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Bullish Sentiment Reaches Historic Low for Market Dashboard

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Weekly Market Summary

Political drama, corporate earnings and oil prices were the drivers of the U.S. stock market this week.

Most of the attention was on Washington, D.C. and the Trump administration. After revelations that the President shared sensitive intelligence information with Russian diplomats and rumors of an alleged memo written by former FBI director James Comey in which the President had asked him to end his investigation into former national security adviser Michael Flynn’s ties to Russia, U.S. stocks turned in their worst day of the year on Wednesday.

U.S. stocks started the week on a high note. The Dow Jones Industrial Average ended its losing streak on Monday and flirted with the 21,000 mark. A sharp rise in oil prices fueled the rise in stocks after Saudi Arabia and Russia announced support for extended oil supply cuts. The S&P 500 Index and Nasdaq Composite both closed at record highs.

The Dow Jones Industrial Average started Tuesday strongly following strong earnings from Home Depot (HD). However, uncertainty surrounding President Donald Trump’s release of allegedly classified information to Russia sapped the momentum from the market. Still, the S&P 500 Index and Nasdaq Composite hit record highs once again, and the Nasdaq ended the day in the black.

On Wednesday, the snowballing intrigue surrounding the Trump administration sent stocks tumbling. The S&P 500 fell 1.8% that day, its biggest one-day drop since September of last year. In addition, the Dow Jones industrial average shed 1.8% and the NASDAQ Composite fell 2.6% after posting a new all-time high close the day before. In addition, the VIX spiked 46% on Wednesday. In turn, investors flocked to safe-haven assets such as Treasuries and gold. Bank stocks were hit hardest, as financials in the S&P 500 were down 3% on Wednesday as hopes for bank deregulation and tax reform faded.

After suffering its worst session in months, the Dow Jones Industrial Average was able to bounce back Thursday, overcoming a sell-off in Cisco Systems (CSCO) following its earnings announcement and lingering concerns about the President’s ability to pass his legislative agenda. Wal-Mart (WMT) shares saw a strong post-earning bump which, along with a strong day for tech stocks pushed the Dow, S&P 500 Index and Nasdaq Composite higher.

On Friday, the Dow Jones Industrial Average enjoyed a triple-digit gain on the heels of strong quarterly results from Deere (DE), which in turn gave a boost to Dow component Caterpillar (CAT). Oil prices also rose ahead of next week’s Organization of the Petroleum Exporting Countries (OPEC) meeting. As such, energy stocks led the S&P 500 Index higher, and the tech-heavy Nasdaq Composite posted a gain for the day. However, the major U.S. indexes closed the week in the red, as Friday’s gains weren’t enough to wipe away Wednesday’s sell-off.

The Dow Jones Industrial Average (DJIA) closed the down 0.4% to 20,804.84. After hitting the 21,00 mark earlier in the week, the blue-chip index once again failed to hold onto it. This strengthens our opinion that it is becoming a psychological barrier. Wednesday’s sell-off sent the index below its 50-day moving average, but the index was able to rally back above it by week’s end. We view the 50-day moving average (20,775.71) as offering minimal support to the downside. Instead, we look to the 20,400 to 20,500 range for initial support, as this marks the intermediate lows of mid-April.

The S&P 500 Index (SPX) dropped 0.4% this week to close at 2,381.73. The large-cap index mimicked last week’s activity by hitting a new all-time close on Monday and then fading the rest of the week. The 2,400 level continues as a near-term resistance point. We question the strength of the 50-day moving average (2,369.53) after the index fell below it on Wednesday, even though the index rallied back above it by the end of the week. Instead, we are looking to support created by April’s intermediate lows around 2,330.

This week, only four of the 10 S&P Sector SPDRs posted gains. Real estate (XLRE) finally posted a strong week, adding 1.34% to lead all sectors. Consumer staples (XLP) also posted a weekly reversal by rising 0.71%. Energy (XLE) posted its second weekly win in a row by climbing 0.5%. Financials (XLF) were the weakest this week, losing 0.9% on fading hopes of tax reform and deregulation.

The broad market Wilshire 5000 (W5000) lost 0.38% this week to close at 24,762.35. The index hit a new all-time high close on Monday but still wasn’t able to crack the 25,000 mark. This may prove a difficult obstacle in the near-term. The index also fell through its 50-day moving average on Wednesday, lessening its reliability as support moving forward. We now look to the 24,250 level for initial support, which marks the April lows.

The tech-heavy Nasdaq Composite (COMP) wasn’t able to continue its weekly winning streak, falling 0.6% this week to 6,083.70. However, the index did notch a new all-time high close on Tuesday. The index found round-number support around 6,000 on Wednesday, so we see it as near-term support moving forward. Below that is the 50-day moving average at 5,954.49.

The Russell 2000 (RUT) index of smaller stocks fell 1.1% this week to 1,367.33. The index tested the 1,400 mark earlier in the week but this resistance level held. Wednesday’s sell-off sent the index below its 50-day moving average but, unlike other indexes, it was not able to reclaim it before week’s end. To the downside, we look for near-term support just above the 1,340 level.

The CBOE Volatility Index (VIX) added 15.8% this week following a wild ride. Wall Street’s “fear gauge” jumped 46% on Wednesday to its highest levels in over a month but eased off as the week progressed, moving back below its 50- and 200-day moving averages. Eventually, it closed at 12.04.

Computerized Investing Market Dashboard Indicators

This week, two of the CI Market Dashboard Indicators triggered new bearish signals, both switching from neutral. Another indicator saw its bullish signal go stale and revert to neutral. 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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