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As Dow Hits 30-Year Bullish Streak, Cracks May Be Forming in Market Rally

Weekly Market Summary

U.S. indexes continued their upward march this week, although there may be some indications that the momentum generated by rhetoric from President Trump may need actual policy statements for it to continue. Traders will be watching the President’s address to Congress on Tuesday for more details about his agenda. The Dow Jones Industrial Average ended the week on an 11-day winning streak, the first time this has happened since 1987, according to Schaeffer’s Investment Research. However, the Nasdaq Composite notched its first back-to-back losses of 2017. It also is becoming more likely that the Fed will hike interest rates in March after the Federal Open Market Committee (FOMC) minutes from its latest meeting indicated that “many” members support a rate increase “fairly soon.” However, as of Friday’s close, the CME Group’s FedWatch Tool placed at the probability of a March rate increase at only 26.6%, up from 22.1% the previous day.

The Dow Jones Industrial Average (DJIA) ended the week on an 11-day winning streak, thanks to a late-session rally on Friday after spending most of the day in negative territory. The blue-chip index ended the week at 20,821.76, yet another record close, after adding 1%. Initial support may develop around 20,500, followed by the possibility of round-number support at 20,000. The 50-day moving average is also around that area, currently at 20,059.70.

The S&P 500 Index (SPX) also registered a new all-time high close on Friday after adding 0.7% for the week to 2,367.34. This was also the fifth consecutive weekly win for the large-cap index. We wonder is the 2,370 level may offer some near-term resistance for the index. To the downside, we are waiting to see if support develops around 2,300 – 2,325, which served as the upper bounds of the former trading range for the index. There is also the 50-day moving average, which now stands at 2,288.25.

This week, two of the 10 S&P Sector SPDRs posted losses, as Financials (XLF) and Energy (XLE) fell 0.2% and 1.4%, respectively. Utilities (XLU) were the big winners, jumping 4.1%. Real estate (XLRE) also gained 2.2%. The Technology (XLK) sector added 0.8% for the week.

The broad market Wilshire 5000 (W5000) index climbed 0.5% this week to close at 24,689.93, 0.24% off the record close it set on Tuesday. The performance of the index indicates that the rally in U.S. stocks this week was mainly confined to larger stocks. We are also wondering if the 24,750 level may offer near-term resistance. Initial downside support may come around 24,500, followed by round-number support at 24,000 and the 50-day moving average at 23,930.73.

The tech-heavy Nasdaq Composite (COMP) finished the week at 5,845.31 for its fifth straight weekly advance after ticking upward 0.2%. As we mentioned earlier, the index recorded its first consecutive losing days of the year this week and is 0.52% below the record close it set on Tuesday. We look for round-number support at 5,800, although the 5,600 level is more compelling as it is also near the 50-day moving average at 5,598.58.

The Russell 2000 (RUT) index of smaller stocks fell 0.4% this week, again indicating that the rally may be starting to lose steam among rank-and-file stocks. The index now stands at 1,394.52. We continue to wonder if the 1,400 mark is becoming a resistance point. To the downside, the 50-day moving average (1,372.52) has been a reliable floor over the last several weeks.

The CBOE Volatility Index (VIX) ticked downward 0.2% this week to 11.47.

Computerized Investing Market Dashboard Indicators

This week, none of the Market Dashboard indicators triggered a change in signal. However, two of the Dashboard indicators triggered confirming bearish signals this week.

To see the current signals of all the dashboard indicators, visit the CI Market Dashboard.

The Market Dashboard is one of the many benefits of Computerized Investing, a service from AAII that harnesses the power of technology to help individual investors become more effective managers of their own portfolios. To learn more about Computerized Investing, visit http://www.aaii.com/computerized-investing/about

 

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