A Date With The December Lows?

Last Tuesday’s 1.5% drop in the S&P 500 raised the bar for a positive finish to last week. Even Friday’s slightly encouraging jobs report could not support the market as losses in SVB Financial Group (SVB) stock ended Friday’s close.

The weekend news is filled with speculation about what the coming week could have a global impact on financial markets. The challenge of making their payroll is already being addressed by some tech companies in the UK and Singapore. With the CPI report coming on Tuesday, the stock market will face more challenges.

Last week’s action in the bond market also surprised many as the yield on the 10-year T-note has fallen since March 2.^Ra Friday’s low of 3.674% to Friday’s high at 4.091%. the Daily stark band has been crossed hence the yield is pushed to the downside with resistance in the 3.90%-4.00% zone.

The MACD turned negative after forming a lower high, line C, and a negative divergence was also observed in the MACD-Hyz. Even if yields rebound in the next week it appears that yields have topped out with the next downside target in the 3.387-3.500% area. The US dollar also edged lower last week, which should put some pressure on the stock market.

It was a sharp two-day reversal in yields that spooked bond traders as the yield on the two-year Treasury yield fell 45 basis points in two days. research by Bespoke Investment Group In the last 50 years, 79 similar examples were found. They found that “with two exceptions, in 1987 and 1989, all of those episodes were either during or within six months of the US recession.”

Investors are unlikely to be encouraged by this historical analysis or the scorecard of last week’s trading. All of last week’s gains were reversed as the iShares Russell 2000 was down 8% and the Dow Jones Transportation Average declined 6%. In comparison, the SPDR S&P Regional Bank Index (KRE) was down 16%.

The S&P 500 lost 4.6% for the week, slightly worse than the 4.4% decline in the Dow Jones Industrial Average, which is now down 3.7% year-to-date (YTD). The S&P 500 is close to turning negative year-to-date.

Even though the Nasdaq 100 was down 3.8% last week, it is still the YTD leader as it is up 8.1%. SPDR Gold Trust was the only one among these monitored markets to close higher for the week. For the second time in the past three weeks, the NYSE’s advance/decline ratio was very negative, with only 389 issues advancing and 2871 falling.

On both Thursday and Friday, the ratios were negative by more than 5-1, which pushed most short term AD ratios into oversold territory. On Thursday, more than 90% of the S&P 500 and Nasdaq 100 stocks were lower on the day. The NYSE AD Osc closed the week at -1372 and it reached a low of -1800 in late June and September. The McClellan Oscillator closed the week at -297 which is its lowest reading since -403 on September 26, 2022.

While short-term A/D indicators favor a rally this week, perhaps as much as 1-2%, technical damage was significant for the weekly A/D lines. The next major support to watch for Spider Trust (SPY) is the December low at $374.77.

This week’s action reversed the positivity from last week on both the weekly and daily A/D lines. S&P 500 Advance/Decline Line It bounced off its EMA last week but declined and is now near December lows.

The change in the NYSE Stocks Only A/D line was even more severe as the uptrend, line c, and its EMA were both broken. This was after earlier breaking its downtrend, line B, which turned positive based on intermediate-term analysis. The NYSE All A/D line has also breached its EMA but is still above its support at line e. The daily A/D lines were all positive with the close on March 3rd^third But turned negative last Tuesday and broke further support with Thursday’s close.

Nasdaq Composite and NYSE Composite Stock Numbers making new 52 week lows Both expanded sharply on Friday. There were 547 new lows on the Nasdaq Composite, the highest reading since last October. It is still well below the May 2022 reading of 1650, but was above the October high, line B, and may signal a change in trend. There was no gap at the new highs that peaked with prices in early February. The Nasdaq Composite has the next good support in the 10,800 area, line A.

All eleven sectors were lower last week with Consumer Staples Select (XLP) only down 2%. In contrast, the Financials sector (XLF) was down 8.5%. There was no serious warning about XLF from last week as it was higher on 3rd March^third, The weekly RS was just above its WMA while the OBV was negative. XLF closed the week below a stark low with the next good support in the $30-$31 area.

It really wasn’t until Thursday trading that selling in bank and financial ETFs escalated to alarming levels. In the context of this week’s action, the potential ripple effect of SVB’s collapse is hard to quantify. Unfortunately, many may not believe the official assessment of the situation, which will not help.

One thing is clear and that is my bullish valuation for the stock market in March last week. looks wrong now, I expect the coming week to be bullish for those looking to adjust the weightings in their portfolios. Be sure to place your stops before the market opens.

The December low of $374.77 in SPY and $259.73 in Invesco QQQ Trust (QQQ) are key support levels to watch. I expect the overall stock market to be higher in 2023, but now it looks like it will be more difficult.