Why Friday's Stock Market Rebound is More Important Than it Seems
Although the stock market rebounded on Friday, most indices still closed sharply lower for the week. Tom Aspray from the Viper Report explains why this is more important than it seems and what to look out for next week.
It's been a tough week for the stock market, with sharp declines on Wednesday and Thursday. The S&P 500 dropped below 3700 on Thursday, and the Nasdaq Composite declined 1.7%. Friday's jobs report will be closely watched, as a weak report could provide some relief for the market.
The jobs report came in a bit better than expected, but that didn't help the market's tone as stocks sold off Friday morning and dropped back to Thursday's lows before lunch. Technically, it was a good sign that those lows did hold, as the S&P 500 had a low of 3708.94 on Friday, which was above the Thursday low of 3698.15.
It was a tough week for the stock market, with lots of red on the weekly summary. Despite the 1.4% gain for the S&P on Friday, the NYSE A/D numbers were negative overall. However, there was some good news, as over 60% of the S&P 500 stocks were higher for the day. This shows that there is still some investor confidence despite the overall market volatility.
While it was certainly a tough earnings season for many large tech stocks, it was not entirely unexpected. The Nasdaq 100 took the biggest hit, dropping 6% and closing the week 33.5% down year-to-date. By comparison, the S&P 500 only declined 3.4%. The Dow Jones Industrial Average actually only declined 1.4%, as early October indications showed that it was leading the S&P 500.
The markets were under pressure Friday, with the iShares Russell 2000 (IWM) dropping 2.5%. The Dow Jones Transportation and Dow Jones Utility Average were also down, though losses were minor. The SPDR Gold Shares were higher, up 2.2% for the week. The NYSE Composite was down just 0.62%.
The Spyder Trust (SPY) closed above the monthly pivot at $374.61 on Friday, suggesting that stocks are ready to move even higher ahead of the CPI report on Thursday. A strong close above the resistance at $389.90 (line b) would set the stage for a further rally into the end of the year.
The S&P 500 Advance/Decline line has dropped back to its rising WMA before turning higher Friday with the positive A/D numbers for the day. This is often a very bullish setup when the WMA is rising. It requires strong A/D numbers early in the week which could move the A/D line above its recent highs ahead of prices. If instead there are weak A/D numbers it could turn the A/D line lower and drop it below its WMA.
It's encouraging to see the Nasdaq 100 ($NDX) showing positive signs after dropping below the monthly S1 support at 10,670. The next barriers on the upside are the declining 20-day EMA at 11,192 and the monthly pivot at 11,176. Key resistance remains at 11,712, but if the market continues to show strength, we could see that level breached in the near future.
The Nasdaq 100 Advance/Decline line breaking its downtrend on October 24th indicates that the decline from the August high may be over. The A/D line dropping below its WMA on Wednesday but then closing back above it on Friday is another potentially bullish setup. However, positive A/D numbers early in the week are needed to confirm this.
It's been a good week for yields, with the 2 Year T-Note yield making new highs on Thursday and Friday. My chart targets were reached early in the week, but prices closed lower on Friday. This helped stocks to rally, even though market internals were already positive early Friday.
It is important to watch the yield on the 2 Year T-Note, as a close below 4.268% could confirm a top in the stock market. A violation of the support at 3.911% in the 10 Year T-Note yield would also be significant.
There are many stocks and ETFs that are looking bullish right now. Stericycle (SRCL) looks especially promising, closing last Friday well above the prior week's high. This triggered a weekly buy signal, and the move in the weekly OBV suggests that there is more buying interest to come.
SRCL is a market leader, and its recent performance indicates that it is poised to continue this trend. Its OBV is moving above its WMA, indicating that there is strong buying pressure. The stock is trading at Resistance level b, indicating that there is potential for further upside. The next upside target is the August high of $55.31.
With the stock market looking strong this week thanks to positive A/D numbers, I believe the outlook for the future is looking quite bullish. However, until then, it's important to be careful when targeting buy areas and to watch the risk on any new positions.