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Bears Retreat as U.S. Stocks Heat Up

Weekly Market Summary

U.S. stocks awoke from their mid-Summer slumber this week. The Dow Jones industrial average hit multiple record highs this week and the S&P 500 hit another new all-time close, too. Meanwhile, tech stocks posted a strong week, too, as the Nasdaq Composite enjoyed its best week since December. Stocks received a boost from weak inflation and retail sales data, which coupled with Fed Chair Janet Yellen’s recently dovish congressional testimony, lowered expectations for additional interest rate increases this year. Early Friday, the latest reading of the U.S. consumer-price index, showed inflation was flat in June, according to the Labor Department. In addition, retail sales decreased in June from the prior month, the Commerce Department said Friday. All was not rosy with stocks, however, as the market also had to digest disappointing earnings from some of the nation’s biggest banks as earnings season started warming up.

Major Indexes

The Dow Jones Industrial Average (DJIA) ended the week with back-to-back record closings. For the week, the blue-chip index climbed 1.03% to 21,637.74. The index broke through the 21,550 level, which had been offering resistance for the last couple of weeks. It is too early to tell if that resistance turns into support, however. To the downside, there may be initial support around 21,300, followed by the 50-day moving average at 21,200.25 and round-number support at 21,000.

The S&P 500 Index (SPX) also closed the week at a new all-time high close. This was after the index traded below its 50-day moving average on Tuesday. For the week, the large-cap index added 1.4% and closed at 2,459.27. The index also broke through short-term resistance around 2,445. We look to the moving average, currently at 2,419.55, for initial support, followed by the 2,410 level, which marks the lows of two weeks ago.

Breadth turned sharply positive this week, as 10 of the 11 S&P sectors posted gains. After last week’s strong gains, financials suffered through some disappointing earnings results from banks. For the week, Financials (XLF) slid 0.5%. Technology (XLT) roared back this week, adding 3.4%. Materials (XLB: +2.1%) and Energy (XLE: +2.2%) also registered strong weekly gains.

The broad market Wilshire 5000 (W5000) gained 1.4% this week to close at 25,569.93. Friday, it too posted a new all-time high close while breaking above near-term resistance around 25,450. We will wait to see if that turns into support moving forward. To the downside, there is also the 50-day moving average at 25,156.80 followed by round-number support at 25,000.

The tech-heavy Nasdaq Composite (COMP) ended its best week of the year up 2.6% at 6,312.47. The index has now also posted six straight winning sessions. For all the talk recently about the “slump” in technology, however, the Nasdaq is now only 0.15% below its record high close set on June 8. The index moved above its 50-day moving average this week as well. To the downside, we look for initial support around 6,200, which would also fill in Wednesday’s price gap. Below that is the 50-day moving average at 6,182.87, although we question its viability.

The Russell 2000 (RUT) index of smaller stocks added 0.9% this week to close at 1,428.82. This, too, was a new record close. It is too early to tell if the index has moved out of its trading channel of the last few weeks, but if so we look for initial support around 1,425. Below that it round-number support at 1,400 along with the 50-day moving average at 1,400.99.

The CBOE Volatility Index (VIX) dropped to its lowest level since 1993, offsetting the widening discussion about rising volatility. For the week, Wall Street’s “fear gauge” fell 15.0% to 9.51.

Computerized Investing Market Dashboard Indicators

This week, one of the CI Market Dashboard Indicators triggered a new bullish signal, switching from bearish, while another triggered a new neutral signal, switching from bearish. However, none of the Dashboard indicators triggered confirming bearish or bullish 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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