Market Light Weekly Update May 16th, 2017: Lackadaisical?

John Dupriest Market Light

With two of the three major US indices setting new all-time highs again yesterday, a person wouldn’t normally associate that kind of activity with the word lackadaisical (i.e., lacking life, spirit, zest). But you can look at the chart below and see how unzesty it is.

 

For the first time ever, yesterday the S&P 500 Index reached the 2400 level. At midday today the NASDAQ Composite is at 6160, a record high for it as well. The Dow is huffing slightly behind the rapid pace set by its teammates but is still in the race. Yet things are quiet.

 

You may have heard that our leaders in Washington are not all playing together as well as we might wish. And the international political scene has settled only slightly in recent weeks. Yet the markets are apparently feeling that none of those worries are offset by the possible loss of opportunity. Earnings are strong: Bloomberg News tells us that, “Companies in the S&P 500 Index are marching toward 16.5 percent earnings growth in the first quarter — the best year-over-year growth in nearly six years.” In the same paragraph, however, they also warn that “Even though 71 percent of companies beat earnings forecasts, “analysts continue to curb expectations for the rest of the year.””

 

The sideways action of the Dow (and somewhat for the S&P 500) caused some softening in the charts. We see more risk being calculated into the money equation at the moment and it will be interesting to see if the upward climb can be sustained.

 

Top five relative strength sectors this past week amazingly include all international funds: France (EWQ), Brazil (EWZ), China/India (FNI), Eurozone (EZU), and Germany (EWG).

 

On the flip-flop, weak sectors show (Coal (KOL), Oil & Gas Services (XES), Telecommunications (IYZ), Metals & Mining (XME, and Base Metals (DBB).

 

The Technical Tea Leaves are considerably more promising this weak than last: “The advance/decline oscillator has turned positive with volume accumulation already positive.  In this strong downward trend this is read as a strong non- confirmation of the current trend which could be followed by a reverse in price direction to the upside.

 

“The new high/new low indicator has reversed to the upside.  This is a reliable bullish signal that is often followed by an upward movement in prices. In this strong down-trending market a reverse in trend could start shortly.”