Major market indexes finished a wild week in all-time high price ground as the NASDAQ Composite, Dow, and S&P 500 Indexes recovered from Monday's sharp gap-down break in steep V-shaped moves. The S&P found support along its 50-day moving average on Monday as the NASDAQ was breaking below its 20-dema and the Dow slashing below its own 50-day line. The action is typical for this market which has been better suited for nimble swing-traders and day-traders than trend-following position trader and investors. The Market Direction Model (MDM) switched to a very timely CASH signal on Thursday, June 15th, well ahead of the sharp breakdowns we saw two Friday's ago and then early on Monday of this past week.
Even as the narrower major market indexes make all-time highs, the broader NYSE Composite and Russell 2000 Indexes remain within wide-ranging consolidations extending back two and five months, respectively.
We continue to find nothing suitable for inclusion on our Focus List as breadth remains an issue for this market. While big-stock NASDAQ techs lead the market higher, the broader market languishes, with barely 34.3% of all NASDAQ stocks trading above their 50-day moving averages, a number that has steadily declined over the past month even as the major market indexes have trended higher.
The market now moves into the heart of earnings season this week with the S&P Five, consisting of Apple (AAPL), Amazon.com (AMZN), Facebook (FB), Alphabet (GOOG), and Microsoft (MSFT) all reporting. Give that these names comprise over a fifth of the S&P 500's overall weighting, they have the potential to move the market, one way or the other. We will also see Tesla (TSLA) report earnings Monday after the close. While earnings season may offer some clarification and improvement with respect to intermediate- to longer-term trends in individual stocks, we find that the current environment has a stale feel to it. A lack of fresh, new merchandise and compelling new thematics in this market has resulted in a highly rotational environment where various groups lead for a period of time before rolling over as other, beaten-down groups emerge.More recently, we saw the inflation trade in stuff stocks, as we refer to them, which includes industrial metals, agriculturals, commodity-related, machinery, cyclicals, etc. roll over in May as techs and software names rallied off their beaten-down May lows and have assumed a leadership role since then. Some of these names have edged to higher highs while others have retraced back to the downside, but the action mostly reflects the rotational nature of this market. Meanwhile, we remain alert to any change in market conditions that results in the emergence of fresh ideas with better-trending, big-money profit potential.