It was another rough week for the stock market as the higher-than-expected PCE and the sharp decline in Consumer Sentiment helped increase the already high bearish sentiment. The heavy selling at the March 13th lows and the multiple declines below the weekly starc- bands favored an oversold rally to reduce very high bearish sentiment.
Looking at past market trading I was looking for either a strong two-week rally that might set the stage for a retest of the lows like in February 2016. The other scenario I discussed just after the lows was for a V-shaped rally, like early 2019, driven by short covering. In either case, I was looking for a strong weekly close soon after the lows to support either potential path for the stock market.
The Spyder Trust (SPY) was up only 0.5% for the week ending March 21st as it closed at $563.96 well below the week’s high at $570.95. The weekly close in the Invesco QQQ Trust (QQQ) below its yearly pivot at $481.91 was also a sign of weakness and put additional focus on last week’s close.
Stocks gapped higher on Monday and while the averages held their gains into the close on Monday there was not much buying on Tuesday as the S&P 500 and SPY formed dojis. The sharply lower closes on Wednesday triggered a doji sell signal in the S&P 500 and the A/D numbers were negative.
The release of the PCE report on Friday dropped the S&P futures another 50 points as they ended up losing 136 points for the day. The completion of the daily flag formation (lines a and b) was confirmed by a negative daily signal (see arrow). The formation projects a decline to the 5500 area. The decline below the starc- bands on March 10 and 11th as well as trading below the weekly starc- bands did indicate a high risk on the short side. This week’s action was a clear indication that my mid-March stock market scenarios were wrong.
Last week’s selling did cause further technical damages as the NDX 100 dropped 2.4% for the week followed by a decline of 1.6% in the iShares Russell 2000 (IWM) which is now down 9.1% year-to-date. NDX is not far behind as it is down 8.2% YTD.
For the week the S&P 500 was down 1.5% as it was weaker than the NYSE Composite and the Dow Jones Industrial Average which were down 1%. On a YTD basis, the Dow is holding up quite a bit better down 2.3% versus the 5.1% decline in the S&P 500.
The more defensive Dow Jones Utility Average was up 0.2% last week and is still higher YTD up 2.9% which is well behind the YTD gain of 17.3% for the SPDR Gold Shares (GLD).
So what about the current technical outlook and where are stocks likely headed in the 2nd quarter?
The completion of the flag formation typically signals another few weeks on the downside but a look at the weekly and monthly charts does not indicate the start of a new bear market. I would expect the S&P 500 to close higher in the 2nd quarter.
Last week’s reversal for the Spyder Trust (SPY) reveals that last week’s high at $576.41 fell short of the 20-week EMA at $580.23. The uptrend from the 2024 lows, line b, is just below $550.00 with the weekly starc- band at $537.15.
The weekly S&P 500 A/D line is barely above its flat EMA after forming a negative divergence, line c, at the early 2025 highs (line a). A drop in the A/D line below this year’s low and the support at line d, would warn of a deeper decline.
The weekly NYSE All A/D line is below its EMA and has key support to watch at point e. The NYSE Stocks Only A/D line (not shown) is also slightly below its EMA but is also above the recent lows.
The Invesco QQQ Trust (QQQ) was down 2.3% last week and with one day left in the month is down 7.6%. That may be a shock to some but the worst year since 2000 was February 2001 when it was down 26.5%. The QQQ close at $468.94 was below the yearly pivot at $481.91 for the second week in a row.
The March 14 low was $466.43. The weekly starc- band is at $449.01. There is strong chart support at $448.20 which corresponds to the September 2024 low and the March 2024 high, line. This is 4.3% below Friday’s close.
The Nasdaq 100 A/D line closed below its WMA for the third week in a row. The A/D line did confirm the early 2025 highs before it started to decline. The trend in the weekly A/D is still positive and it would take a decline below the support at line b for it to start a new negative downtrend.
Last week’s negative turn in the weekly and daily momentum puts the focus on the March lows for the major averages and market-tracking ETFS. Any V-shaped rally will now need to come from lower levels. There is the possibility for a bottom to be formed on a retest of the lows or even on new lows. The market is focused on the current April 2nd deadline for new tariffs though the date as well as the tariffs could always be changed again.
A major upside market reversal would likely require a major policy shift that does not look likely right now. To signal a resumption of the positive intermediate market trend I would need to see the weekly A/D lines breakout to new all-time highs. If instead, the A/D lines break their more important support levels then further downside targets will need to be considered.
The current outlook does not warrant any changes right now to my long-term portfolio as the monthly advance/decline lines are still positive
For new opportunities, I will be watching those ETFs and stocks that are trading above their yearly pivots. As previously discussed these pivots are based on the price range for 2024 and are valid for the entire year. Those stocks or ETFs that are trading above these pivots would have the first targets at the yearly R1 levels.
(Editors Note: If you use Stockcharts.com selecting pivots with a weekly chart will give you all of the yearly pivot levels)
As of the close on March 28th, those ETFs that closed above the yearly pivots are highlighted in green. Several former market-leading ETFs like QQQ, XLK, SMH, and XLY have closed below the yearly pivots for two or more weeks in a row which is consistent with new negative trends. These pivots will now act as resistance.
The positive ETFs will be favored for new long positions once the daily technical indicators are positive. In addition to the precious metal ETFs like GLD and SLV, XLE, XLP, XLI, and XCI are acting the most interesting as long as they do not have a weekly close below their yearly pivots.
The monthly chart of the SPDR Gold Trust (GLD) shows that it traded above its monthly starc+ band in March. After already exceeding the yearly R1 it is clearly in a high-risk buy area and a low-risk sell zone. Partial profits in GLD were therefore taken on Friday’s strong open. That does not mean that it can’t go even higher. Similar screening will be used to select the most promising stocks within these positive sectors.
The 1st lower quarter lower closes for SPY and QQQ are the first since the fall of 2022 but the evidence suggests most of the weak long positions have already been sold. That could mean it will be one of those buy before May years.
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