WEEKEND WRAP: TA (Technical Analysis) Shows Split Indices, Preferences

By most accounts, the week past was very solid. Midterm elections went to a split decision, the Fed Held firm on interest rates and stocks generally responded with gains. Apparently, Wall Street is perfectly satisfied with Donald J. Trump in the White House, Republicans in control of the Senate, and Democrats holding sway in the House of Representatives. The Dow, in particular, was the big winner, posting its second straight week on the upside, leading the majors with a gain of 2.84%, suggesting that big business is still the motif of the Republican party.

On the slightly more moribund side of the ledger, the NASDAQ, thanks largely to a selloff in tech equities, fared the worst, though still registering a gain of two-thirds of a percent.

What is striking to those steeped in charting discipline is the variegated construction of the major indices. In the interest of brevity and clarity, a table serves best to understand where stock indices are currently residing.

The table below shows where each of the major indices stand in relation to their various moving averages.

Index	50-day MA	200-Day MA	40-Week MA
Dow	Above	Above	Above
NASDAQ	Below	Below	Below
S&P 500	Below	Above	Above
NYSE COMP.	Below	Below	Below
Dow Trans.	Below	Below	Below

Obviously, the Dow is presently the favored index, having cleared all the hurdles which allow it to be pointed for more success. On the other hand, the NASDAQ, NYSE Composite and Dow Transportation Index are all trending negatively, offering signals in broad swathes that all is not as well as the Dow would have us believe.

The S&P hovers in no-man's land, below the 50-day, but above the 200-day. The 500 major stocks represented cumulatively are offering value, though direction is far from assured.

The Dow Transports have been included because of its unique relationship to the Industrials. Transportation issues are largely overlooked by the financial media, though their importance in general markets should not be undersold. If the companies that move goods, services and people are struggling - even in the face of dramatic declines in fuel prices - something is not right.

What should this suggest to the investor?

Perhaps it is nothing more than big money preferring to buy well-known names with solid track records (the 30 Dow stocks) while shunning the lesser-known companies represented in the broader indices. The S&P probably offered the best indication: that, according to current sentiment, stocks are somewhat fairly valued. Continued divergences such as are showing in the table cannot last for long. Either the positive vibe from the Dow will serve to lift other areas and sectors, or the broadly-defined mid and small-cap stocks in the composite indices (and the transports) will pull all boats crashing into the shoals.

One might expect these divergences to be resolved in short order, though markets today are guided so much by programmatic trading and headline-chasing algorithms, it's difficult to pinpoint where the breaks are actually occurring and in just what direction they are going to move.

A related article by Bernie Schaeffer of Schaeffers Research offers some insight into how well the Dow Industrials and Transports perform under various conditions. The article references November, 2016, and readers should know well what happened in the weeks and months following the general presidential election. Stocks soared, with numerous record highs met and broken.

Should this period - after a midterm election - respond similarly? Technical analysis would say yes, though, as the wizards of Wall Street are always keen to remind: past performance in no indication of future results.

Caveat Emptor indeed.

Dow Jones Industrial Average November Scorecard:

Date	Close	Gain/Loss	Cum. G/L
11/1/18	25,380.74	+264.98	+264.98
11/2/18	25,270.83	-109.91	+155.07
11/5/18	25,461.70	+190.87	+345.94
11/6/18	25,635.01	+173.31	+519.25
11/7/18	26,180.30	+545.29	+1064.54
11/8/18	26,191.22	+10.92	+1075.46
11/9/18	25,989.30	-201.92	+873.54

At the Close, Friday, November 9, 2018:
Dow Jones Industrial Average: 25,989.30, -201.92 (-0.77%)
NASDAQ: 7,406.90, -123.98 (-1.65%)
S&P 500: 2,781.01, -25.82 (-0.92%)
NYSE Composite: 12,537.53, -84.51 (-0.67%)

For the Week:
Dow: +718.47 (+2.84%)
NASDAQ: +49.91 (+0.68%)
S&P 500: +57.95 (+2.13%)
NYSE Composite: +215.73 (+1.75%)

NASDAQ Continues Short-Term Slide; Bond Yields Soar

Happy Independence Day!

While plenty of Americans were celebrating the founding of their nation, drinking cold ones and grilling hot ones, the elitist scum that wants to control everybody's lives couldn't take the hint - and a four-day weekend - returning to the trading desks Monday for another round of Sell That Tech Stock.

The major indices were all rising, with the notable exception of the NASDAQ, upon which the most speculative stocks are traded, closing down just shy of 1/2 percent on the day.

Closing below its 50-day moving average for the third straight session, the NASDAQ is exhibiting a unitary weakness, unshared by its cohorts. The last time the NASDAQ made such a breach was at the very end of December, 2016. Six months have passed since the end-of-year scare, so it is notable, but the index is only down 3.66% since the 6341.70 top on June 9.

The selling seems to not be abating any time soon. The NASDAQ has closed lower 11 of the last 17 sessions, inclusive of the June 9 FAANG debacle.

Obviously, a multi-day decline of less than four percent is alarming to almost nobody, though closer analysis does give one reason to pause and possibly for many to liquidate out of high-multiple, overpriced equities into the safety of dividend-paying plays such as those readily found on the Dow or within the higher echelons of the S&P.

Divergence of the NASDAQ from its close peers bears notice, as has been mentioned here at Money Daily on a number of occasions over the past few weeks. Since it is easily the most bloated of the indices, it is most vulnerable to sprees of selling, or, as may be the case, cyclical rotation.

With that in mind, it may be amusing to some that the Dow posted an all-time intra-day high on Monday, but closed below the record closing high, though that mark may be surpassed on Wednesday, with traders flush with renewed animal spirits.

Otherwise, the eight-year-old bull market seems to be running on fumes, badly in need of something other than fresh fiat from central banks, which has been the primary fuel for the record rise over the long span.

Also worthy of notice is the continued sell-off in the 10-year note, sending yields as high as 2.35. The condition has prevailed since just after the latest interest rate hike on June 14, putting the federal funds rate at a multi-year high of 1.00-1.25%. It's also a marvel that the FOMC of the Fed has changed the game somewhat, targeting the rate in a range rather than offering a solid number. It gives the fakery some wiggle room, though bond brokers seem to be reacting as the Fed would wish, even though rising rates in a declining economy - of which the signs of are lurking everywhere - is a classic misalignment.

Hang on, diversify, or get off. Those are the current choices, though for specs, the last of those choices seems to currently be the most favored plan.

At the Close, 7/3/17:
Dow: 21,479.27, +129.64 (0.61%)
NASDAQ: 6,110.06, -30.36 (-0.49%)
S&P 500: 2,429.01, +5.60 (0.23%)
NYSE Composite: 11,835.72, +74.02 (0.63%)