balance Sheet Volume (OBV) closed above the WMA. OBV needs to break the downtrend (line b) to indicate stronger buying.
The S&P 500’s seasonal trend suggests that it could stabilize for a week after the first low in early October and before the late low at the end of the month. A/D and volume indicators are needed to identify seasonal trends based on data from 1928.
Friday’s economic data showed that consumer sentiment is trying to stabilize after the recent sharp decline. The ISM manufacturing index also beat expectations and the Chicago PMI remained strong on Thursday. We have factory orders this week and end with a monthly report on Friday.
Friday’s rebound improves the near-term outlook, suggesting stocks could rise this week as long as overseas markets are strong on Monday. Equity market risk continues to decline due to last week’s decline but remains a mixed market. Most still prefer to proceed with caution until there is clear evidence that the correction is complete.