Tech Talk

Stock Market Technicals Turn Short-Term Positive

Asset Solutions
Written by Asset Solutions

In my ongoing effort to make my content more beneficial for clients and prospects, I have been using fewer charts and technical jargon in my monthly newsletters and updates. Instead, I am relying on more concise commentary to explain what is going on in the market technically. From the feedback that I have received, it seems like that format is preferable. If you disagree or have other suggestions, please shoot me an email. I would love to hear from you.

That being said, I believe that it is sometimes important to present the charts that are being used to determine my market thesis. So today I am going to show you some of the charts that I referred to in my market update: Market Ripe For A Short-Term Pullback.

In this update, I mentioned that certain short-term technicals were suggesting the market was at an elevated risk of pulling back to some degree. The market did pullback, but that pullback was minor and now most of those negative technical factors have now turned positive. This suggests the pullback is complete and that odds favor higher stock prices over the near-term. So let’s look at those charts.

Below is a chart of the Summation Index which is a breadth chart. As you can see it had rolled over and turned down but has recently moved back up above it’s 10-day moving average.

Now let’s look at a chart of the percent of stocks within the S&P 500 index that are above their 200-day moving average. As you can see from the chart below, that percent was falling as the S&P 500 moved sideways over that period of weakness. Then that line moved strongly higher above its red downtrend line and hit a new short-term high.

Another thing that I mentioned was how small-cap stocks and certain economically sensitive industry groups (Transportation and Homebuilder stocks) were starting to underperform that broader market. This can be a concern because they can have a tendency to lead the market lower because of their sensitivity to economic factors.

Below is a chart of the S&P 500 in the panel above and IYT (a Transportation ETF) in the panel below. Notice how the transports were falling below the red downtrend line as the S&P 500 moved sideways. This week Transport moved up strongly above that downtrend line and hit a short-term new high.

Below is the same chart as above, but looking at XHB (a Homebuilder ETF). You will notice similarities in how XHB recently advanced strongly out of a short-term downtrend.

The same thing happening with IWM (a Small-Cap ETF).

In conclusion, the period of short-term weakness has transitioned to short-term strength. The majority of the technical evidence continues to suggest that we are in a bullish environment for stocks. Longer-term I am more concerned because I believe we are near the end of the business cycle, but I will speak to this in a future update.

Feel free to reach out to me if you have any questions or would like some personal investing advice.

I hope everyone has a wonderful weekend!!

I have some time open in my schedule over the next few weeks. If you want me to review your retirement account allocations, please feel free to contact me to schedule a remote appointment. 

Craig Thompson, ChFC


Phone: 619-709-0066

Asset Solutions Advisory Services, Inc. is a Fee-Only Registered Investment Advisor specializing in helping the needs of retirees, those nearing retirement, and other investors with similar investment goals.

We are an “active” money manager that looks to generate steady long-term returns, while protecting clients from large losses during major market corrections.

Asset Solutions is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

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Asset Solutions

Asset Solutions

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