Can Bullish GDP Data Keep The Market Moving Higher?

The stock market moved higher early in the week, as the better-than-expected earnings from Alphabet (GOOGL) helped fuel a 0.48% gain in the S&P 500 on Tuesday. The market was hit by selling pressure late in the week, however, as the plunge in Facebook (FB) added to the investor nervousness ahead of Friday’s GDP report.

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For the week, the Dow Industrials were up 1.6%, as it lead the S&P 500, which was only up 0.60%. Both lagged behind the 2% gain in the Dow Jones Transportation Average. Two of the recent hot market averages, the Russell 2000 and Nasdaq 100, did not fare as well; they were down 1.9% and 0.7% respectively.

In last week’s article, “Will The Other FANG Stocks Drag The Market Lower This Week?”, I expressed some concerns about how the big tech names would fare in the coming week. The very high option premiums and other technical warnings warranted caution. For example, I noted that Facebook (FB) had “reached trend line resistance with the upper weekly starc+ band at $220.71”.

On Wednesday, FB had a high of $218.62 and closed at $217.50 before releasing earnings. The high was within 1% of the weekly starc+ band. The stock then dropped near to $150 in after-hours trading after its earnings were released. It closed the week at $174.89. The August 3rd $210 FB call closed at 11.75 before earnings and opened the next day at 0.79. According to Yahoo, Facebook was the “most popular stock held by U.S. equity hedge funds.” This may be another example of hedge funds being caught on the wrong side of the market this year.

Of course, Facebook was not the only casualty, as Twitter (TWTR) was down 21.4% for the week, while Intel Corp. (INTC) dropped 8.1%. The daily charts show that both stocks gapped lower on heavy volume, which is likely
to have been
a shock to some investors. Both closed below their weekly starc- bands, so they may see a rebound.

In terms of the sectors, it was clearly a split market as the energy, financial, and industrials sectors were all up over 2% for the week. On the other side, the two best performers for the year, the technology and consumer discretionary sectors, were down 0.96% and 0.45% respectively. The two ETFs that track these sectors are both up over 13% YTD, while the financial and industrial sector ETFs are only up just over 1%.

If the industrial and financial stocks turn into market leaders, it would be a positive for the overall stock market
. I identified one industrial stock, United Technologies (UTX), as one of the
Dow’s most oversold stocks
in early May through my starc ba
nd analysis. It has gained over 13% since it was featured, and the weekly relative performanc
e turned positive three weeks ago, indicating that UTX is now a market leader.
The weekly OBV is also leading prices, which is a bullish sign.

The expectedly strong GDP report on Friday got much of the attention from the financial press, as did the comments from President Trump about his expectations for even stronger growth. His optimism is not shared by most experts who have a real understanding of the economy.

After last week’s action, some analysts were relieved that the tech selling had not spread to the other major sectors, and were not concerned that the S&P 500 dropped 0.66% on Friday after such a strong economic report.

From a technical standpoint, the fact that the Invesco QQQ Trust (QQQ) made a new high during the week at $182.93 before closing at $177.62 is more of a concern in the coming weeks. In my experience, weekly price reversals often have an impact on prices in the coming wee
ks, so last week’s complacency by some Wall Street analysts may be misplaced.

For QQQ, there is next support at $175.80 which, if broken, could mean a decline to the 20-week EMA at $170.79 with further support (line a) at $169.17. The weekly Nasdaq 100 Advance/Decline line did make a new high recently, which means any further decline will likely be a correction within the positive major trend. The weekly OBV looks more negative, as it did not make a new high recently and has dropped below support (line b), as well as its WMA.

The weekly chart of the Spyder Trust (SPY) looks
stronger, with a positive close for the week. However, SPY also came close to the upper boundary of the trading channel at $285.68. The weekly starc+ band this week is at $287.72. No doji sell signal last
week, but a close this Friday below $278.41 will generate a sell signal. The preliminary monthly pivot for August is at $278.34, with additional support in the $274-area. The 20-week EMA is at $272.69, with weekly chart support (line a) at $271.05.

The weekly S&P 500 A/D line made a new high last week, and is well above its WMA, which is rising strongly. There is also more important weekly A/D line support (line c). The daily S&P 500 A/D line (not shown) made a sharp new high last Thursday before turning lower on Friday.

The lower close in the iShares Russell 2000 (IWM) last week has turned the daily analysis negative, but the weekly analysis is still positive. The close was just above the monthly pivot at $164.81. The violation of the previous week’s low at $165.96 suggests a possible decline to the support in the $161.58-area and the rising 20-week EMA. There is more important support at $159.67 (line a) which is 3.4% below Friday’s close.

The weekly Russell 2000 A/D line made a new high the week ending July 6. It continues to decline, but is still above its WMA and the support (line c). The daily A/D line (not shown) is now in the corrective mode. The weekly OBV is also still positive, with longer-term support (line d).

The SPDR Dow Industrials (DIA) had a very good week, closing above the weekly resistance (line a). Up until now, DIA has been seriously
lagging behind the other averages, as it is up 3
.9% YTD compared to the 14.5% gain in the QQQ. The IWM is up 9% YTD, which is better tha
n both DIA and
the SPY’s gain of 6.4%.

The weekly starc+ band for DIA is at $259.26, with the January high at $263.15, which is 3.5% above Friday’s close. There is initial weekly support now at $249.50, with the preliminary August pivot at $250.08. The 20-week EMA is at $246.45. The Dow A/D lines moved to new highs this week as the weekly resistance (line b) was overcome.

There were few surprises in the economic news last week as the Chicago Fed National Activity Index on Monday was considerably stronger than expected, based in part on strong industrial production. Durable Goods also rose sharply in June, but not nearly as much as expected.

The news on housing was not as robust, as Existing Home and New Home Sales were both weaker than expected. We get Pending Home Sales on Monday. This data is consistent with the weak technical action in the iShares Dow Jones US Home Construction (ITB) which is down 13.7% YTD. It closed lower again last week, with next support (line a) and the weekly starc- band in the $35-area.

The weekly RS for ITB dropped below support (line b) in February, signaling that it was going to be weaker than the S&P 500. It still looks very weak, making lower highs and staying below its declining WMA. The weekly OBV dropped below support (line c) early in the year, and the negative weekly indicators have kept me and my clients out of this ETF.

This week, we have the S&P Corelogic Case-Shiller Housing Price Index, the Chicago PMI, and Consumer Confidence on Tuesday, as well as the start of the FOMC meeting. The ISM Manufacturing Index is out on Wednesday and the FOMC meeting concludes that afternoon. On Friday, we have the monthly jobs report and the latest reports on the services sector, including the ISM Non-Manufacturing Index.

A further decline next week and a lower close should mean that some of the year’s strongest ETF’s and those that have recently rallied will drop back to good buying levels. It will be important to see which sectors and stocks act the strongest during market weakness, as those are likely to be the winners once the market’s major uptrend resumes.